NPR topped the online edition of its article with the headline, “Black and Latino Homeowners are About Twice as Likely as Whites To Get Low Appraisals.” The problem? Freddie never called the appraisals “low.” While the Freddie Mac study finds no evidence of undervaluation, the NPR story about the study somehow does. Almost 30 years ago, Alan Sokal, now a professor of mathematics at University College London, perpetrated a memorable hoax. He submitted a pseudoscientific article to a cultural studies

NPR topped the online edition of its article with the headline, “Black and Latino Homeowners are About Twice as Likely as Whites To Get Low Appraisals.” The problem? Freddie never called the appraisals “low.” While the Freddie Mac study finds no evidence of undervaluation, the NPR story about the study somehow does. Almost 30 years ago, Alan Sokal, now a professor of mathematics at University College London, perpetrated a memorable hoax. He submitted a pseudoscientific article to a cultural studies journal called Social Text. By design, his paper was strewn with nonsense. Titled “Transgressing the Boundaries: Towards a Transformative Hermeneutics...

• The Real Cause of the Home Value Gap Is the Income Gap Blaming appraisers for the income gap will never solve the real underlying problem... Blaming appraisers for the income gap is…
• Racial Targeting Under the Heading of Diversity, Equity &… This time around, the racial targeting is masked as a virtue under the heading “Diversity, Equity and Inclusion,” or “DEI.”…
• Fannie's 'Equity' Plan: The Drinking Game What makes equity so invidious as a governing tenet is that it involves not just helping people of one racial…

The post Freddie’s Study, NPR Story Recall Notable Academic Hoax appeared on Appraisers Blogs.

Under-valuations that more accurately reflect the homes’ “true” value as opposed to the contract price will also alert the buyer, not just the lender, that he or she may be over-paying, which often triggers a renegotiation… when the seller and buyer settle on a new price after the appraisal, the new lower price reduces credit risk, costs to the borrower, and ultimately results in greater wealth for the buyer. The AEI Housing Center recently released an analysis revealing that reports by the Federal

Under-valuations that more accurately reflect the homes’ “true” value as opposed to the contract price will also alert the buyer, not just the lender, that he or she may be over-paying, which often triggers a renegotiation… when the seller and buyer settle on a new price after the appraisal, the new lower price reduces credit risk, costs to the borrower, and ultimately results in greater wealth for the buyer. The AEI Housing Center recently released an analysis revealing that reports by the Federal Housing Finance Agency (FHFA) and by Brookings, attributing the greater prevalence of under-valuations in home purchase appraisals...

• The Real Cause of the Home Value Gap Is the Income Gap Blaming appraisers for the income gap will never solve the real underlying problem... Blaming appraisers for the income gap is…
• Census Data Used as Evidence for Bias I’ve previously written about how the various spear throwers at appraisers have used ‘census tract data’ in their assertions that…
• AEI Research Critique of Freddie Mac's Misleading Appraisal… More great research from AEI. This is an analysis of Freddie Mac's misleading and basically defamatory paper on Appraisal Gap.…

The post Under-Valuations Unrelated to Racial Bias appeared on Appraisers Blogs.

A proposed update of professional guidelines for property appraisals contains confusing language about what constitutes discrimination, and would even suggest appraisers could engage in “ethical” discrimination.  Folks, the following article is in the ABA Banking Journal e-newsletter, posted on Wednesday, February 15, 2023. I’m really glad this has been released. Hopefully the Appraisal Standards Board will closely examine the concerns of the regulators. I read the USPAP 4th Exposure Draft. It contains

A proposed update of professional guidelines for property appraisals contains confusing language about what constitutes discrimination, and would even suggest appraisers could engage in “ethical” discrimination.  Folks, the following article is in the ABA Banking Journal e-newsletter, posted on Wednesday, February 15, 2023. I’m really glad this has been released. Hopefully the Appraisal Standards Board will closely examine the concerns of the regulators. I read the USPAP 4th Exposure Draft. It contains so much new Ethics Rule “legaleze” language about conduct that it is, and can be, overwhelmingly confusing to a majority of appraisers. It’s written by lawyers in such...

• Two Cheers for an 'Evolved' Beltway Entrepreneur... David… We come not to bury David Bunton, the public figure, but to praise David Bunton, the evolved Beltway organism. Who…
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• USPAP Third Exposure Draft ...the Ethics Rule has been expanded with a new highly detailed Nondiscrimination section, which also affects the Competency Rule. Folks,…

The post Confusing Language for USPAP Ethics Rule Addition appeared on Appraisers Blogs.

We come not to bury David Bunton, the public figure, but to praise David Bunton, the evolved Beltway organism. Who is David Bunton? Bunton has made a small fortune and canvassed the world at the helm of a 16-employee Washington, D.C., nonprofit that publishes a copyrighted code of conduct. The code gives his tiny fiefdom a big say in how collateral in the nation’s $11 trillion mortgage market is valued. He is a figure with outsized power in an immense market. His day-to-day funding source? For 30 years,

We come not to bury David Bunton, the public figure, but to praise David Bunton, the evolved Beltway organism. Who is David Bunton? Bunton has made a small fortune and canvassed the world at the helm of a 16-employee Washington, D.C., nonprofit that publishes a copyrighted code of conduct. The code gives his tiny fiefdom a big say in how collateral in the nation’s $11 trillion mortgage market is valued. He is a figure with outsized power in an immense market. His day-to-day funding source? For 30 years, his nonprofit, known as the Appraisal Foundation, has sold copies of its...

• Lowballed... It Is Open Season On Appraisers ABC TV Documentary: Our America: Lowballed Because this issue was ignored by the appraisal industry, it is open season on…
• Appraisers Should Closely Watch Probe of Departed Brookings… The chief of the Brookings Institution, a retired four-star general, resigned last month under investigation of lobbying on behalf of…
• Appraisers Should Bristle   Stealthy vice again masquerades as public virtue. The head of yet another government-subsidized nonprofit was found funneling cash to…

The post Two Cheers for an ‘Evolved’ Beltway Entrepreneur… David Bunton appeared on Appraisers Blogs.

Making massive staff reductions in the appraisal management department, including the Chief Appraiser and the Administrative Manager, who both are licensed appraisers. Appraisers, it’s not ‘just us’ who have taken the slowdown in lending “in the shorts.” I have confirmed changes at THREE different AMCs: CoreLogic is laying off all W-2 ‘staff’ appraisers, and most of the staff administering those folks. Corelogic may continue placing assignments with 1099 vendor appraisers. My suspicion is that

Making massive staff reductions in the appraisal management department, including the Chief Appraiser and the Administrative Manager, who both are licensed appraisers. Appraisers, it’s not ‘just us’ who have taken the slowdown in lending “in the shorts.” I have confirmed changes at THREE different AMCs: CoreLogic is laying off all W-2 ‘staff’ appraisers, and most of the staff administering those folks. Corelogic may continue placing assignments with 1099 vendor appraisers. My suspicion is that many of the W-2 appraisers will continue to work with Corelogic as 1099 vendors, especially in the urban areas. Clear Capital is making massive staff reductions...

• What IS a “ClearVal Appraisal”? Clear Capital ClearVal... Value Not So ClearCut... I’ve finally had an opportunity to read a hybrid ‘appraisal’ start to finish.…
• My Day as an Appraiser Big Corporations like CoreLogic are like sharks... This morning, as I do every morning, I made some coffee and began…
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The post Staff Reductions at AMCs appeared on Appraisers Blogs.

In the final scene of the 1990 mob masterpiece “Goodfellas,” wise guy Henry Hill recalls his life as he enters federal witness protection.

“It was easy to disappear. My house was in my mother-in-law’s name. My cars were registered to my wife. My Social Security card and driver’s license were phony. I never voted. I never paid taxes. My birth certificate and my arrest sheet – that’s all you’d have to know I was alive.”

If this describes you, government-sponsored mortgage giant Fannie Mae may want to guarantee or securitize a mortgage in your name, one that … ahem … fell off the back of a truck. Last month, under the pretext of helping the underserved, Fannie announced it had tweaked the knobs and dials on its impenetrable underwriting algorithm in order to fit “credit invisibles” for mortgages. You say you’ve never held a credit card, a gasoline card, a Kohl’s card. Fuggetaboutit! You’re golden. Have you become elderly? Has your credit history gone stale? Fannie knows a guy who knows a guy who knows a guy.

In a press release last month, Fannie cited CFPB findings that show “millions of people in the U.S. are credit-invisible, with black and Latino/Hispanic people disproportionately represented.” But Fannie ignores an August 2021 study by the Federal Reserve that found neither minority group is discriminated against in mortgage lending. (The latter study did show Black and Hispanic applicants tended to have disproportionately greater loan debt than white and Asian applicants. If anything, it suggests they are again being targeted for loan products at a greater clip than the public at large.)

By all accounts, Fannie is greenlighting a repeat of what happened during the leadup to the 2007-2008 financial crisis. Can you make fog on a mirror? Bada bing, you’re in! Fannie is once again signaling a willingness to turn a blind eye to so-called affinity schemes. The story of the 91-year-old African-American widow Addie Polk stands as a low water mark in Fannie’s embrace of predatory loans.

In the Ohio widow’s case, personnel from the defunct lender Countrywide infiltrated her African-American church in Akron. Mortgages, refinancings and homeowner lines of credit were taken out in her name on a home she had owned free and clear for years. When the elderly Polk was later evicted, she shot herself. She became the national face of predatory lending as she lay dying of gunshot wounds in an Akron hospital. When her story went global, Fannie quickly announced it would halt its eviction of the dying widow and forgive her debt. Her story was retold in the 2020 docuseries “The Con” by filmmakers Eric Vaughan and Patrick Lovell.

You’ve got to hand it to employees at Countrywide and Fannie Mae. Where most people saw a lovely elderly lady, they saw an opportunity. Countrywide was already in Justice Department crosshairs for targeting Black and Hispanic Americans, along with the elderly. The DOJ levied big fines against its new owner, Bank of America, over 10,000 toxic subprime mortgages Countrywide had issued.

During the aughts, Fannie trafficked in loans so toxic only a solid-waste professional in the North Jersey area could fully appreciate them. Its securitization of the bum mortgage notes would have made any crime family proud: Alt-A loans, loans based on stated-income – so-called “liar loans” – and negatively amortizing loans. In 2008, Fannie was perp-walked with the rest of the working girls into the house of detention, otherwise known as federal conservatorship, where she has remained. Until recently, she was thought to have been a model inmate.

But Fannie has quietly been selling some of the excess risk it’s been taking on. It’s been offering junk-rated synthetic credit swaps, selling these so-called “CRTs” to counterparties in unknown parts of the economy. She and her reprobate brother, Freddie, have created a market for them, but it was never part of their mandate. There are many open questions about these swaps and their counterparties. More than a decade ago, AIG required the third-largest taxpayer bailout of the financial crisis as a result of similar swaps. The fallout threatened a global contagion.

Since Fannie’s big news about embracing the “invisibles,” commissioned salespeople have been eyeing social clubs, church bake sales and bingo halls like it’s the next Lufthansa JFK heist.

Meanwhile, flinching taxpayers are looking over their shoulders, afraid of getting whacked for the second time in less than 20 years.

Appraisers, there have been several lawsuits filed against appraisers by borrowers who “don’t like your value, so I’m accusing you of discrimination” over the last year or so. These lawsuits all have the same theme, and it’s entirely possible that these actions are being coordinated by a consortium of ‘organizers’ and law firms.

The plaintiff representing firm for the Baltimore suit is the same law firm The Appraisal Foundation hired to write new USPAP language for the Ethics Rule, which potentially will be approved in just a few months from now.

I was sent the info below, which shows what appraisers can do when the damaging lawsuits against them are made public.

By fighting back like this, appraisers can show borrowers that they run the risk of a countersuit if potentially false and difficult to prove allegations are promulgated in the media.

Vote with your wallet. Vote with your feet. Vote with your time. Vote with your patronage. Vote with your clicks. Sorry to inform those who are seeking someone else to bail them out of this continued blatant abuse of power and ongoing racketeering enterprise known as Appraisal Management Companies (AMCs). We can’t boycott the AMC industry twice. It’s your turn now.

And that’s the rub, it’s our industry, not some other groups industry. Without appraisers, there is no valuation services industry. The appraisal management groups presence is irrelevant unless appraisers choose to make the AMCs relevant with patronage. Each appraisers individual actions and individual choices matter. When an appraiser works with an AMC, the appraiser becomes the customer of and willing patron of the AMC. On account of the appraiser providing primary income support, that is in fact what a customer who agrees with the business model of the product purveyor does. Love it or leave it.

I’m on lately with the GSE offering special discounts and first purchase opportunities to hedge funds and investment firms during this latest down cycle which is just getting started. You may not know it, but REO is raging, repossessions are scaling up swiftly, and treasurer default notices from local counties are at 2008-2012 levels in many locations. The regular appraiser and regular citizen does not see this, as a substantial proportion of properties which would be otherwise discounted for regular citizen opportunities are instead funneled via special interest groups benefit to first receivers. Fannie Mae & HUD promised to reduce this practice when Elizabeth Warren and other politicians called them out on this in 2015. At the time the GSEs promised to make a substantially higher volume of defaulted housing stock available to regular citizens via first look programs and such. This does not appear to be happening at this time, various realty agents specializing in REO told me they are busier than in years, but most inventory is not moving through default managers who return these properties to market, rather purchased upstream at auction in bulk by said investment firms and hedge funds.

Since when was it the responsibility or mantra of GSEs to give first purchase opportunities and special discounts to corporations when there is an ongoing shortage of housing stock, alongside an ongoing affordability and availability crisis? It’s quite ingenious really, they’re all artificially propping up the rental market and price of housing, without having to admit or reveal to the public how much damage their policies and actions have caused. There is no such thing as residential anymore under these special interest programs, it’s all commercial now. Like a triple win; the discount buy, the heightened sustained rental gain, the eventual high principal write off if they liquidate or artificially high resale price when the books need balanced. These actions are actively compromising market stability with a form of subsidized parity, withholding the effects of actual free market forces. Cumulatively these activities may be withholding trillions of dollars in property equity from regular citizens. Those accusing appraisers of withholding equity from certain groups out of perceived racial bias should take note.

One agent stated an eerily similar position as appraisers: “they won’t need us much longer, it’s all going automated.” This prompted a conversation about ongoing abuse of valuation services engagements, “these groups would have appraisers using remote services and completing desktops for $50 or less per order.” Agent responded: “yeah, we use those services too, that’s where the industry is heading.” The rebuttal however was that the difference is the sales agent flips BPOs with remote/discount inspections, to then turn around and get full listing commissions. Where as the appraisers full insurance is now tied to a tenth of the compensation or less, with no further compensation down the line, increased liability due to lack of inspection and increased volume, a type of liability the agents pass off down the line but the appraiser can not.

This is just one example of the extremely irresponsible mismanagement the appraisal management industry is responsible for, with their short sighted selfish advocacy for reduced fee discounted appraisal assignments and counter productive ‘appraisal modernization’ efforts. As these corrupt predatory non transparent AMC companies continue to pretend to speak on behalf of all appraisers, despite less than a quarter of all licensed appraisers being willing to engage with AMCs. But hey, who cares about consumers or small businesses anyways, we are old news and everyone is sick of hearing people complain about lack of competent service, data security, affordability, availability, unearned fee racking, collusion, racketeering, special interest group favors, etc… People need to understand how our new government works, and that’s just the way it is. The alternative is taking our own industry back, one appraiser, one direct lender solicitation, one important informational disclosure at a time.

I’m sad and I’m mad!

I recently took on a measure job for a client who was questioning the square footage of their home. The couple bought the house at the height of the market last year. They paid 12% over list price to get the house. They put an appraisal waiver in the contract which meant they could not walk away if the appraisal did not come in at contract price. This was very typical last year.

I did a little research before going to the property. The buyers put 50% down. This, with their credit score and other factors allowed for not requiring a full 1004 appraisal.

A hybrid appraisal was done. Opinion of value was about 3% over list price. I do not have a copy of the report, it was shown to me at the subject.

This is where the train goes off the tracks. MLS showed GLA as 4200+ sq. ft. from tax records (CAD). The “trained” property data collector also came up with 4200+ square feet. The staff appraiser, a Certified Residential Appraiser with two years experience used 4200+ sq. ft. per sketch provided by property data collector. I pulled up the listing on the MLS. It took me all of two minutes to realize the issue. The listing photos show a large area of unfinished space on the second floor. Tax records show none. I go to the house and measure. Sure enough, 600+ square feet is unfinished. My measured GLA per ANSI standards is 3600 sq. ft.

The owners are now underwater by more than $100,000 due to paying above list and incorrect square footage. Their agent requested them to have the house measured during the opted-out period. They declined as they did not want to lose the house. The banks appraisal will show if there is an issue. They lost out on several properties before getting this offer accepted. It’s like they bought a carton of 18 eggs. When they got home, there are only 12.

This is where it gets me. The lender allowed an unlicensed person to collect property data who gave bad data to the appraiser. The appraiser was not experienced enough to figure out there was an issue. And there is no direct communication between the two. But I work for this lender and they will not let my trainee inspect on her own. As another appraiser said “it’s not the plane, but the pilot”.

Because the borrower put 50% down, the lender and investor (Freddie or Freddie) are covered. It’s the borrower who is left holding the bag. Best I can tell is everyone was covering themselves. No one was there to protect the borrowers. The borrowers made a mistake, but the system let them down.

Appraisers, I’ve been studying, and writing about since 2006, all kind of issues surrounding our profession, and frankly some currently does not make sense.

As many know, ‘we’ have been accused of not having “enough black people” in appraiser ranks. The claim is that blacks only represent 3% or so of the total population of appraisers. The people engaged in blaming appraisers for bias and discrimination use this figure to ‘prove’ we are biased.

If that accusation is actually accurate (doubtful), do these same people throw spears at the pro sports teams, football and basketball especially, claiming that those sports don’t properly represent ‘white’ people. Heck no, they don’t.

Maybe, just maybe, folks in the black community have figured out that the prior and current state of affairs in appraising is not a viable profession to enter and work in.

Here’s why:

PAREA is being touted as the savior and the best appropriate way to get new people into this profession, especially people of color. Really? Let’s see. The education providers currently writing the PAREA courses have been indicating that the course cost will be up to 5 figures, roughly $10,000 or possibly more. That’s an outlay of significant cash BEFORE actually connecting with an appraiser who will put the PAREA-educated appraiser to work.

How many of you reading this would be willing to spend 10+ grand, not knowing if or when that expenditure would actually result in getting a ‘seat at the table’ in appraising?

Then, oddly or perhaps tellingly, Jake Williamson, SVP, Single-Family Collateral Risk Management, Fannie Mae, has issued this super positive news (not) that they basically are shifting most appraisal assignments AWAY from actual live appraisers. Mr. Williamson stated this in an article in The MReport titled ‘The Science of Appraisals’:

Mr. Williamson also stated in the article

The basic question comes down to why would anyone of any color – chartreuse, pink, black, gray, dusty brown or white – want to get into a profession where the dominant player in mortgage purchases is basically saying ‘we’ are not important, and will be subjugated to the dust heap because “modeling and analytics” is more important than having an actual appraiser put eyeballs on the property?

Or stated another way, some people want to bring more people (primarily of color, which is great) into a dying profession. But the profession is being killed off by (mostly white!) people who think technology is the golden spoon to accurate valuations.

Like I said to start: doesn’t make sense to me.

Does bias exist? Of course. Does it exist in appraising? Rarely, if ever.

Not one of the publicly aired cases has shown any verifiable facts or data to prove their claims. Bias in appraising is rare and far less than in nearly all other vocations. Why? Because appraisers are and have been, for decades, already held to ‘no bias’ standards that far exceed nearly all other jobs and career positions. It is built-in to USPAP, our certifications, and ethics, that we remain the unbiased link in the process.

When an appraiser uses the best available comparable properties, comparables have no ethnicity; they are brick-and-mortar. All this new witch hunt will do is set yet another excuse to attack the appraiser and to make way to be bullied into hitting a higher value or threatened they will be nailed with ‘bias.’

What is the purpose of Dodd-Frank? What is the purpose of AIR/Appraiser Independence regulations? Why create AMC/Appraisal Management Companies to create that protective layer and avoid pressure to make an appraiser ‘hit value’ if just to set appraisers up for attack from anyone who wants to force a higher value? All this will do is CREATE BIAS.

How does one stay unbiased if they repeatedly get sued or raked over the coals every time they do an honest, true appraisal that does not meet the expectation of untrained members of the general public who do not understand how appraisals work? Our job is not to appraise what anyone THINKS a home is worth, or get beat up on the playground and have gum put in our hair. An appraisal is typically 25-45 pages of us PROVING our opinion of value; backed with data. What anyone might THINK/estimate a home is worth, can be something quite different. Hats off to jumping on the bandwagon and further destroying the one link in the home buying process that actually protects the lenders and protects buyers from making a potentially horrible financial decision that could put them underwater in their loan for the next 10-20 years.

Folks, I was in a USPAP class last Friday, during the day I was sent the tribute message below from another appraiser who knew Bill King very well, and who has been in touch with Bill’s wife.

I’ve been looking for the obit. The one below was published on Sunday January 15, in the Anchorage Daily News:

Orbituary

Note that no cause of death is stated.

But before you read King’s tribute, it’s prudent that I mention this: make sure your ‘affairs’ are in order.

This is especially true if you live in a non-community property state (but this is not legal advice!).

We never know when ‘our time is up’ and therefore we need to be prepared so that the inevitable squabbles without proper instructions in advance can be avoided.

Here’s the tribute from Sandie King:

** Sandie’s email address was not included in the message I received from the appraiser. If you would like to send a personal message to Sandie, send an email to Allan and ask that he forward it Sandie.

Finally Valuation Review published this tribute in this link which includes some of Bill’s essays.

As mortgage giants Fannie and Freddie bend the knee to their political overlords, they securitize ever riskier loans. It’s a sign of the times.

But while no one was looking, the twins – who wield the full faith and credit of the U.S. government – began quietly offloading this surplus risk in the form of so-called “credit-risk transfers.” The U.S. taxpayer should be worried. As the public learned in 2008 with AIG’s credit-default swaps, hidden risk injected into the financial system doesn’t stay hidden for long.

The twins, in federal conservatorship since the financial crisis of 2007-2008, have become redoubts of wokeness, and this has affected mortgage underwriting practices. Like relatives of a manipulative meth user, the nation’s real property appraisers can only watch developments with alarm.

To offset the new risks within their residential mortgage pools, the twins are offloading the froth in the form of the aforementioned junk-rated credit-risk transfers. The product line was quietly created during the first term of the Obama administration. The product resembles the credit-default swaps that required massive federal intervention with AIG, then the world’s largest insurer. The U.S. taxpayer was dunned for a $68 billion bailout to avoid a global prairie fire. It was the third-largest bailout of the financial crisis, right behind the $72 billion given to Freddie and the $120 billion provided to Fannie.

The new junk product comes as no surprise. The twin gorgons have been a constant source of such mischief. The systemic risk the twins represent will never go away so long as there are politicians who believe they can exploit the duo for political gain.

The credit-risk transfers – known to investors as “CRTs” – create a Dr. Jekyll-Mr. Hyde approach at the twins as they compartmentalize their dark side. Unlike Freddie and Fannie’s mortgage-backed securities, which guarantee investors their principal and interest, the credit-risk transfers guarantee nothing. They merely reference a group of loans, making the junk investments a form of synthetic security. It smacks of the synthetic instruments that were all the rage in the lead-up to the financial crisis.

Under the banner of reducing taxpayer risk, Fannie and Freddie now partner with private capital to peddle the swaps and help keep the niche market liquid. If it ever goes illiquid, watch out. It could set off a new contagion, the only serum for which will be new taxpayer bailouts.

The nation’s 80,000 real property appraisers have had a front-row seat to the surplus risk being shouldered by Freddie and Fannie on the front end. Wherever the twins tread, their allies – the homebuilders, Realtors, chartered banks, fintechs and nonbank lenders – are never far away.

While Fannie and Freddie began pioneering these get-out-of-jail-free cards for back-end risk, they began piling on risk on the front end by allowing abridged appraisals of collateral in the mortgages they securitize, publicizing use of appraiser blacklists to intimidate potentially heretical appraisers, encouraging appraisal waivers, relying on so-called black-box appraisals – appraisals done by Zestimate-like algorithms – tinkering with higher thresholds for when an appraisal is required and keeping appraisers from physically inspecting the properties they appraise – so-called “hybrid appraisals.”

Lately, Fannie has been sending unsigned computer-generated loan buy-back demands to mortgage originators and appraisers in Hail Mary attempts to get out from under early Covid-era loans it was politically pressured to backstop.

Meanwhile, cratering home prices are eroding demand for the junk-rated credit transfers. That’s not good. Spooked investors are unloading the securities, worried about defaults if rising interest rates result in a deep recession.

“Credit risk transfer is not a panacea for Fannie and Freddie,” wrote Landon D. Parsons and Michael Shemi in The Journal of Structured Finance. “[The swaps] are not a replacement for stable and permanent equity capital that supports expected risk.”

The Federal Housing Finance Agency – Freddie and Fannie’s politicized federal regulator – was critical of the program in a 2021 report. The regulator wrote: “Concerns have been raised that [credit-risk transfer] markets may be easily disrupted during periods of market stress, requiring the Enterprises to retain credit risk they had planned to transfer. The experience during and after the COVID-19 stress offers some support to these concerns. [Credit risk transfers] remain untested by a serious credit event.”

Bottom line: Fannie and Freddie have outsourced default risk to private investors. In exchange for a premium, these private investors – asset managers, pensions and hedge funds – issue a pledge to pay in the event of failure. A roughly $60 billion niche market few have heard about acts as an insurance clearinghouse for the two agencies on the risky slices of its roughly $4.5 trillion of mortgages.

But because of the lack of insurance protocols, there are no assurances these investors will be able to pay should the mortgages fail. In that regard, the credit-risk transfers are much like the credit-default swaps AIG bought with abandon.

“The credit-risk transfers constitute an undefined financial risk,” wrote Milton Ezrati in Forbes in November. “No one can assess whether those masking the assurances can pay, and so no one can tell where failure might spread.”

Fannie and Freddie have clearly looked into the abyss and found it looking back at them. But unlike private-label creators of junk insurance policies, Fannie and Freddie always have the U.S. taxpayer as the deep pocket of last resort.

Fallen crypto whiz kid Sam Bankman-Fried and his associates are a living testament to the power of political donations in American politics. It’s unclear precisely what the more than $70 million in political donations bought FTX during an 18-month period leading up to the midterms, but one can speculate the money silenced what was once a brisk debate on Capitol Hill and at the U.S. Treasury on the regulation of crypto-currency.

The nation’s 80,000 licensed real property appraisers should pay close attention to the manipulation of Washington by FTX, which turned out to have the characteristics of a Ponzi scheme. It may help the appraisers explain their own predicament as a result of a campaign underway since 2018 to weaken or eliminate appraisals in mortgage transactions through ad hominem attacks on appraisers by federal officials; robo-complaints to state boards by the politically compromised Fannie Mae; now-discredited research by the Brookings Institution (an organization that has itself been linked to influence peddling); formulaic lawsuits bankrolled by donation-seeking nonprofits; and attacks on time-tested analytical methods and economic principles.

Who’s funding the campaign against appraisers? We know that thousands of workers at loanDepot, Guaranteed Rate, Fairway Independent Mortgage, Caliber Home Loans, New American Funding and United Wholesale Mortgage have funneled millions in small-dollar donations to political action committees across the political spectrum; much of this activity was during the 2020 campaign and much of it went to the people currently in office. More on that in a bit.

In the now unfolding FTX debacle, Bankman-Fried and Ryan Salame, an executive at FTX Digital Markets, became two of the biggest donors to both parties during the last election cycle. Bankman-Fried personally gave $40 million to politicians and political-action committees ahead of the 2022 midterm elections, according to OpenSecrets.org, a nonpartisan group that tracks campaign donations. Salame donated more than $23 million.

“Sam Bankman-Fried influenced Washington across basically every mechanism available,” said Jeff Hauser, who runs the Revolving Door Project at the Center for Economic and Policy Research.

The New York Times explained how Bankman-Fried “built a massive operation to woo politicians, regulators and nonprofits to support his crypto goals.” In May, Bankman-Fried signaled he might spend $1 billion on donations in the 2024 election cycle.

According to research by the Wall Street Journal, Sens. Debbie Stabenow (D., Mich.) and John Boozman (R., Ark.) took money from FTX. They co-introduced a bill this past summer that would have given FTX a path toward regulatory compliance in the United States. FTX made maximum donations to Sens. Kirsten Gillibrand (D., N.Y.), Cory Booker (D., N.J.), Lisa Murkowski (R., Alaska) and Susan Collins (R., Maine), among others, as well as dozens of House candidates.

As of this writing, the extent to which members of the House Financial Services Committee may have been compromised by FTX is not yet known.

The nation’s appraisers have been the target of a similarly well-financed influence campaign – one as obvious as it has been clumsy. Its aim: to co-opt members of the 117th Congress and officials currently in the executive branch. The goal: To link the nation’s real estate appraisers – an important bulwark for taxpayers and investors against bogus collateral values in mortgage lending – to the culture wars playing out in other segments of society.

While the point of the FTX campaign may have been to silence debate on crypto-currency, the well-choreographed campaign against appraisers seeks to paint them as hopelessly biased and to delegitimize the sales comparison approach to value and its underlying bedrock principle of substitution. The goal is to replace these gatekeepers of value with computer models, waivers or to create something akin to a social score for collateral – affirmative action for buildings.

Eliminating human appraisers suits the nonbank mortgage lenders and so-called fintechs in their quest to originate loans and refinancings at high velocity and sell them to, or have them guaranteed by Fannie, Freddie and the FHA, i.e., the U.S. taxpayer. After Dodd-Frank, eliminating long-accepted valuation norms seems to have been identified as the easiest way to keep the party going.

Using the Federal Election Commission’s screening tool, author-appraiser Jeremy Bagott has compiled an Excel spreadsheet with over 43,000 small-dollar donations totaling more than $11 million from individual employees of nonbank lenders. You can view and download the Excel file here. Or you can run the filters yourself at the Federal Election Commission’s website. All of the information is public and available to anyone with a browser and a little time.

Many of the donations are in uneven amounts and many repeat donations were made at irregular intervals – as if created by a random-number generator. This becomes apparent when the data is sorted by donor and date in Excel.

Now that the damage is done, those caught flat-footed with the FTX lucre are scrambling to make amends. A spokesman for Sen. Gillibrand told the Wall Street Journal she has donated the money she received from Bankman-Fried to a nonprofit in the Bronx. Sen. Manchin said he has donated the ill-gotten gains to a food bank in West Virginia. Representatives for Boozman and Collins said they were planning to give the money to charity.

The damage done by this high-profile dumpster fire eclipses the $70 million one rascal – now standing naked in the low-tide zone – donated to politicians who sold out their constituents. The same might someday be said when valuations are eliminated in federally insured mortgages by the same group of bought politicians.

If you are a VA Appraiser, here’s a bit of news you need to keep tabs on.

Senate Passes VA Appraisal Modernization Measure – theMReport.com

This is not yet ‘law’, but likely will be in the not too distant future.  

Appraisers, over the past couple of years, there have been lively discussions on forums, Facebook groups, at conferences, etc., about a ‘new’ technology which allows a ‘phone holder’ to measure a structure, with that technology providing a “Sketch” or “Floor Plan” of that structure.

Some of you may have heard about one of the originating companies, Matterport, which some real estate agents/brokers use to generate virtual 3D interior diagrams and videos used in property marketing. Smartphone measuring technology evolved from that.

Until recently, I and others did not understand the difference in how the measuring technology works between the iPhone and Android phone versions. Some descriptions call this process ‘augmented reality’, or AR for short.

Jeff Bradford, owner of Bradford Technologies/ClickForms, gave a presentation at our Washington State appraiser association conference and explained the differences.

iPhones use LiDAR. In simple terms, this technology sends out pulsating invisible light streams similar to laser which bounce off items and then return to the device as ‘data points’ which can be measured and used to formulate images, from which the fairly accurate exterior or interior measurements can be calculated. Those then can be plotted onto what we know as a Sketch, or a better Floor Plan. iPhone developers have chosen to keep this feature in their phones.

Android developers, on the other hand, use a process called Photogrammerity used to generate the diagrams we use in appraising. Interestingly, a very few older Android phone models DID have LiDAR included, but the developers have chosen not to continue using that technology in their newer Android phones.

I don’t claim to fully understand Photogrammetry, so I’ll direct you to this article in Wikipedia: .

There currently about 7 to 8 different companies, including some AMCs, which are promoting measuring services using the above technology, at a cost per use. One company which uses LIDAR seems to have the most users currently. There is a turn-around time element with these services because the diagram in the phone software often must be uploaded to a server maintained by independent “off-shore” companies outside the US who employ drafters to convert the phone’s internal diagram data into a “Sketch” or “Floor Plan.” This is returned as a PDF to the appraiser via email.

But this ‘apple cart’ may be upturned if a new diagramming app from Apple takes hold, named “Room Planner.” Per another attendee in the room, Peter Vander Wall, SRA, who posted to a forum, “currently ‘Room Planner’ is available only as an API (Application Programming Interface), which is a software kernel that allows developers to create applications based on it for users like us.” This means it could be developed into a less costly Floor Plan generating application.

There’s been lots of commentary about appraisers comparing the phone-held measuring software/diagram with their own diagram based on their own measuring with traditional tapes or lasers. The consensus seems to be that the phone-held process is nearly as accurate, not necessarily 100% in all cases, but pretty darn close.

What I have not seen yet is any accuracy comparison of the two types of phone-held measuring software (LiDAR vs Photogrammetry) done on one structure, contrasted with a Sketch or Floor Plan done by a person using traditional measuring with tape or laser. That’s probably because very few appraisers own two different kinds of smart phones due to the cost!

The other aspect of this smartphone measuring technology that I’m presently unsure about is whether or not it FULLY complies with ANSI-Z765-2021. This is especially important in homes with sloping interior room ceilings, and short ceiling heights, which ANSI is paranoid about in terms of livable space – regardless of how people actually use that space! And secondly, with oddly shaped interior stairs which may not be immediately adjacent to a wall.

Some marketing I’ve seen so far with this new measuring technology claims the software to be ‘ANSI compliant’. Truthfully, that needs to be fully evaluated in the field in actual homes.

The other screwy situation about ANSI and Floor Plans, is if the appraiser does not measure the home, but instead relies on a Floor Plan provided by a secondary source, that Floor Plan DOES NOT have to comply with ANSI when the report is for conventional mortgage lending on a DESKTOP form. But when it’s a ‘traditional 1004 form’ conventional lending assignment going to Fannie Mae only, and the appraiser (or trainee) measures, an ANSI-compliant Floor Plan is required. Some non-FNMA clients demand ANSI measuring in their assignment SOW, so be sure to read that document!

Frankly, this nonsense has been compromised by the GSEs. Their original intent was that the appraiser would rely on common sources for the dwelling Floor Plan and other necessary data for DESKTOP reports. However, proper Floor Plans (as defined by the GSEs) have proven to be elusive. For HYBRID reports, the GSEs intent is to accept a Property Data Collector’s Floor Plan and written inspection data. What’s been happening is PDC reports are now being given to the appraisers for DESKTOP reports which is contrary to the GSEs anticipated process – but they are reluctantly accepting these.

It’s the old story about “follow the money.” Unintended consequences be damned. They’ll just process the DESKTOP reports regardless.

If you’re contemplating using any of the available smart phone measuring software on homes YOU MEASURE, be sure whatever you choose CAN do a proper Floor Plan. The measuring ‘app’ you want to use must be compatible with your phone. Some of the ‘freebee’ or ‘subscription’ apps only do perimeter diagrams, which may not comply with the SOW for some assignments.

But in the ‘big picture’, in the same way computerized appraisal form software, digital cameras and laser measurers have revolutionized processes in appraisers’ work flow, the same could be anticipated with this new ‘phone-held measuring-diagramming’ technology.