Residential Foreclosure Numbers Piling Up
By Marilyn Bowden
While the housing market is showing some signs of revival, getting a mortgage can still be problematic, in part because of an ongoing tendency among larger lenders to use appraisers who are not familiar with the nuances of the local market.
The difficulty arises when lenders hire national appraisal management companies to act as third-party brokers.
"It used to be that if you wanted to buy or refinance your house," said Ron Friedman, a partner with the accounting firm Kaufman, Rossin, "you would hire an appraiser and they would certify the appraisal to the lender. This is really no different than the lender hiring and the buyer paying for the appraisal, but even though the appraiser was technically certifying to the lender, the appraiser was often friendly with the borrower.
"Now a bank must use a third-party intermediary to hire the appraiser to eliminate bias in the market."
While this did in some ways level the playing field, he said, "what’s happened is that they bring in outside appraisers, and they pick an extra-low number to make it extra-safe for themselves so they don’t get sued by the lender.
"That’s rare, but it does happen — and that makes it even harder to get loans, because values are down to begin with."
"Appraisals are still coming in low," said Jacky Teplitzky, an associate-broker with Douglas Elliman Florida who is also active in the New York market.
"The problem is that the Florida market has a lot of submarkets. There’s a world of difference even between Miami and Fort Lauderdale. Appraisers from out of town don’t realize that in some areas there is virtually no inventory. This is also a huge problem in New York City."
Craig Garcia, branch sales manager of Keyes Mortgage, a strategic alliance between The Keyes Co. and Wells Fargo Home Mortgage, said the insertion of a management company into the appraisal process raises costs, and "some of the appraisers are being held accountable as to how fast they get the appraisal back more than on accuracy."
The attempt to keep costs under control means that the appraisers who are hired tend to be "self-employed, inexperienced appraisers who charge lower fees," Ms. Teplitzky said. "Also, banks are now extremely conservative, and they will literally take an appraisal into account without asking any questions."
"Some of them are not even in this country," said Claudine Claus, president & CEO of Home Financing Center, one of the largest independent, privately-owned mortgage lenders in South Florida. "The focus isn’t on getting an accurate appraisal, and they come in way too low because they’re afraid of being challenged later."
Although Home Financing Center does not use appraisal management companies, she said, "we have experience with them. When Fannie Mae audits files after the closing, they will use them to get review appraisals done. Then we have to get our appraisers involved."
Appraisals are based on comparables — recent sales of similar properties in the same neighborhood — and observers agree that unreliable comparables are at the root of many of the problems.
"If one happens to be a short-sale or foreclosure property," Mr. Garcia said, "the common perception is you don’t count them the same as a regular sale, but sometimes they have to.
"Sometimes there is some basis to that, and sometimes it’s a valid gripe."
Ms. Claus said inexperienced appraisers sometimes use comparables that are too old or too far away, or include a condo sale in comparables for a single-family home.
And while Mr. Friedman says appraisers are supposed to make adjustments for short sales and foreclosures, that doesn’t always happen.
Ms. Teplitzky said she pulls her own comparables rather than just going along with what the appraiser comes up with.
"I get extremely nervous," she said, "because the market is moving faster than the comparables. Usually they use six-month-old data. Doing a deal takes another two or three months. By that time the data is at least eight months old, and the Miami market has changed in a dramatic way."
While in New York the sale of a developer unit in a condo is registered, she said, in Florida it is not, and that also skews figures for comparables in condo buildings.
Last year, the Federal Reserve replaced the Home Valuation Code of Conduct with new rules, as required by the Dodd-Frank financial regulatory reform bill. Now, among other changes, appraisal management companies must be licensed.
"It’s better now," Ms. Claus said, "in that before, anybody could jump into the industry, but now it’s gone so far to the other extreme that some lenders are not able to lend."To read the entire issue of Miami Today online, subscribe to e -Miami Today, an exact digital replica of the printed edition.