This policy will protect upper-brack- et borrowers with deeper pockets against overpaying while pushing entry-level and median-income bor- rowers away from such valuations. Fewer burdens for banks sounds attractive, but how much relief do banks need? FDIC-insured insti- tutions reported $62 billion in net income in third quarter, up 29.3 percent from a year earlier. While it’s great that federal reg- ulators are looking out for banks, who is looking out for borrowers? If a bank over-lends for one prop- erty out of a hundred it’s not a big deal, but for residential borrowers the situation is different. They’re only buying one property. If buyers overpay they can face a major loss. There are no other properties in the picture to offset their risk. “Appraisers should be protected by the prudential regulators,” said Trice. “Instead they are under as- sault. It cannot end well when you remove the only independent third party who is unbiased.” There’s an oddity with progress. The results we get are sometimes not the results we expect. We live in the computer era and yet we still use a lot of paper, about 10,000 pages per year for the typical office worker. In a similar sense, AVMs are here to stay. Their use will increase. This is a natural progres- sion to expect in the Internet age. But AVM growth does not mean appraisals will disappear. There’s a need for physical, on-site, indepen- dent valuations by trained apprais- ers. There’s a place today for both AVMs and appraisals. And there will be tomorrow. •
lished in 1994. If adopted, “an addi- tional 214,000 residential real estate loans originated by FDIC-insured institutions or affiliated institutions” would no longer require appraisals. Of course, many residential mort- gages are originated by organiza- tions not insured by the FDIC. Also, these 214,000 properties are above the 750,000 already exempted from an appraisal requirement under the $250,000 minimum. “The regulators have lost their collective minds,” Trice told the Housing News Report. “And they propose this under the guise of ‘safety and soundness.’ It feels so 2005-ish. I hope Michael Lewis has already started his next book. This next crisis is going to be a collat- eral crisis, not a credit crunch. Collateral matters.” In the context of residential property, the proposed threshold would be significantly above the
typical prices paid by consumers. For instance, in Q4 2018, the me- dian existing home sale price was $245,000 according to ATTOM Data Solutions. For new homes, the gov- ernment reported that the median price was $309,700 in October. As with the new commercial threshold, fewer required residential appraisals would open the doors for alternatives. As the proposal states, “Evaluations would continue to be required for transactions exempt under the increased threshold.” “This increase in the number of loans that would no longer require appraisals would provide meaningful burden reduction for regulated in- stitutions,” explains the Office of the Comptroller of the Currency (OCC). And yet, curiously, if there’s a $400,000 minimum threshold for residential appraisals it means that independent evaluations will be required for more expensive homes.
Peter G. Miller is a nationally syndicated newspaper columnist, the author of seven books published orig- inally by Harper & Row (one with a co-author), and for many years a Washington-based journalist.
24 | think realty housing news report :: april / may 2019
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