Opinions differ, business models compete, and access to information channels is a powerful tool in the dog eat dog world of mortgage technology. We don't intend to spend our writing and your reading time defending each of our e-Newsletter articles, even the more controversial ones — mostly because they don't need defending. But this is a special case. We know many of our business partners subscribe to Appraisal Intelligence, and may be left with the quite erroneous impression that we distort facts and smear companies in our e-Newsletters without regard to accuracy. We were misled into providing quotes on the record for a story that was misrepresented to us. And the Appraisal Intelligence piece at issue contains so many rebuttable attacks on our reporting that we felt we would be irresponsible if we did not provide a counterpoint for those who may be interested.

Most importantly, it's unfortunate that this whole thing comes off as a "fight" between us and WaMu. We have absolutely nothing against WaMu. Many news organizations, real estate related, financial and otherwise, were covering WaMu's second quarter earnings conference call when we did. What we do here is tell stories we think you would be interested in from your perspective as an appraiser. In our article we noted CEO Kerry Killinger's promise to make WaMu "an industry leader in profitability and efficiency by 2006," and we expressed hope that that's exactly what happens. We hope it happens with a more open system of contracting and relying on fee appraisers, but of course we do. We don't hide that. We don't think that's the best way to go because that's how we do business, that's how we do business because we think that's the best way to go.

And what's even more unfortunate about this being spun as us-versus-WaMu — Appraisal Intelligence's front page preview of its upcoming stories promises "the latest news in the brewing battle between a la mode and WaMu" — is that nobody from WaMu has to our knowledge taken issue with anything we've written. Appraisal Intelligence subheaded the first section of its piece attacking our story "WaMu responds." The "response" is entirely from a former employee of Washington Mutual, and the article thus misrepresents itself right off the bat as Washington Mutual's rebuttal to our story.

Point by point:

As we reported in our October 12 e-Newsletter, some spin advocacy as distortion when it comes to our weekly e-missive. Our July 27, 2004 piece, WaMu to undertake "complete overhaul" of mortgage operations, cut more mortgage jobs, elicited a response from a former Vice President with the country's largest thrift, which appears here (Appraisal Intelligence subscribers only — we offered to reproduce the full text of the story as a separate link here so you could read it in its entirety and in context, but Appraisal Intelligence did not respond to our offer). Our July 27 piece is airtight, completely correct and we stand by it 100 percent. Following, for those interested, is a point-by-point rebuttal of most of the salient points made in the Appraisal Intelligence article. Italicized passages come from the Appraisal Intelligence story.

"In its coverage, a la mode also reported that many low LTV refis and home equities are no-appraisal or even no-doc loans.  Lee Kennedy, former vice president with WaMu and now SVP with settlement service and consulting firm American Reporting Co. told us only a small percentage of Home Equity loans [capitalization in original] utilized AVMs for funding purposes and even less [sic] refis (less than 1 percent)."

We are aware that the percentage of purchase, refinance and home equity loans utilizing AVMs is significantly smaller than normally reported in the media, such as by Appraisal Intelligence in its August 30 edition, when it quoted the annual MORTECH survey as saying "Now, 28 percent of lenders are using an AVM — up from 11 percent just three years ago."  Recently, Bank Technology News pegged AVM usage at five percent of all loans; if Mr. Kennedy's figures are true, all the better.  The fact remains though that what is portrayed in the article as a rebuttal does not rebut what was written.  Many low LTV refis and home equity loans are no-appraisal or even no-doc loans.  The percent that use an AVM for funding purposes is a non-sequitur. 

John Herzog, senior production sales manager for Regions Mortgage, told Appraisal Intelligence in its May 12, 2003 edition that "a lot of our refinances are in our servicing portfolio, meaning I have a copy of the original appraisal. So often now, the automated underwriting systems will allow you to use the original, or will allow you to use a 2075. Probably 50 percent of our refinance business, we are not ordering a new collateral valuation piece. When refis die, I’ll feel 100 percent, our appraisers will feel 50 percent."  This is but one example of how an appraisal can be avoided on a refi.  The passage Mr. Kennedy purports to be responding to does not mention AVMs at all.

"a la mode also reported that WaMu, under the guidance of former Chief Appraiser Sue Potteiger, invested heavily in the engineering and deployment of its proprietary valuation engine, OptisValue, driven by AI Ready data through AppraisalPort, a collateral management system developed by FNC.

"'First, there is no 'proprietary valuation engine' [Kennedy said]."

OptisValue was a closed system, developed as an adjunct to WaMu's LOS, Optis, its own, proprietary LOS system.  Through its collaboration with FNC and its incorporation of FNC's Collateral Management System (CMS), a closed system, WaMu appraisers were required to receive and deliver reports through AppraisalPort, a closed report delivery system utilizing a proprietary report format. Appraisers were required to produce reports in that proprietary (AI Ready) format. Sue Potteiger's biography on the Valuation 2003 conference site says "Sue and her staff conceptualized, managed and implemented a web based appraisal management and delivery system known as OptisValue." To say it wasn't proprietary — and have that assertion unchallenged — is just irresponsible.

"'Second, this investment was very small, dollar-wise, and relied upon a transactional fee structure to reduce the fixed cost components...'"

Later in the piece Mr. Kennedy seems to say that only FNC received a transaction fee for use of the system.  Certainly, more would need to be explored to evaluate the extent of WaMu's investment — in money and man-hours — in "conceptualizing, managing and implementing" OptisValue than this assertion that it was "very small, dollar-wise."  

"'...third, at no time was any part of the data a part of the AIRD...'"

AIRD is mentioned nowhere in our article.

"'...and, lastly, appraisal port [sic] and CMS are mutually exclusive FNC products,' Kennedy said."

In its own press release announcing the launch of OptisValue in July 2001 WaMu said:  "Washington Mutual incorporated FNC Inc.'s Collateral Management System (CMS) to support OptisValue. The new system will automate the entire appraisal process, including ordering, assigning and return of the completed appraisal product, which will enable faster, less expensive service and electronic delivery of reports....  Washington Mutual approved appraisers will need to use Appraisal Institute (AI) Ready software to benefit from the speed and reliability of the OptisValue system. Appraisers will then be able to go to www.appraisalport.com to electronically receive assignments and submit completed appraisals.... Both AI Ready software and AppraisalPort.com are required components to using Washington Mutual's OptisValue system." 

Its now-defunct — or hid from public view — optisvalue.com site instructed appraisers thus: "WaMu Appraisal is deploying a highly automated process that will fully integrate with the Bank’s origination systems. The new OptisValue system is comprised of various interfaces. Appraisers will interact with the system through a Web site called AppraisalPort.  AppraisalPort will be an appraiser’s vehicle for assignment and delivery of appraisal services. It efficiently interfaces with the OptisValue system, so you can deliver your appraisals to Washington Mutual electronically and securely.... Find out more about AppraisalPort and sign up to use its services by visiting the AppraisalPort Web site."

Indeed, the two products are independent products of FNC, but were inextricably entwined in OptisValue. 

"The a la mode report also noted that rather than paying appraisers to do business in whatever way they find most efficient, WaMu sought to have appraisers do business their way, aggregating their appraisal data for later re-use by other appraisers as well as automated valuation systems.

"'The data gathered was for management and performance reporting and has never been used for any type of valuation modeling nor has it been made available to staff or WaMu's panel of fee appraisers,' Kennedy said..."

An officer of WaMu and appraisal manager for more than five years wrote us to report that indeed, the OptisValue "system was never linked to an AVM. Though its original intent was to use it for this purpose, it never was put into a practical application."  It is clear to anyone following the mortgage and especially valuation industries the last few years that WaMu sought to have aggregated data made available for re-use, the way Freddie Mac already does for its AVM and many of the largest originators do for review and QC purposes.  Whether it succeeded before its "unacceptably high cost structure" doomed its mortgage operations is a separate point.

"[Kennedy] also den[ied] the article's claim that WaMu charged appraisers '$5 a pop (for residential assignments) for the privilege.'

"'The charge of $5 is from FNC and not WaMu,' he pointed out."

The article, which appears unmolested for anyone who wants to read it at http://news.alamode.com/04/0727.htm, says "WaMu and FNC [emphasis added] sought to have appraisers do business their way, aggregating their appraisal data for later re-use by other appraisers as well as automated valuation systems. And charged appraisers five dollars a pop (for residential assignments) for the privilege."  That the $5 went to FNC and not to WaMu is a "rebuttal" of this?  The article does not say WaMu collected that fee. Were appraisers required to pay $5 to use the system, or not?

"[Kennedy] said drawing a correlation that efficient automated appraisal order and delivery systems are the cause of job losses indicates a 'total lack of understanding of business in general and the appraisal business in particular.'"

Our article was clear that "Whether this investment and overhead is part of the 'unacceptably high cost structure' that's been dragging WaMu's mortgage operations down is unknown... Now, more than ever, the key to efficiency and turn time speed is having the flexibility to work with as many qualified appraisers as possible, receiving reports that are USPAP-compliant, square with secondary market investors like Fannie Mae, and meet a lender's business rules. In the last few years the entire industry has moved toward opening up the business channels to as many qualified appraisers as possible, not just the ones willing to receive orders and transmit reports through a proprietary website, in a proprietary format useful primarily for data aggregation." 

This is unassailably true.  Our five-year WaMu officer and appraisal manager source personally blamed the collapse of WaMu's valuation operations on "the 'business rules' that were put into place to have a computer attempt an appraisal review instead of allowing the reviewer and underwriters to analyze the reports.  This," he said, "allowed literally 10s of thousands of substandard appraisals and collateral to be submitted into the loan system and actually be used to fund loans."

Mr. Kennedy mischaracterizes the piece as "correlating efficient appraisal order and delivery systems as the cause of job losses," and if he's doing it intentionally, he's bordering on libel when he adds that it betrays a "total lack of understanding of the appraisal business."

"Kennedy said the costs referenced by Killinger in the mortgage division were for a failed LOS named OPTIS and not the appraisal order and delivery system hosted by FNC named OptisValue."

This is absurd.  Again, in its own press release, WaMu said Optis and OptisValue were inextricably intertwined.  The goal of OptisValue was to develop a system that would integrate with Optis, as WaMu told the world and its appraisers in no uncertain terms.  Is Mr. Kennedy saying there would have been an OptisValue without Optis?  Is the name a coincidence? 

Mr. Kennedy and Mr. Killinger don't appear to be on the same page regarding what was costing too much in the mortgage division.  During his second quarter earnings conference call, Mr. Killinger addressed the hemorrhaging of the mortgage part of his operations thusly: "[O]ur mortgage business has an unacceptably high cost structure that affects results across the board. While we have adjusted many of our costs to declining volumes, we will only be able to achieve improvements in the fixed part of our cost structure when systems convergence and process improvements are made. We are making progress, but the completion of this will take some more time."

This is echoed elsewhere in analysis of the precipitous fall of WaMu's mortgage business.  In its August 9 issue, Fortune reports:  "Today WaMu still uses an amazing nine separate systems to originate loans, including one called LoanWorks that it has employed since its days as a small thrift and others that it picked up from acquisitions. The systems have great trouble talking to one another. According to former executives, the Tower of Babel situation drove up costs and led to long delays in closing mortgages this year and last, allowing competitors to poach loads of business. For example, early this year WaMu was taking so long to process loans that it frequently had to redo appraisals, which are good for only 90 days." 

There is no doubt of Optis' contribution to this.  Fortune also reported that "Optis worked well for processing mortgage applications, but it failed in the far more important tasks of processing, underwriting, and closing the loans. According to sources familiar with WaMu's IT operations, the company started shutting down Optis in March; the snafu was a big contributor to WaMu's $248 million of charges in recent quarters. The company has never acknowledged that it is eliminating most of Optis, on which it is said to have spent more than $500 million, or divulged the amount it will eventually have to write down."

So perhaps Mr. Kennedy, when he contends that wamuappraisal.com and optisvalue.com live on, only "behind a firewall for security reasons," so that they can only still be accessed by anyone who wants to view them in Google™ caches or the Internet Archive Wayback Machine at http://www.archive.org/web/web.php, is among those to whom WaMu has not acknowledged that it is eliminating most of Optis or the breadth of the thrift's investment in it.