Interview between Leo Regensburger AGA and Appraiser Mike M. Ford

[Mike Ford continued]  The problem is that before the ink was dry, special interests including the AI kept chipping away at it to carve out exceptions and exclusions for their particular business model. Back in 1991, I used to teach a State Approved USPAP course for both agents and DRE continuing education (CE). Then the professional one size fits all schools complained that private post-secondary education needed special rules (to keep smaller schools out), and the cost became prohibitive to keep teaching USPAP.

From that time to present I have been Chief Appraiser (and founder) of a Title Co. Appraisal Division; Chief Appraiser of a large multi-state appraisal company responsible for overall quality control and USPAP compliance, Fee appraiser in my own shop; Probate appraiser for a California Probate Referee, business appraiser, and even a Senior Appraiser for the Treasury Department (IRS Large Business and International Division). In each and every one of these positions including IRS my experience is that nearly all market participants keep whittling away at both FIRREA and USPAP.

We have always had a certain amount of ‘bad appraisers’. These used to be confined mainly to VA and FHA where appraisers routinely bragged about their ability to do three to even five “appraisals” a day. All experienced appraisers know that is not possible to do honestly. Fee appraisers were less prone to dishonesty or cheating simply because they knew eventually their clients internal controls would catch them via the field review process. I don’t know if we ever had 10% field reviews as suggested by FIRREA originally, but we had at least 5% field reviews; and periodic desk reviews performed by other qualified appraisers. It kept most of the profession honest and competent with the possible exception of the few pre HVCC appraisal and title management companies that existed. They always paid about 10% less than C&R, but around 1993 to 1994 they started competing to see who could go the lowest and fees got down to the point where appraisers had to do two or three a day (read CHEAT) in order to meet their expenses. They were economic serfs.

In 2009 HVCC was passed and wrapped in high moral verbiage that was going to eliminate undue appraiser pressure and thereby cleanup the appraisal industry. It made the use of AMCs mandatory and widespread. It also started low ball price fixing and unaccountable blacklisting of appraisers that didn’t play ball. Andrew Cuomo’s intentions may have been positive as relates to settling claims against WAMU and Countrywide, but it virtually destroyed the residential appraisal industry overnight. Hard earned reputations established with reputable lenders over 10, 20, 30 and even 40 years went right out the window. They did not matter anymore.

To make matters worse, OCWEN (who also had contracts for U.S. Treasury collections) parlayed their influence into becoming the biggest AMC around. These India based folks had token U.S. Offices to appease and give their lobbyists and legislators cover for promoting a foreign entity to replace traditional American banking staff jobs, and to process extremely low cost foreclosure appraisals; BPOs and Property Preservation Services. There services were so poor they had to change their name! Telephone boiler room Indian Nationals simply did not understand or try to understand American real estate markets or appraisers. In all my career as either a real estate agent or appraiser, I never saw more abuses and waste / loss in value unnecessarily than under the OCWEN system of appraisal BPO, and property preservation.

All the other AMCs recognized opportunities for expansion due to Ocwen’s poor history. Some tried to offer better service and honest, fair treatment of appraisers. The problem is other low ball AMCs were impossible to compete with. Banking Boards only looked at the cost of appraisals and BPOS, always seeking lower fees. They never considered the hundreds of thousands of dollars they lost needlessly due to bad BPOs and appraisals; and dishonest agents. Frankly no one cared because these were often insured loans; even after losses far exceeded coverage amounts. In the end American taxpayers picked up the costs directly via TARP and similar wasted and unnecessary programs. American consumers also paid a price in the loss of equity and retirements. Nearly 50%-much of which they never recovered.

I was so fed up trying to operate as a fee appraiser with the government working against every single sensible business growth or rebuilding plan, that I went to work for a government agency (Treasury Dept.). There I learned that while they officially adopted USPAP; most appraisal managers were CPAs and not appraisers. CPAs were split about 50/50 over USPAP. Many opposed it being applied to their business valuation practices. It was only given token lip service at IRS. There are as most of America already knows other serious problems at IRS. I made the terminal mistake of pointing a few of these out while I was still a probationary GS13; including a $1.45 Million Dollar refund due to the estate of a very famous entertainer that my manager had sat on until the statutory period for a refund had run out. Anyway, I went back to self-employment as a fee appraiser; resigned to a lowered life style ad earning ability due to anti appraisal regulations.

It’s about this time that I decided to fight back. I first joined George St. John and Rey Cano at CCAP; then I realized that as committed and competent as these guys are, something more is needed. That is why I researched unions and sought out the American Guild of Appraisers.

[Leo Regensburger] Your experience has shown many profession weaknesses.  What do you see is the industry strengths?

[Mike Ford] The industry’s biggest strength is that the majority of its professionals have a lot of experience and high moral integrity. Over half are residential certified or general certified. We also have the experience and ability to say “no” when lenders or AMCs pressure us-though most of us miss the back and forth free flow of meaningful information that used to take place prior to the GSE/FNMA micro management of our profession. We need to know the details of sales transactions to do our jobs better. The great appraisers try extremely hard to appraise AT market value, being neither high nor low. For us, it is as wrong to be “conservatively safe” as it is to be unrealistically high.

[Leo Regensburger] OK!  You have given us a lot of information from your obvious vast experience.  Do you have any suggestions how we can mitigate the weaknesses?

The number one weakness is the low fee structure that does not adequately compensate most appraisers much above minimum wage if they do their job properly. People are only human. If we are underpaid for assignments, the natural solution is to do more work in less time. Quality suffers. That is ALSO where cheating comes in to play. Appraisers are only allowed to have two licensed trainees. It is increasingly common to ‘know’ of cases where unlicensed appraisers are being used by some higher licensed appraisers because no one else will do the work for such low fee splits. A more experienced appraiser writes and signs the reports in complete violation of USPAP-with no disclosure of inspection by the unlicensed persons. These are exceptions rather than the rule, but they are almost always found where AMCs are involved.

The number two problem is meaningless micro management by people that don’t know appraising. Much like Robert McNamara’s whiz kids that decided the original M-16s didn’t need cleaning kits, we now have people making similar broad assumptions about the appraisal industry as to how to ‘fix’ problems they think exist, rather than to ask US what We think needs to be fixed.

Weaknesses are corollaries of our strengths. The same things that make us independent, highly trained and qualified experts across the entire United States, have also left us isolated and poorly equipped to resist industry abuses up until very recently.
Whether we are in Nome Alaska, Danbury, CT; Hudson Beach, FL, Des Moines, IA, Santa Fe, NM or Catalina Island, CA  we have all learned the same essential fundamentals of real estate appraisal. We each recognize the information needed and the characteristics to be analyzed anywhere in the USA. A properly completed appraisal report in Rehoboth, DE will have the same fundamental data as one for a cottage in Coos Bay, OR. No matter where we are, we can instantly recognize (apparent) quality work versus marginal to deficient work. Certainly we have variable location related nuances that require local competency. Snow areas have different local priorities than southwestern dessert areas do. We adapt.

That independence and work ethic allows us go out into the snow of New England (or Alaska); or to face the chiggers and saw grass of central Florida, or the 106 degree heat of Phoenix, or rattlesnakes of 29 Palms CA. We go into urban blighted areas to luxurious island retreat areas and perform our work professionally and ethically. We don’t need fancy offices; many of us work from home. We don’t even need 100% complete market data-which we rarely have. We apply three traditional appraisal methods to cross check our results and hopefully negate any absence of “perfect” data. Those of us with experience under our growing belt sizes know that ‘value’ does not exist because we say so, but rather because a specific market says so. We are merely the interpreters of the information; reporting it in a credible and accepted professional manner. When legitimate disagreement for specific causes are made known, we keep an open mind and reconsider the information. Did we make a mistake? Does the information warrant a modification, or perhaps more research? Professionals double check when a question arises.

We don’t even need our peers approval! While accolades are nice for any human being, we don’t require them. All we ask for is the professional respect we are entitled to by virtue of our specific education; training and experience, from peers, clients and users of reports. What we do ask for in addition to respect, is that we do not get buried in unnecessary minutiae. If three sales comps prove a value, then do not waste our time by demanding four plus a listing. If the three best comps don’t support a position, then adding a forth inferior one rarely improves report quality. We know when we need extra supporting data.
Because we have traditionally been so independent it makes it harder for us to organize and oppose injustices and industry abuses. Traditionally, we make friends in the business very slowly, knowing that next week we may have to perform a review of another’s work that results in negative conclusions. We have always tried to remain slightly distant to each other on a personal level. In the past, we have also coveted our own data; or special skills. I’m paid for my expertise, why would I give it away? Or so we thought. Another scourge the AMC low ball fees brought us were fly by night review “appraisals”-performed by out of state appraisers (or their teenage children) who had no understanding of our local market or the time to develop any. They were paid to pump many reports out per day; and the ‘model’ dictated they “find” enough problems to warrant their continued existence. Nit picking became prevalent.

Not only did we cannibalize ourselves, we helped diminish public perception of what we are and what we do. Now Harry & Martha Homeowner think Zillow is an effective method of finding out what their house is worth! Instead of calling their agent for a free CMA or us for a fee appraisal, they “do it themselves” with interesting results, (in the Chinese curse sense of “May you live in interesting times”). Worse, even our regulators have been sold a bill of goods (snake oil) by software vendors making claims beyond their ability to deliver (much like the software designers of ACA).

Our independence made it hard to organize. Our diverse self-serving professional peer groups were more interested in jockeying for power; or were themselves being lead down the primrose path to be effective protection. Heck for over 30 years we have been told we can’t even talk to each other about our fees with violating Sherman Anti-Trust Act regulations! Yet all the AMCs that PAY us could conspire to set low fees with nary a whisper.

Organizing ourselves into like-minded groups capable of resisting further abuse and seeking redress for past abuse is akin to herding cats. Progress IS being made, but it must be made faster, before we ALL retire, die or are forced out of business!
That is why I support the American Guild of Appraisers (AGA).
 
[Leo Regensburger] What do you see are the risks for the consumer and economy if we do not address these weaknesses?

[Mike Ford] Every 15 to 20 years we see major Wall Street or other investor fraud that affects the real estate markets. In the end it always costs the American taxpayer. The S&L crisis was in fact fixed by FIRREA…if only it had not been allowed to be gutted and rendered useless. Our most recent debacle caused a worldwide economic collapse. Think of that. It’s more than just words. World Wide! People died; life savings disappeared, IRAs became worthless, jobs were lost and we STILL have an effective unemployment rate nationally in excess of 10% (regardless of what the manipulators show it as). The National Debt went from about $8 trillion all the way up to 18 Trillion! Now it’s on track to hit $26 Trillion in the next three to four years.
That level of deficit spending is unsustainable, but congress now knows the American People will swallow just about anything without revolting. Despite the fiscally conservative leanings now, the core abuses have not been remedied. Any we still have fertile ground for new speculators and market manipulators to play in. Think about it. FNMA just announced 3% down payment loans! Why? HUD/FHA already has those and more importantly has demonstrated success with them. What is the reason for FNMA to now play in this arena? They know we will reimburse the world’s insurance companies if they fail to have the reserves needed to underwrite the next round of losses. After all, they are too big to fail!

National lobbyists are not seeking to save America’s real estate market, they are trying to facilitate raping it again! That is why we see MISMO/UCDP, UAD and now CU. That is why FNMA laid off over 100 review appraisers before year send in 2014. They have no intention of reviewing quality; they just want to have political cover for bad policies and securities bundling. When that collapses next time, it’ll be blamed on their deficient CU system and how it was applied. Of course they will then promise to fix that in ten more years.

[Leo Regensburger] How can we improve the profession?

[Mike Ford] By uniting against the worst abuses. Less than reasonable fees. Less than reasonable turn around times. Secret blacklisting or blacklisting of any type without third party arbitration other than regulatory agencies that take a year to investigate a single complaint.

By promoting the LEGAL use of trainees. By promoting the idea that all states need to adopt public disclosure laws for real estate sales. After all, property taxes are a public interest matter and cannot be properly calculated without knowing real sale prices. By identifying what specifically “reasonable” MINIMUM fees should be for FNMA compliant Non complex, conforming loan transactions. We know how long a PROPERLY completed report in strict accordance with USPAP takes. It’s just a case of using federal guidelines for similar jobs to establish minimum recommended hourly rates and overhead costs.

We also need to promote reasonable cost, high quality online and live appraiser education. Taking the same basic low cost packages over every 2 to 4 years does little to advance the profession. No education is ‘bad’ but advancing education is always better than purely remedial education.

STOP MESSING AROUND WITH USPAP every two years just to justify selling us new books! PRINCIPLES do not need to be changed or reworded or word smithed every two years! It’s been 15 years since USPAP first came out. Of left alone, we’d all have them completely memorized by now. If really NEEDED changes are warranted, then fine, but the game or pretending a need exists only to make a meaningless change; or worse, a change that allows lenders and GSEs to commit further abuses contrary to sound appraisal practice and the public interest is criminal!

[Leo Regensburger] What would you like to tell other professional RE Appraisers?

[Mike Ford] To read the above comments and add to them or refute them as their experience dictates, but above all to join AGA so that WE can take back our profession!