Appraisal organizations respond to Treasury Department’s “Making Home Affordable†programMortgagePress.comappraisal organizations, Making Home Affordable, American Society of Appraisers, Appraisal Institute, American Society of Farm Managers and Rural Appraisers, AVMs, National Association of Independent Fee Appraisers
The nation's leading professional appraisal organizations (the
American Society of Appraisers; the Appraisal Institute; the
American Society of Farm Managers and Rural Appraisers and the
National Association of Independent Fee Appraisers), representing
35,000 real property appraisers in the U.S., released the following
statement in response to the release of the underwriting details of
the Administration's "Making Home Affordable" program:
Today, the Treasury Department provided the underwriting details
of how millions of troubled mortgage loans are to be refinanced or
modified under the "Making Home Affordable" program. Our
organizations applaud the fact that the plan will allow millions of
families to remain in their homes. However, we are deeply troubled
that the Treasury Department's $75 billion government guaranteed
modification program fails to protect taxpayers from avoidable
losses when reworked loans default in the future, as some of them
inevitably will; and fails to protect homeowners from mistakenly
being declared ineligible for modification because they are told,
erroneously, that the current market values of their homes do not
meet plan underwriting criteria. Further, the plan retreats from
prudent and long-standing banking regulations that encourage the
use of appraisals in loan modifications and refinancings.
Reliable appraisals of the current values of homes are central
to the success of the plan: for refinanced loans owned or
guaranteed by Fannie Mae and Freddie Mac, homeowners will be
declared ineligible for help if their mortgage loan exceeds 105
percent of the current value of their property. For homeowners
seeking loan modification, they will be turned away if the net
present value of cash flows expected from modification is less than
the cash flows expected from allowing the mortgage to default. The
current value of the collateral property is an essential component
of establishing net present value. As a matter of good public
policy, these critical home valuation decisions should only be made
by valuation professionals.
Today, there are 120,000 professional appraisers in the U.S. who
are highly trained, tested and supervised by appraiser regulatory
agencies in the 50 states and U.S. territories. For reasons we find
inexplicable, Treasury's plan ignores this invaluable "safety and
soundness" human resource and, instead, relies on computer
generated values and the opinions of real estate agents who are not
subject to nationally accepted appraisal qualifications and
standards to safeguard taxpayers and determine whether homeowners
are or are not eligible to decrease their mortgage burden.
Professional real estate appraisers deliver a diverse menu of
valuation services with many designed specifically to address
distressed properties and others that can be used for most
non-complex transactions. Examples of the types of products that
appraisers can deliver for loan modification or distressed asset
purchases include:
• Appraisal updates and reviews, or updates to existing
appraisals
• Drive-by appraisals, or appraisals of the exterior of the
property
• Desktop appraisals, or appraisals performed from the
appraiser's desktop without any exterior or interior inspection
Today's technology and current methodology allow real estate
appraisers to deliver necessary services quickly and securely.
Given the advances in technology, these services are very cost
effective and affordable with delivery from the thousands of
designated, certified, and licensed appraisers in every community
in the country.
Treasury should do everything in its power to encourage the use
of products prepared by regulated professionals in accordance with
industry standards that have the force of law, particularly where
there have been material changes in market conditions, as we see in
many parts of the country today.
While we recognize that proper underwriting to determine the
ability of a prospective borrower to repay a loan is the most
critical element in any loan, the current economic crisis has shown
the corollary importance of having current, competent measures of
current market value of the underlying security, the real property,
in the event of economic downturns that could affect a borrower's
ability to repay a loan, as well as the probability that the real
property value will decline.
However, instead of relying for accurate valuations on the
nation's 120,000 professional appraisers, the Administration's plan
relies on computer-generated Automated Valuation Models (AVMs) and
the estimates of real estate agents who are not subject to
government mandated and nationally accepted appraisal training and
ethical requirements. While we believe the valuation requirements
established by Fannie Mae and Freddie Mac (in connection with their
new mortgage refinancing program) are far superior to Treasury's
loan modification plan, we also believe that the opinions of
professional appraisers provide consumers and taxpayers with the
most reliable determinations, by far, of residential home
values.
We do not believe that homeowner eligibility for the mortgage
relief programs and the protection of taxpayers should be dependent
on the market value determinations of "black box" computer programs
or any real estate agent who lacks appraisal training required by
the federal government and 50 states. Broker price opinions are not
overseen by any governmental regulatory authority, and they do not
adhere to a uniform set of nationally accepted and tested valuation
standards. Further, broker price opinions are provided by
individuals who may have an interest in whether a mortgage is
refinanced or defaults and the collateral property resold. While we
acknowledge that AVMs and BPOs are cheap, they should not be
regarded as acceptable alternatives to the conclusions of
professional appraisers, who are tested and trained in valuation
theory and practice and who are regulated by state appraiser
licensing boards. The omission of professional appraisers from the
foreclosure prevention plan (most glaringly from Treasury's loan
modification program) is a serious mistake we hope the President or
Congress will rectify.
For more information, visit www.appraisalinstitute.com.
