Both appraisers and underwriters are working in a time of significantly increased scrutiny as it relates to their work, with the pressures associated shared between them both. HUD regularly completes Post-Endorsement Technical Reviews (PETR) on its files. Direct Endorsement (DE) underwriters are on the line for overall mortgage credit underwriting as well as appraisal report underwriting, with unacceptable ratings possible for both aspects. This leaves the DE underwriter responsible for indemnification of the loan file. Most appraisers are unaware that the DE underwriter not only shares in the liability associated with the appraisal report, but technically has a much greater liability that relates to all aspects of the loan file.
The increased pressure and liability for DE underwriters understandably translates into increased scrutiny for the appraiser as it relates to the appraisal report, as the DE underwriter attempts to package and present the loan file (including appraisal) with his or her finest wrapping paper and prettiest bow. The result is often a tug-of-war that frequently gets heated with unwavering positions on both sides.
Appraisers find many underwriting concerns to be frivolous and without true merit or meaning. The fact that a great deal of subjectivity comes into play related to underwriting is equally frustrating and confusing for appraisers, as they may have handled specific situations similarly for years, with no issues or concerns, only to be “dragged through the mud” by a specific underwriter down the road. Further, appraisers frequently find themselves victim to overzealous efforts associated with inexperienced DE underwriters or newly designated Full-Eagle mortgagee organizations. Often, there is a failure to fully read the reports and commentary for complete comprehension—a frequent reason for unnecessary underwriting requests. And there are times when it seems DE underwriters overstep their bounds as it relates to the practice of the appraiser and his or her process. Examples include the attempt to require appraisers to make definitive statements related to well and septic distances when no survey is available, or to automatically appraise properties with an accessory unit as a multifamily property despite highest and best-use analysis results that are contrary.
The intent here is not to bully DE underwriters. In fact, I would like to make it clear that it definitely goes both ways, such as in cases in which reports are conditioned “subject to” non-mandated repair of cosmetic deficiencies, or matters that have absolutely no effect on the safety, security or soundness of the property. Let’s certainly not forget about the frequent across-the-grid, unsupported or explained adjustments within the Sales Comparison Approach.
The AMC is typically stuck in the middle, managing frustrations on both sides in an attempt to reach an effective means to an end. What can be done? As the national quality control manager for Landmark Network AMC, I believe that frustrations, discontent and overall relations between DE underwriters and appraisers will never improve without the benefit of direct interaction. The power of direct communication is generally a very effective tool for a means to an end to underwriting concerns. But more than that, it provides the DE underwriter and the appraiser the opportunity to explain and understand each other’s concerns and not just to work toward a resolution on the matters at hand, but to also work toward an improved, effective industry relationship. Landmark Network encourages such effectual dialogue by putting these two individuals together for discussion as often as possible while maintaining the independence of the parties involved. I believe that it is through such arrangements that we learn from one another, learn to respect one another and grow together as industry partners and as an industry.
About the Author
John Golden is the National Quality Control Manager for Landmark Network, Inc. He is a former certified residential and FHA appraiser and is currently on HUD's 203k consultant roster.