a la mode news and information for appraisers, real estate agents and lenders

Featured news — posted June 15, 2004

Appraisal Institute, with a stake in acceptance of AVMs, promotes their use

An alliance of the Appraisal Institute, the International Association of Assessing Officers (subject to its board's approval) and a Collateral Risk Assessment Consortium representing mortgage lenders has been formed to "enable mortgage and other industry players to apply automated valuation models [AVMs] to the mortgage origination process with greater confidence," according to a press release.

“As a task force of representative organizations, the group seeks to unite the industry in acceptance of a set of common principles, standards and requirements regarding the use of AVMs," John Ross, executive vice president of the Appraisal Institute, was quoted as saying. "If we can join together in a group that includes all interested parties, we’re confident we can reach a successful consensus, something that has eluded all of the different individual organizations so far. It’s a case of ‘united we stand, divided we fall.’”

In an attempt to determine who will "fall" if the Appraisal Institute does not "unite" with county assessors and mortgage lenders interested in expanding use of AVMs in mortgage transactions at the expense of appraisers, we researched the Appraisal Institute news area on the group's website, but were unable to find any reference to the initiative there.

But DataQuick, a reseller of AVMs and recently producer of its own, has begun offering AI Residential Database data, culled from public records and appraisals uploaded by appraisers into the AIRD, as part of its suite of automated valuation services. Last year, the Appraisal Institute and FNC, Inc. teamed up with ACI to provide a way for ACI software users to import their appraisal data directly into the AIRD for later re-use by companies like DataQuick.

It seems the Appraisal Institute has a vested interest in promoting the legitimacy and use of the data it helps provide DataQuick and other AVM providers which may use AIRD data.

"To date, AVMs have received limited acceptance within the mortgage community, especially as the basis for making first mortgage loans, though they have achieved relative acceptance within the real estate assessment community. Both communities see a lack of standards as a major hurdle to the continuing use of AVMs and the expansion of their influence," the press release said.

"By assuring greater consistency in the understanding, testing, management and usage of AVMs, the Joint Industry Task Force hopes to achieve greater acceptance and adoption among all industries and purposes."

Nobody asked us, because we don't have a stake in the acceptance of AVMs by mortgage originators, but if asked we would suggest that AVMs continue to be honed and perfected for use in the valuation of aggregations of properties, such as in the mortgage backed securities (MBS) arena, where the number of properties and time between offer and sale make it impossible to obtain professional appraisals. But for too many reasons to name, among them the absence of reliable data in 80 percent of the country, the impossibility of verifying physical characteristics of the subject and the age of data AVMs use, they should not be relied upon by responsible mortgage underwriters on first liens. And no new "standards," endorsed by the Appraisal Institute or otherwise, can possibly change that.

Free home values online! Business Week reports: Don't bother

This week's Business Week includes a piece on how to get a reliable estimate of the value of your house online. Turns out, you really can't.

The magazine tested 10 websites that promise automated home valuations, avoiding sites that simply forward your information to a local real estate agent who can then pitch their services to you.

"Although the databases are often similar, it's worthwhile to check out several services, since they use different algorithms and models. For example, Valueyourhome.com, a fee-based site operated by Fidelity National Financial, gave an estimate of $491,000 for a 40-year-old, four-bedroom home in northern Virginia, while Bank of America's free site reported a value of $420,000 to $456,000," the magazine reported.

Fitch Ratings, which in April determined it would downgrade the value of mortgage backed securities (MBS) where an AVM was used to value the collateral, noted that AVM "number shopping" is rampant, and possible, owing to the wide variety of values that can be obtained on the same property.

The author also found, unsurprisingly, that electronic values were hard to come by in areas without a lot of data. "We had a tough time getting a value on a 100-year-old farmhouse in Lima, Ohio, because of a lack of data. The only estimate ($126,000), which came from Electronicappraiser.com for a $29.95 fee, seemed low," the article said.

A bigger problem was in Texas. "The most frustrating search was trying to find out information on a new 4,000-square-foot home in a Dallas suburb. Texas is a nondisclosure state, which means it doesn't have to make public certain data, such as a property's sale price. Only Bank of America and ditech.com's sites had good data. They make estimates based on mortgage loans."

The article concludes that "if you live in a state where there's a dearth of data or if you are challenging a tax assessment, it's probably worth spending from $200 to $500 for an appraisal." Yes, probably.

Your indefatigable newsletter editor never shrinks from a challenge, so I sprang for the $30 to find out what Electronicappraiser.com said my home was worth. (A few years ago, an AVM vendor demonstrated its product for me at a mortgage bankers convention, and it was off by fully 25 percent — low — from the appraised value of 11 months earlier.)

This one, intuitively, seemed closer — and your indefatigable newsletter editor is not an appraiser, unlike a lot of the people that run a la mode — but one of the five comps Electronicappraiser.com used stuck out. It's a $60,000 run-down eyesore everyone around here wishes would be razed and a house more fitting within its surroundings built. Given that there's been no shortage of home sales in the neighborhood the last few years, I would question the appraiser who used a house that sold for almost three times less than the subject did three years ago.

The Bank of America website offers free online home values. This one gave me a range of possible values, from highest to lowest — a 28 percent difference in the two. I suspect we'd be near the high end of the range, given that the report said we don't have an attached two-car garage, when in fact we do. (When you say that AVMs can't verify the physical features of the subject, you usually mean the computer can't tell if the house is really there or not, but this is a subset of the same problem.) This one only gave us three comps, one more than a year old, but at least it avoided the run-down shack down the street. (Really, many, many more than three houses have sold in this immediate area in the last year. A lot of them like ours. I'm somewhat at a loss.)

Mrs. Indefatigable Newsletter Editor and I are refinancing later this summer before our 3/27 ARM monthly payment goes up, so we'll let you know exactly how close our online appraisals came to the actual appraised value at that time.

Leveraging your XSite for more, and more productive, business

Last week we asked XSite users how they've been evangelizing to their clients to train them to take full advantage of XSites' ordering, status reporting and secure report delivery. We heard a number of success stories.

One XSite user in Eagan, Minnesota who has completed more than 500 appraisals to date via their XSite noted, "We have a large company that uses our Xsite to order appraisals. They love having the status available to them, the report available to them at all times. It has cut down on a lot of status calls, not to mention that their computer technician is happy that they don’t have to save the appraisal to the computer anymore."

The company trains their clients on the use and benefits of electronic ordering, statusing and delivery. "We go out to the Lender’s offices and train them on the Mercury system. Most of them love it." A few are not as willing to make changes, they note. But "overall we are happy with the system and how it has enhanced our business. We are using this as a promotional tool when we are promoting our company. It has been added as part of the presentation to potential customers."

Another user from Lowell, Massachusetts said, "When I introduced the site to my customer base, the response was overwhelming. Not only were they happy to enter the information electronically, they were extremely pleased with the status updates as the order moved through the system.

"Some of my customers used Calyx and they were even happier, finding out they could issue and order directly from their software," he said. "With these two innovations, my business has almost doubled in the past six months." He said he finds that he gets more business from satisfied client referrals than he could have solicited on his own. "I almost, yes almost, feel bad for the companies that don’t use this interface. I can only say to them, thank you for helping me with my business."

As you may have heard, professional and enterprise level XSites will debut in the coming weeks, and mobile tools, credit card payments, marketing kits, Vault backup space will be available. Learn more about what XSites can do for you.

News briefs

Mortgage Brokers don't foresee slowdown
We went to the National Association of Mortgage Brokers (NAMB) annual conference in Salt Lake City last week to debut our Mortgage XSites, which will be a hub for connecting Appraiser XSites users and their clients through the Mercury Network. At the conference, A.W. Pickel III, NAMB president, remarked that "the refinance boom isn't going away. People thought it would drop off the face of the earth and it hasn't."

This is true no doubt because, like Mrs. Indefatigable Newsletter Editor and I, a lot of people bought homes with 3/27 Adjustable Rate Mortgages (ARMs) when the boom started that they're going to want to refinance soon, but also, as Pickel noted, "There are others who missed the boat. There could be people like me, who are trying to put two kids through college," he quipped. He also noted that looking at sales at Lowe's and Home Depot, you'll find people in an improving economy investing home equity in home improvements.

(Material from National Mortgage News contributed to this report.)

Existing home sales still stratospheric
Existing home sales figures for April at a seasonally adjusted annual rate surged to 6.64 million. This figure represented an increase of 2.5 percent over the previous month, and an increase of 15.1 percent over April 2003. In nominal terms, 598,000 existing homes were sold in April — which represented a 73,000 seasonally adjusted increase in home sales over March 2004, the National Association of REALTORS® reported.

Mortgage rates bobbed upward in April in the wake of positive economic news, and have since continued to go even higher in May. The weekly 10+ basis point increase in mortgage rates has surely motivated some homebuyers to make their move.

The continued strength of home sales led NAR to predict a record for 2004. "The economy is moving quickly now and the Fed is likely to raise short-term interest rates on June 30," said NAR Chief Economist David Lereah. "The market appears to have anticipated the move and has priced it into 30-year mortgage rates, but the cost of financing remains historically low and strong demand will push home sales to a record this year."

Freddie forecast sees rising rates
In its monthly outlook released last week, Freddie Mac said "the signs of a sustainable expansion with some upward pressure on consumer prices nearly guarantees that the Federal Open Market Committee will vote to increase the federal funds target to 1.25 percent at the end of June." Chairman Greenspan and his Board colleagues have indicated that they prefer a series of small hikes (we expect 0.25 percent at a time) to gradually raise the target over time, Freddie said.

It predicted 2004 will be another strong year for home construction, with housing starts just barely surpassing last year's pace at about 1.86 million units in 2004. Starts should level off to 1.70 million in 2005, the forecast said. With the rebound in the economy, total home sales will likely reach a new record of 7.25 million homes in 2004. Higher mortgage rates will dampen sales to around 6.67 million units in 2005, it said.

It said house price appreciation will begin to moderate in 2004 to around 6.6 percent and slow to 5.7 percent in 2005. Recently the Office of Federal Housing Enterprise Oversight (OFHEO) reported quarterly appreciation of under one percent for the first time since 1998.

e-Newsletter archives

e-Newsletter 6/8/04
Your concerns about the new URAR

e-Newsletter 6/3/04
Extra: Fannie introduces new forms

e-Newsletter 6/2/04
Strategies for coping with gas prices

e-Newsletter 5/25/04
Federal court strikes blow for appraisers

e-Newsletter 5/18/04
Remove the Owner's Estimate of Value from the URAR?

See full archives

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