Appraiser Shortage to Destabilize the Industry?

According to some mortgage lenders, a shortage of qualified home appraisers may destabilize the industry. In fact, this problem has suddenly replaced regulations and economic instability as a top concern.

According to the Appraisal Institute, the total number of licensed or certified home appraisers has declined by at least 28 percent, or 23,000 people, since 2007. An entire generation of appraisers is poised to retire, and the number of college graduates qualified to work in this field are insufficient to fill the vacancies. The owner of the Chicago appraisal firm, Rick Hiton and Associates, noted that in approximately five years the banking sector will not have enough appraisers available to service home mortgages.

Working appraisers between the ages of 50 to 55 are scheduled to retire during the next 10 years. At the same time, young graduates face additional hurdles that did not affect previous generations. This includes a sharp increase in the barriers to entry. In January, a new rule imposed stricter certification requirements on new appraisers. The new workforce also faces an economic situation where low pay and increased workloads are considered acceptable.

Comergence of Mission Viejo in California is a company involved in vetting new appraisers and mortgage lenders. According to its president, Greg Schroeder, it can take up to seven years for a professional to conduct an independent appraisal. He added, “Regulation has created very onerous time and educational requirements for appraisers, and it’s killing an industry that is already dying because of age.”

Home appraisals are required for homes valued at more than $250,000, and these appraisals must be conducted by a credentialed professional. According to Schroeder, 20 to 30 percent of these professionals are “grumbling about retiring, so the actual number of working appraisers could be cut in half.” He adds that up to 30 percent of the 61,000 qualified residential appraisers continue to hold licenses even though they are not active in the industry.

Professional housing appraisers blame the 2009 Home Valuation Code of Conduct, or HVCC, for the decline. This rule was the outcome of a negotiation between the state?s Attorney General Andrew Cuomo and three federal housing agencies: The Federal Housing Finance Agency, Fannie Mae and Freddie Mac. The new rules ostensibly protect appraisers from being bullied by aggressive loan officers and mortgage brokers who may pressure appraisers to inflate home values because they rely on commissions from sales.

Inside the banks, an appraisal management company suddenly replaced entire in-house departments. Bill King holds a senior position at a California firm Platinum Data Solutions. King noted that “The banks saved millions of dollars a year, but appraisal fees never went up.” The fees incurred by these companies reduced the appraiser?s fees by as much as $350. The new arrangement saved money for the bank, but the appraiser?s fees never returned to the original amount, which was as high as $500 per appraisal.

The Dodd-Frank reform required lenders to pay their appraisers according to standards that are ?customary and reasonable.? However, these terms are not interpreted by most state officials identically or consistently.

Fannie May released their new Collateral Underwriter software in January. Advocates say that this tool accurately provides an automated risk assessment for mortgage appraisals. Fannie Mae does not currently allow appraisers to use the software. A Fannie spokesperson described the appraisers as “boots on the ground updating property.”

Tim McCarthy is the chief appraiser at TJ McCarthy and Associates, a Chicago-based appraisal firm. He expressed surprise that Fannie will permit lenders to benefit from the software while forbidding appraisers from using it. ?Can you think of any other industry that withholds the best tools available for the professional, and only uses the tool after the job was completed to see if they did it correctly?” he asked.

Returning Homebuyers Face Challenges

When It Comes to Mortgages, Keep an Open Dialogue

The number of prospective homebuyers coming back onto the market is increasing. With high Loan-to-Value loans becoming popular again, people who will apply for low money down loans will also increase. That amount of risk, will trigger the Underwriter to look over that file with caution. Let?s be honest, many borrowers still have a bad taste in their mouth when it comes to lending. You may be likely to see borrowers who believe that sharing information with the bank is bad.

Lenders and Title companies alike would greatly benefit from encouraging borrowers with non-traditional credit issues, like foreclosure or short sales to write detailed letters of explanation to submit with the application. This extra information could greatly expedite and underwriters decision to extend credit and ultimately could be the difference between approval and denial.

The most common of those could be classified into 3 categories:

1. Previous homebuyers who have delinquencies on their credit reports
2. Consumers who lack credit depth
3. Prospective homebuyers who are paying student loans

Previous Homebuyers with Delinquencies

Seven years have passed, and many of those who lost their homes due to foreclosure, bankruptcy or in a short sale are ready buy again. These applicants will be seeking a high loan-to-value-ratio loan.

Consumers Who Lack Credit Depth

Increased communication will also benefit those who have excellent credit scores but do not have any transactions in their credit histories to support these numbers. In these instances, applicants have many opportunities to present other forms of evidence to their lenders that can demonstrate creditworthiness. Some of these documents include the following:

? Nontraditional-credit trade lines
? Bank account statements
? Letters of explanation
? Rent-payment histories
? Retirement accounts

Student Loans

Some people are currently repaying their student loans, but their monthly installment payments are not fully amortized. This means that their payments are much lower than would be expected on such high amounts of debt. Open communication allows lenders and borrowers to determine how repaying these loans affects a homebuyer?s ability to repay a mortgage.

Real estate experts don?t know exactly where the housing market will go this year, but they do know that it is going in a positive direction. This encourages a more open lending process that can qualify more people for a home loan. If lenders can focus on creating open dialogue with borrowers, it could go a long way towards ensuring that underwriters get the information they need to reduce risk and help them buy the homes of their dreams.