Is A Convicted Felon Inspecting Your Home?

In recent years, Fannie Mae has been working towards what they call Valuation Modernization. This process involves allowing for the gradual progression of a bifurcated valuation product to make the home valuation process more efficient and accurate. However, what Fannie Mae did not explicitly state is that they were also trying to combat the growing shortage of appraisers in the industry. The increased qualifications to become an appraiser, along with the the numbers of appraisers leaving the profession, contributed to this shortage.

The newest product Fannie Mae just rolled out is called valuation acceptance + property data. This is when someone, most likely not an appraiser, inspects the property for the lender and provides them with the property data. The lender uses this property data in conjunction with valuation models to determine if a traditional appraisal is needed. However, this is unsettling on many levels. For example, did you know that these property inspectors have no oversight or regulations as of right now? It is up to the lender to demonstrate the credibility of these property data collectors.

In contrast, licensed appraisers and their trainees who are bound by ethics, vetted and background checked by their respective states should be used for all property data collections going forward. But that most likely isn't going to happen because then lenders will have to address the entire reason why we don't provide this service - the fee. The dirty little secret in all of this is that lenders use these data collectors because it is cheap.

Here is an example of what can go wrong when using a property data collector that was not vetted. In one such case, a major Appraisal Management Company hired an individual who stated on his LinkedIn page that he was a "videographer." This same individual was convicted along with two other individuals for staging an armed robbery. It is reported that it was during this conviction that he was hired as a data collector. Is this the type of person you want in your house?

https://appraisersblogs.com/amc-hires-a-convicted-felon-as-property-data-collector

https://www.justice.gov/usao-wdmi/pr/2022_1102_Uchendu-et-al

Cases like this one (and possibly others) raise the concern that criminals, convicted or otherwise, will use property data collections as an opportunity to "case" homes for criminal activity. This creates liability for lenders, the GSEs/taxpayers, homebuyers, and others who rely on these products.

In conclusion, while Fannie Mae's Valuation Modernization process aims to make the home valuation process more efficient and accurate, the use of unlicensed property data collectors raises concerns about the security and safety of homeowners. It is essential that lenders and regulators ensure that these collectors are vetted and regulated, to avoid the possibility of criminals infiltrating the industry. Using licensed appraisers and their trainees, who are bound by ethics and vetted by their respective states, should be the preferred option for property data collections going forward.

Appraisal Racial Bias (part 1) (Copy)

Racial bias is not a new topic but it is quickly becoming a heated debate point in the world of real estate valuation. Much of it centers around a few lawsuits in which an individual (or group of individuals) feel that an appraisal reflected a value lower than it should have because the appraiser considered the race of an individual within the overall equation and in turn, allowing it to negatively impact the valuation process.

I am not here to argue whether or not racial bias exists. As ugly as it is, I believe it does and in order to have a reasonable discussion about it, it must be acknowledged. I also believe, although I’d like to think it is minimal, racial bias exists in all professions- even mine. Without the proper acknowledgement, effective solutions cannot be achieved. With that being said, that is not the point of this article. What I would like to accomplish in the first part of this series, is to define the problem and refer to those regulations that prohibit racial bias in the appraisal profession.

What is racial bias and how can it be something that exists within real estate valuation? Racial bias refers to the primarily unconscious thoughts, preconceptions, or experiences that cause people to think and act in prejudiced ways.

According to an article written by Business Insider “Appraisal bias refers to discrimination in the appraisal process, such as assigning a lower value to a home because of the race of the person who lives there. Appraisal bias can happen consciously or unconsciously, or it can happen as a result of the lingering effects of historical discrimination that linked race to property values.

It's a violation of fair housing laws to discriminate in the appraisal process based on protected factors, which include race, color, national origin, religion, sex, gender identity, sexual orientation, familial status, or disability.”

You can read the full article here:

https://www.businessinsider.com/personal-finance/appraisal-bias

Not only is it a violation of fair housing laws, but it is also a violation of the USPAP (Uniform Standards for Professional Appraisal Practice) Ethics Rule that we as appraisers agree to observe. Under the Conduct portion of the Ethics Rule are the following statements:

“An appraiser must perform assignments with impartiality, objectivity, and independence, and without accommodation of personal interests AND

An appraiser must not use or rely on unsupported conclusions relating to characteristics such as race, color, religion, national origin, gender, marital status, familial status, age, receipt of public assistance income, handicap, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value.”

In short, Federal Law and our own Ethics Rule prohibits appraisers from completing appraisals with any form of bias, including racial bias.

What is Appraiser Blacklisting?

The role of the appraiser is to be an unbiased objective party within the many facets of the lending process whether it be for a purchase, home equity loan or refinance. In the case of a home purchase where the borrower is using a bank loan to assist with the purchase, there are multiple parties to the transaction who have an interest in and are financially dependent upon the consumation of the sale. The buyer and seller might have opposing Interests but they equally desire for the sale to close. The buyer obviously wants to have ownership of the home and the seller would like to, for whatever the reason, no longer own the home and either pay off their existing loan and/or walk away with some cash. The agents who are representing these two parties also would like for the sale to close because they don’t get paid until it does. Their commission is not only dependent on the sale being completed, but also on the amount of the sale. Which leads to the added layer for agents- the higher the sale, the higher their commission. Last but not least is the loan originator and the lender. Their main interest is to make loans and the originator gets a commission which does not get paid until the loan is closed. As you can imagine, each of these individuals have very specific special interests that are contingent upon the completion of the transaction. All but the buyer, also have the incentive to have the sale price as high as possible because they will ultimately end up with more money in their pocket.

That leaves one party in which there is no incentive because they get paid a flat fee regardless of price or a closing… the appraiser. Their fee CANNOT be contingent upon meeting or exceeding a specific value. The appraiser agrees to uphold the code of ethics as established by the Uniform Standards for Professional Appraisal Practice, also referred to as USPAP (You’s-pap). The Ethics Rule within USPAP states that appraisers are to be impartial, objective and independent to the transaction. In other words, the opinion of market value cannot and should not be influenced in ANY way by the parties to the transaction or the sale price. Illegal pressure and influence on the appraiser should be prevented and is the responsibility of all real estate professionals to uphold, with the appraiser being the one that should safeguard it at all costs. This illegal pressure and influence can also be levied in the form of blocking certain appraisers from completing assignments due to a prior “low value”.

Recently, there seems to be a trend amongst the parties that have a special interest in a transaction to thwart the Appraiser Independence Requirements (AIR) as set forth by the Home Valuation Code of Conduct (HVCC) and overseen by the Consumer Finance Protection Bureau (CFPB). This trend is being seen in the form of complaints that there is a “Conflict of Interest” between who is the assigned appraiser and one of the parties to the transaction. The “conflict of interest” is code for “this appraiser completed a prior report that was lower than I would have liked so I no longer want that appraiser completing future assignments for me”. Somehow they feel that they are minimizing the risk of another appraisal “coming in low” and hoping they get an appraiser that will “hit the number” for them.

The complaint comes most often from the agent, but recently I had one where once the agent complaint of a conflict of interest was not validated by the lender due to no actual conflict of interest, the seller then somehow stated that they also had a conflict of interest with the appraiser. The seller wasn’t even represented by the agent who stated the original conflict of interest. The seller conflict of interest was due to a supposed donation made by the appraiser to a non-profit organization they were a director for. After discussions with the lender stating this was not the case and it was clear that no such donations were ever made to the organization, the seller then refused to allow the appraiser entrance into their home. Let’s be clear, the complaint of conflict of interest was not substantiated or valid from either the agent or the seller, but once the seller refuses to allow entrance to their home, there isn’t much the lender can do other than reassign. This example was a clear egregious illegal effort by the agent to influence who completed the appraisal.

 While there are definite situations that could be seen as a conflict of interest, many of these instances are nothing more than one of the parties trying to influence the appraiser assigned to value the property. Some of these instances in which I have declined to proceed with an assignment due to a conflict of interest is when I have a personal familial relationship with either the buyer or seller, when one of the agents representing the buyer or seller is an employee of mine or when I have completed an assignment on the property for a different purpose that would be in conflict with the current assignment request.

The perceived “conflict of interest” being complained about recently is nothing more than a disagreement with the value of prior assignments in which it has affected either the outcome of the sale price or possibly even affected the closing of the sale. This is not a valid or substantiated conflict of interest. In the world of real estate, there is bound to be a portion of the appraisals that do not meet or exceed the agreement between the buyer and seller because it is our job as the appraiser not to rubber stamp this number but to truly analyze the market in relation to the property. To allow this to alter the appraiser assigned to complete the valuation is to interfere with appraiser independence and “blacklist” the appraiser they don’t like. Anyone who uses this tactic is not only breaking federal regulations, but agents who use these tactics are also in non-compliance with the National Association of Realtors (NAR) Code of Ethics, the Pennsylvania Association of Realtors (PAR) Code of Ethics, the code of ethics within the local Realtor board they belong to and are also subject to a formal complaint with the state real estate commission and the banking commission. This is very serious and is not be taken lightly. The role of the appraiser is extremely important and without our independent, unbiased and objective opinion, human nature would take over and the process would run amuck with underhanded dealings that benefit those who would monetarily gain from this behavior.

For more information regarding Appraiser Blacklisting, click on this link to the article prepared by Working RE through OREP insurance by Isaac Peck.

https://www.workingre.com/how-to-fight-blacklisting/