CFPB shuts down California credit repair company for lying to consumers

CFPB shuts down California credit repair company for lying to consumers

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Prime Marketing Holdings, a California credit repair company, was already on the radar of the Consumer Financial Protection Bureau, as several of its associated companies were fined earlier this year by the bureau for misleading consumers and charging illegal fees for credit repair services.

Back in June, the CFPB announced that Prime CreditIMC CapitalCommercial Credit Consultants and Park View Law, formerly known as Prime Law Experts, and several executives in charge of the various companies will pay more than $2 million for the alleged illegal actions.

Several of those companies partnered with Prime Marketing Holdings, which operated under several names, including: Park View Credit, National Credit Advisors and Credit Experts.

Now, the CFPB is doling out its punishment against Prime Marketing and banishing the company from the credit repair business.

The CFPB announced Wednesday that it filed a proposed final judgment that would resolve its previous actions against Prime Marketing Holdings. The bureau filed a lawsuit against Prime Marketing, claiming that the company charged illegal advance fees and misled consumers about the cost and effectiveness of its services and the nature of its money-back guarantee.

The final judgment would permanently ban Prime Marketing from doing business in the credit repair industry and require the company to pay a $150,000 civil money penalty.

According to the CFPB, between Oct. 1, 2014 and at least June 30, 2017, the company charged over 50,000 consumers more than $20 million for credit repair services.

But in the bureau’s lawsuit, which was filed back in September 2016, the CFPB accused Prime Marketing of making “misleading and unsubstantiated statements about its ability to improve consumers’ credit scores by removing negative information from their credit reports.”

The company also “misrepresented and failed to disclose the limitations of its money-back guarantee,” the CFPB said.

According to the CFPB’s complaint, Prime Marketing’s customers included people who were seeking to obtain a mortgage, loan, refinancing or other extension of credit.

The CFPB claimed that at times, Prime Marketing represented during calls to consumers that it is a “mortgage affiliate” or otherwise represented that it can help consumers get a mortgage.

The CFPB said that Prime Marketing allegedly made a number of false promises to its customers, including (taken directly from the CFPB):

  • Charging illegal advance fees: Prime Marketing Holdings charged a variety of fees for its services before demonstrating that the promised results had been achieved as required by law. Specifically, the company charged consumers initial fees that it, at times, claimed were required to obtain special credit reports for consumers. The company also charged set-up fees totaling hundreds of dollars and monthly fees that often equaled $89.99 per month.
  • Misleading consumers about the benefits of its credit repair services: Prime Marketing Holdings misrepresented its ability to remove negative entries on consumers’ credit reports. The company also misrepresented to customers that its credit repair services would, or likely would, result in a substantial increase to consumers’ credit scores, generally by an average of 100 points. The company lacked a reasonable basis for making these claims.
  • Misrepresenting the costs of its services: In some cases, Prime Marketing Holdings failed to disclose to consumers during sales calls that they would be charged a monthly fee.
  • Failing to disclose limits on “money-back guarantee”: Prime Marketing Holdings misrepresented that it offered a money-back guarantee if consumers were unhappy with the results of the company’s services. The company also failed to clearly and conspicuously disclose that the guarantee had significant limitations, including that the consumer had to pay for at least six months of services to be eligible for the guarantee.

To take effect, the proposed final judgment needs approval by the U.S. District Court for the Central District of California.

“Today we are taking action to shut down a company that deceived consumers into paying for credit repair services that did not live up to the company’s promises,” CFPB Director Richard Cordray said. “We remain committed to taking action against companies that mislead consumers into paying illegal fees with false promises.”


Direct homebuyer Opendoor getting into mortgage business

Direct homebuyer Opendoor getting into mortgage business

Digital house

Late last year, Opendoor, an online marketplace that buys homes directly from homeowners, announced that it raised $210 million to fund the company’s expansion beyond the two markets where it initially launched.

The company first began operating in Phoenix and Dallas-Fort Worth, but back in December, Opendoor said that it planned to expand to 10 new markets this year.

The company now operates in Las Vegas and Atlanta.

And as it turns out, that’s not the only way that Opendoor plans to expand; the company is also getting into the mortgage business.

The company is currently piloting a mortgage program in Phoenix, touting its ability to save homebuyers when they buy one of Opendoor’s properties.

Opendoor, which launched in 2014, operates by buying homes directly from sellers, then turning around and selling the homes on its own marketplace.

A homeowner seeking to sell their home can go to Opendoor, enter details about their home, and get a near-instant price quote for the home.

If the seller accepts, Opendoor then allows the seller to close on the sale when they’re ready, rather than on the timeline of another buyer.

From there, Opendoor makes any necessary repairs or upgrades, then sells the home through its marketplace.

According to the details provided by the company, more than 3,500 Phoenix homeowners have bought and sold homes with Opendoor. While that figure may not be earth-shattering, consider the company’s growth in just the last few years.

During a HousingWire webinar on Wednesday, Daren Blomquist, the senior vice president of communications for ATTOM Data Solutions, spoke about Opendoor and similar “instant offer” companies.

As shown in the chart below, taken from the webinar and courtesy of ATTOM, Opendoor’s growth over the last three years is significant.

Instant offers in Phoenix

The company also claims that it is the top listing agent in the Phoenix area, and said that 10,000 “home shoppers” visit the company’s site each month.

The company now says it’s taking a similar approach to the mortgage business.

“Mortgages are typically a huge pain point in the buying process, but now Opendoor is extending the same speed and service from the buying and selling experience to mortgages, with an added boost of cost savings for the customer,” the company said in statement.

Buyers using Opendoor Mortgage will be eligible for a 1% discount off the purchase of an Opendoor home in the form of a credit towards closing costs.

“We’re fearless about reinventing every step of the transaction to put more dollars in the pockets of our customers,” the company said.

The company said that buyers using Opendoor Mortgage can get prequalified in 30 minutes and close on a home on their timeline, just as they can when selling their home to Opendoor.

The company also claims that a buyer can close on an Opendoor Mortgage in as little as 15 days. According to the company, every buyer gets a dedicated loan expert, which allows them to lock in a mortgage tailored to their financial situation.

The company also launched its own title insurance operation, Opendoor Title, to cover all parts of the real estate transaction.

“We launched Opendoor Mortgage and Opendoor Title so we could handle the process for our customers from start-to-finish and ensure a streamlined transaction,” the company said.

While Opendoor is getting into the mortgage business, the company is not acting as the lender for its mortgage program. Rather, Opendoor will act as a licensed mortgage broker that works with correspondent lenders.

Back in December, the company said that it was handling $60 million in home volume each month and served more 4,000 homeowners since it launched.

Opendoor’s latest round of funding valued the company at $1 billion, making it the latest billion-dollar company to attempt to be a true one-stop-shop for the homebuying process.

Earlier this year, Redfin revealed that it recently began buying homes directly from homeowners with a service called “Redfin Now.” That news came on the heels of Redfin launching Redfin Mortgage, which added a mortgage-lending operation into Redfin’s existing digital-focused real estate brokerage and title businesses.

Now, count Opendoor among the companies that are trying to do it all in the real estate process.

Former Michigan housing commission exec admits to stealing Section 8 funds

Former Michigan housing commission exec admits to stealing Section 8 funds

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The former executive director of an affordable housing commission in Michigan admitted in court this week to stealing more than $336,000 in federal funds, including $162,000 that was meant for the Section 8 housing program.

According to the U.S. Attorney’s Office for the Eastern District of Michigan, Lorena Loren, the former executive director of the St. Clair Housing Commission, pleaded guilty on Tuesday to conspiring to commit federal program fraud.

In pleading guilty, Loren admitted to conspiring with several family members to federal funds provided by the Department of Housing and Urban Development to the St. Clair commission.

In addition to stealing money that was meant for the HUD’s Housing Choice Voucher program, otherwise known as Section 8 housing, which allows low-income families to lease a rental property with help from the government, Loren also admitted to taking $166,000 from the commission’s operating budget.

According to court documents, Loren used the stolen money to buy adult and infant clothing, furniture, food, beauty supplies, medications, other household items, and alcoholic beverages for herself and her family members.

Court documents showed that between August 2008 and August 2016, Loren fraudulently entered into some Section 8 contracts that directly benefitted her and nearly all of her immediate family members.

Specifically, Loren falsified Section 8 housing contracts and lease agreements by using nominees for lease agreements for Loren’s son. Additionally, Loren and several relatives falsely claimed to own rental properties where former Section 8 tenants lived.

Then, Loren fraudulently issued Section 8 rental subsidy payments to those relatives, and in the names of former Section 8 tenants who were no longer in the program.

Loren also directed her family members to establish joint bank accounts to allow other family members to access to the stolen money.

Additionally, between 2010 and 2016, Loren used the commission’s two credit cards to make unauthorized purchases of personal items for herself and her relatives from Amazon, Walmart and Sam’s Clubstores.

According to court documents, Loren had some of the unauthorized purchases, approximately $60,000 of the nearly $166,000 total, sent to some of the same relatives who were involved in the Section 8 housing scheme.

As executive director of the commission, Loren had control of its operating budget and used the budget to pay the credit card bills that contained her unauthorized purchases.

Loren also admitted to taking another $8,500 from the commission’s petty cash.

As part of her guilty plea, Loren agreed to pay $336,240.62 in restitution to HUD.

Loren also faces a maximum of five years in prison and a fine of up to $250,000 for her crimes.

“At such a critical time for the Department of Housing and Urban Development, with programs that are vital to the well-being of so many in our communities, it is critical that those entrusted to public service are completely dedicated to those in need,” Brad Gary, special agent in charge of HUD, said. “The HUD Office of Inspector General is committed to partnering with Federal prosecutors and fellow law enforcement to aggressively pursue those engaged in activities that harm HUD’s Public Housing programs.”

GDP estimate surges to 3% in second quarter

GDP estimate surges to 3% in second quarter

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Real gross domestic product surged in the second quarter to a level not seen since the first quarter of 2015, according to the second estimatefrom the Bureau of Economic Analysis.

The second estimate shows GDP in the second quarter increased to 3%. This is up from the advanced estimate’s 2.6% and up from the 1.4% increase in the first quarter.

In fact, the chart below shows this increase marks the highest GDP level since the first quarter of 2015.


(Source: BEA)

Recently, HousingWire examined whether President Donald Trump is on track to meet his campaign promise of 4% GDP. This increase puts the administration one step closer to that goal.

However, one expert explained this increase may not last.

“The American consumer was behind second quarter GDP numbers being revised up from 2.6% to 3%: Spending was revised to 3.3% from 2.8%, and consumers account for two-thirds of GDP,” said Robert Frick, Navy Federal Credit Union corporate economist. “But is it sustainable? Given wage gains are meager, and consumers are saving less and charging more, this may be a temporary surge.”

“Not coincidentally, today the ADP Employment report revised up its job numbers,” Frick said. “Americans are optimistic given the jobs situation, and that may be what’s behind increased spending.”

Real gross domestic income increased 2.9% in the second quarter, up from the first quarter’s increase of 2.7%. The average of real GDP and real GDI, a supplemental measure a measure of U.S. economic activity that equally weights GDP and GDI, increased 3% in the second quarter, up from an increase of 2% in the first quarter.

Here are updates to the previous estimate:

Current-dollar GDP: Increased to 4%, up from last estimate’s 3.6%

Gross domestic purchases price index: Held steady at 0.8%

Personal consumption expenditures: Held steady at 0.3%

Majority of Hurricane Harvey homeowners uninsured and face billions in damages

Majority of Hurricane Harvey homeowners uninsured and face billions in damages

Hurricane Harvey photo 1

Hurricane Harvey hit South Texas as a Category 4 storm, the first major hurricane to make landfall in the U.S. since 2005.

In addition to the lives tragically lost, estimates show the damage could total in the tens of billions of dollars, according to a report, RMBS 2.0 Exposure to Hurricane Harvey Affected Counties, released by Kroll Bond Rating Agency.

CoreLogic, a leading global property information, analytics and data-enabled solutions provider, conducted an analysis for the flooding occurring due to Hurricane Harvey. The analysis showed 52% of residential and commercial properties in the Houston metro are at high or moderate risk of flooding, but are not in a Special Flood Hazard Area as identified by the Federal Emergency Management Agency.

By Monday morning, FEMA declared 24 counties disaster areas, the state of Louisiana declared five counties and the state of Texas declared 54 disaster areas.

Across 101 KBRA-rated transactions, with an estimated total outstanding collateral balance of $653 billion, KBRA estimates that 2.8%, or about $18.3 billion, of the collateral in its rated transactions are located in one of the aforementioned disaster declared counties.

KBRA used the Texas and Louisiana declared disaster areas, specific to Hurricane Harvey as of Monday, to identify properties in the related securitizations. Within these counties, the process for identifying exposures could overestimate exposure relative to actual damage as effects of the storm may be localized within a given county. However, given that the storm is still active in the area, the affected area may increase in size through the coming weeks.

The map below shows the exposure predictions from KBRA:

Hurricane Harvey

(Source: KBRA)

The hurricane is expected to cause flood damage of at least $35 billion, according to Robert Hunter, Consumer Federation of Americadirector of insurance. While this is about the same level as Hurricane Katrina, most Louisiana homeowners had flood insurance, according to an article by Bernard Condon and Ken Sweet for USA Today.

Hunter estimates only about 20% of homeowners affected by Harvey have coverage, according to the article.

“Hurricane Harvey has claimed lives and has been estimated to cause billions of dollars to residential and commercial properties,” KBRA wrote. “Our sincere thoughts go out those who are affected by this disaster.”

Click to Enlarge

Hurricane Harvey

(Source: KBRA)

The housing industry continues its effort to help victims of the hurricane. For example, Wells Faro and JPMorgan Chase each donated $1 million for Hurricane Harvey relief efforts. Click here to see what other companies are doing to help the hurricane victims.

Check out this new mortgage tech conference just for women executives

Check out this new mortgage tech conference just for women executives

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NEXT Mortgage Events, a creator of events for women mortgage executives, revealed its conference: NEXT.

The newly created conference is a technology-centric conference and expo for women executives in the mortgage industry.

“With origination volume expected to decline in 2018, lenders need to know which technologies can help them grow and stay profitable—that’s exactly where NEXT comes in,” said Molly Dowdy, co-founder of NEXT. “NEXT’s goal is to position attendees as the ‘what’s NEXT’ experts inside their organizations. That’s particularly important in declining markets, like the one that’s predicted for 2018.”

The two-day event will take place from Jan. 18-19, 2018, at the Dallas InterContinental.

And as a media sponsor, HousingWire‘s people will be there to cover the event, which includes educational sessions, technology demonstrations, a product-focused exposition hall and networking meetings. So be sure to come out and say “Hello!”

The list of expert guest speakers includes: Tracy Stephan, director of enterprise innovation at Fannie Mae,Tiana Laurence, author of “Blockchain for Dummies” and co-founder and chief marketing officer of Factom, and Marcia Davies, chief operating officer at the Mortgage Bankers Association.

For attendees, the session topics will focus on tech-based solutions that address some of the biggest needs in the industry. This includes compliance, lower origination volumes, enhanced borrower experience, employee retention and sustained profitability.

“NEXT helps women executives stay on top of the tech innovations that impact the success and longevity of their businesses. NEXT delivers hard content in a thoughtfully designed, comfortable environment,” said Jeri Yoshida, co-founder of NEXT.

Amitree, maker of real estate email software Folio, raises $7 million to fund growth

Amitree, maker of real estate email software Folio, raises $7 million to fund growth

message tech

Folio, a Google Chrome extension that helps real estate agents manage all parts of a real estate deal from within their email, is currently used in approximately 5% of the nation’s real estate deals.

But that percentage could soon grow, as the Amitree, the company that makes Folio, recently raised more than $7 million to fund the company’s growth.

Specifically, the company raised $7.128 million in its Series A round of funding.

According to the company, more than 200,000 real estate transactions have been managed through the Folio software to date, and according to Google Chrome Store stats, more than 30,000 agents have Folio installed.

The company wants to grow both of those numbers and will put its recently raised capital toward that goal.

“So much real-estate focused technology is about disrupting the market in some attempt to replace real-estate agents, yet homebuyers and sellers rely on these agents for their experience and expertise more than ever before,” Jonathan Aizen, founder and CEO of Amitree, said. “Our goal is to empower the real estate agent and give them tools that help them do more of what they do best: put people in their dream homes and help them through that huge transition in life.”

The company bills Folio as a “smart transaction assistant” for real estate agent. Here’s how the Folio works, directly from the company:

Folio uses machine learning to process millions of emails and understand what’s going on with every one of an agent’s transactions. Folio helps agents manage their workflow, creating smart folders for each transaction that automatically sort an agent’s emails, files, and contacts. When looking at an email related to a transaction, real estate agents see contextual information right inside their email client that contains the transaction timeline, files, contacts, and status.

The round of funding was led by Vertical Venture Partners, with participation from existing investors, including Accel Partners.

Also participating in the funding was Seven Peaks Ventures, led by Tom Gonser, a partner at Seven Peaks and the founder of DocuSign. Through the investment, Gonser joined the board of Amitree.

“Real estate is going through a shift toward more intelligent tools that help streamline the experience,” Gonser said. “Electronic signatures were the beginning of this wave, and tools like Folio are the next step in enabling the real estate agent to bring more efficiency to their business through machine learning and vertical-specific AI that’s built for them.”

HUD extends disaster relief to Hurricane Harvey victims

HUD extends disaster relief to Hurricane Harvey victims

Hurricane Harvey photo 2

The Houston area continues to see heavy rainfall due to Hurricane Harvey and the heaving flooding plaguing the city is only expected to worsen as rain continues to fall.

Some areas could eventually see up to 50 inches of rainfall, and five people have died due to the Category 4 hurricane with another 12 reported injured.

First responders are hard at work in the city, rescuing flood victims.

President Donald Trump issued a disaster declaration for 18 counties in the area including Aransas, Bee, Brazoria, Calhoun, Chambers, Fort Bend, Galveston, Goliad, Harris, Jackson, Kleberg, Liberty, Matagorda, Nueces, Refugio, San Patricio, Victoria and Wharton. The president may add more counties as more data becomes available.

Now, the U.S. Department of Housing and Urban Developmentannounced it is offering mortgage and foreclosure relief as well as other assistance to some families, including to the 200,000 FHA-insured homeowners, living in the impacted areas.

“Today, our thoughts and prayers are with those who are beginning the process of recovering from Hurricane Harvey,” HUD Secretary Ben Carson said. “As FEMA begins to assess the damage and respond to the immediate needs of residents, HUD will be there to offer assistance and support the longer-term housing recovery efforts.”

Carson urged the nation to put aside its differences, and focus all efforts on helping those affected by the hurricane.

Here is the disaster assistance HUD announced it is extending to the Houston area:

Assisting the state and local governments in re-allocating existing federal resources toward disaster relief – HUD’s Community Development Block Grant and HOME programs give the state and communities the flexibility to redirect millions of dollars in annual funding for critical needs, including housing and services for disaster victims. HUD is currently contacting state and local officials to explore streamlining the department’s CDBG and HOME programs in order to expedite the repair and replacement of damaged housing.

Granting immediate foreclosure relief – HUD is granting a 90-day moratorium on foreclosures and forbearance on foreclosures of Federal Housing Administration-insured home mortgages.

Making mortgage insurance available – One HUD program provides FHA insurance to disaster victims who have lost their homes and are forced to rebuild or buy another home. Borrowers from participating FHA-approved lenders may be eligible for 100% financing.

Making insurance available for both mortgages and home rehabilitation – Another HUD loan program enables the purchase or refinance of a house along with its repair through a single mortgage. It also allows homeowners who have damaged homes to finance the rehabilitation of their existing single-family home.

Offering Section 108 loan guarantee assistance – HUD will offer state and local governments federally guaranteed loans for housing rehabilitation, economic development and repair of public infrastructure.

The extent of the damage could take some time, possibly even years, to repair, one expert explained.

“The effects of Hurricane Harvey on south Texas have been tragic and devastating,” BTIG homebuilding analyst Carl Reichardt said. “It is likely that homebuilders in the region will be negatively impacted as well.”

“Clean-up and repair in affected areas will take time and resources that might otherwise be focused on new construction, especially as subcontractor labor is tight,” Reichardt said.

Wells Fargo and JPMorgan Chase each donate $1 million for Hurricane Harvey relief efforts

Wells Fargo and JPMorgan Chase each donate $1 million for Hurricane Harvey relief efforts

Hurricane Harvey photo 1

In light of the devastating destruction from Hurricane Harvey, Wells Fargo and JPMorgan Chase are donating $1 million each to support those affected by the hurricane and the relief efforts.

And beyond the initial $1 million donation, both banks also included options for their customers to get involved in relief efforts.

Wells Fargo is donating $500,000 to the American Red Cross Disaster Relief Fund, and an additional $500,000 to local nonprofits focused on recovery and relief efforts in Texas in the coming days and weeks.

Wells Fargo is also waiving ATM fees for customers in the affected areas, as well as reversing other fees – such as late fees – for all of its consumer products, including credit cards and checking accounts.

Wells Fargo announced a way for its customers to help as well, giving the following two options:

  • Wells Fargo customers across the country may donate to the American Red Cross’ hurricane relief efforts at Wells Fargo ATMs nationwide, beginning Aug. 29. Customers will not be charged a fee for using this service, and 100% of the donations will be sent to the American Red Cross.
  • Beginning Aug. 29, Wells Fargo’s Go Far TM Rewards customers nationwide can begin to redeem any amount of their available rewards and donate to the American Red Cross Disaster Relief Fund through Tuesday, Sept. 12.

“Wells Fargo is deeply concerned for all of those affected by the devastating flooding in Texas, and we’re committed to helping our customers, neighbors, team members and communities get through this,” said David Miree, lead region bank president. “With forecasts calling for more rain and potentially more flooding, we will continue to work with nonprofits and those focused on relief efforts, as we determine any additional assistance and support Wells Fargo may be able to provide.”

Once the situation there is stabilized, Wells Fargo’s mobile response unit also will enter the affected areas to help customers receive and process insurance checks.

Similarly, JPMorgan Chase said it is donating $1 million to the American Red Cross and other nonprofit organizations working to provide immediate relief.

On top of this, JPMorgan Chase said it will match employee donations to these organizations.

In addition, Chase said it will automatically waive or refund the following fees through Sept. 10 for its customers in the Houston metro area and other areas severely affected by the hurricane:

  • Late fees for mortgage, credit card, business banking and auto loans
  • Overdraft, monthly service and ATM fees on deposit accounts

JPMogan Chase noted that it has about 6,400 employees in the Houston area. It also serves more than 1 million local customers.

“We’re here to help our neighbors as we face the relentless rain and flooding,” said Harman Johal, who manages the more than 200 Chase branches in the Houston area.

For those who want to help the victims of the storm, the Houston Chronicle has details on how to donate to the Red Cross and other information.

And as Kelsey Ramírez reported on Friday, both Fannie Mae and Freddie Mac issued bulletins late in the week, reminding mortgage servicers and homeowners of the government-sponsored enterprises’ disaster relief policies.

Also aiding in relief efforts, BB&T Corporation is contributing $100,000 to the American Red Cross of Greater Houston to help support disaster relief, along with sending shipments of humanitarian supplies.

While many branches and offices in the greater Houston area are currently closed, BB&T is standing by to assist clients.

The bank noted that clients who may have incurred storm-related overdraft, returned item, negative account balance or late loan payment fees are encouraged to contact BB&T at 800-BANK-BBT (800-226-5228) for assistance.

“The unprecedented flooding resulting from Hurricane Harvey is causing hardships for many of our associates and clients in the greater Houston region,” said Chairman and CEO Kelly S. King. “Our hearts go out to everyone affected by this storm, and we’re hopeful this donation will help begin the rebuilding process.”

Overworked and underpaid: Here are the challenges facing appraisers next year

It’s been an interesting year, 2017.

This is partly due to the unexpected good fortune that lenders enjoyed in 2016. Loan volumes were high last year, higher than many expected. It was good for lenders, but it took a hard toll on the industry and its suppliers. The result has been a number of unexpected challenges for the industry this year and, perhaps, some more to come.

While most sectors of the industry managed the increased demand with few hiccups, the appraisal services segment of the industry did not fare as well. The uninterrupted appraisal demand throughout 2016 and into the first quarter of this year led to chronic fatigue that spread throughout the appraiser population.

This led to a number of service level issues, including missed deadlines, longer than customary turn-times, increased revision rates, unresponsiveness and higher appraiser fee demands, to name a few.

These appraisal report quality and service level issues created friction between the appraiser population and lenders, real estate agents and homeowners. Some worried that we were beginning to see a new set of norms for appraisers, work quality and service levels. A closer look at the challenges appraisers faced will be revealing.

Challenge 1: Appraisal turn times

Whether purchase or refinance, historically speaking, real estate loans are expected to close and fund within 30 to 45 days of loan application. Purchase transactions usually depend upon a pipeline of settlements prior to and after a respective borrower’s loan settlement. Most sales contracts are written based on Buyer, Seller and Real Estate Agent expectations, which typically demand loan closing within 30 to 45 days of contract acceptance.

The increased workflow we saw in 2016 overwhelmed even the most seasoned appraiser professionals, causing them to continually miss deadlines without time to give warning or notification. Lenders and AMC’s alike made ceaseless attempts to communicate with and extract order status updates from appraisers with very little success. Mass disregard for communication and falling service levels caused delayed settlements, excessive revisions, extension rate lock fees and increasing frustrations across the industry.

As a result, lenders attempted to increase appraisal turn-time and fee expectations among members of the real estate community, as well as buyers and sellers with no success. This attempt at open communication with all parties was the right course of action and it might have worked if all lenders had been working in the same direction.

Unfortunately, some competing lenders were promising agents unreasonable turn-times in an attempt to win their business, even though they knew they could not deliver on their promises and offer a settlement to meet the sales contract demands. We could write volumes about business ethics between competing lenders and loan officers, but we will reserve that for another day. Notwithstanding the real estate demands, turn-times were extended out to accommodate the slowing appraisal deliveries.

Typically, as a result of vacation season, the summer market is known to lead to a reduction in loan volume, which would have given appraisers a welcome respite. But as if to compound the problem, interest rates declined leading into the summer which caused loan volume to remain constant, adding to the pressure on the appraiser community.

Consider also that the GSE’s had introduced their UCDP/UAD and appraiser were attempting to deal with the dataset findings and warnings without the benefit of sufficient training. It’s not that the appraiser community was unable or unwilling to adapt to the new requirements, but they had been improperly prepared. The GSE’s expected the lenders to communicate and train appraisers about the new system, datasets and warnings. This did not happen which forced appraisers to learn on their own. The GSE’s have since caught up with the training materials but a little too late.

Unfortunately for the industry, the appraiser community also vacations during the summer months, which pushed the due date on current orders out even further than anticipated. Where the appraisers seemed eager to manage their way through the increased volume of the 2016 spring market, their tune changed drastically when vacation season arrived.

Their message was unified, clear and concise: They were no longer willing to cater to their loyal client base.

Challenge 2: Appraisal fees

Appraisal fees are an enigma that leaves all parties feeling as if they are staring into a black hole looking for answers. This is not, however, a new challenge. Appraisers have been demanding higher fees for years with no consideration.

Part of the reason appraisers haven’t been more successful in achieving higher fee levels is that appraisers are unwilling to unite and work together through an organization or association. We have seen some very weak grass roots efforts to create this unity but with no success. Where many appraisers demand higher fees and are willing to band together to get them, there is still a community of appraisers in the marketplace that are willing to work for reduced fees.

High volume lenders and AMC’s are preying on these low fee appraisers in an attempt to generate higher profits from their services. It is not uncommon for a high volume lender or AMC to charge a borrower $500 for an appraisal report but pay the appraiser only $250. As long as appraisers are willing to work for these lower fees, the appraiser community as a whole is going to struggle with their cause to increase fees. Ironically, the lending community only hurts itself by promoting the lower quality work of a poorly compensated appraiser.

As a result of the continued outcry from the appraiser community regarding low fees, the interagency regulators established a rule that required lenders to pay appraisers a fee that is considered “reasonable and customary.” Typical for the federal government, regulators left a great deal of room for interpretation of the terms “reasonable” and “customary.”

Of course, we cannot fault the government for the vague language of its rule as it is not the duty of the government to establish the actual fees that are reasonable and customary in any jurisdiction. The government’s role is but to demand that they are paid accordingly. Many states have since taken the reasonable and customary fee rule to task and established minimum fees to be paid to appraisers for different appraisal report and assignment types. This is, in general, how it’s supposed to work.

Unfortunately, in some states, regulators seem to consider survey results an acceptable means of identifying reasonable and customary appraisal fees. Many of the surveys polled appraisers in an attempt to discover how much appraisers are being compensated for different appraisal report types and assignment conditions without the involvement of an AMC.

The problem with this approach is that the survey identified current appraisal fees, which from a historically perspective are deflated. For instance, in 2003 an appraiser in the Washington D.C. market charged $350 – $400 for a typical non-complex, non-FHA assignment, which consumed approximately 3 to 4 labor hours. As a result of increasing regulatory and industry demands, today in the same market an appraiser can expect to spend approximately 6 to 7 labor hours for a non-complex, non-FHA assignment for which they are compensated $375 to $450, on average.

Labor demands have increased by 100% and fees have increased by only 12%. Forgetting about cost of living increases, trainee appraiser limitations, overhead or other expenses, given the above scenario, appraiser compensation has declined by approximately 77% since 2003.

It seems that appraisers are on board with the reasonable and customary fee rule and the respective states’ approach to defining minimum appraisal fees. However, the states grossly missed the mark by setting the minimum fees incredibly low, thereby established a new normal appraisal fee. Now that these new normal fees have been established, appraisers will find it very difficult to increase their fees beyond state mandated minimums. It appears the appraiser community has been sold a 1972 Ford Pinto dressed as a 2017 Lamborghini.

Challenge 3: What’s coming next

If the challenges appraisers and the industry they serve were grueling in 2016, they could get even worse in the future. There are a number of risks appraisers are facing.

The appraisal-related issues the industry experienced in 2016 convinced lenders, policy makers, regulators and legislators of the need for change. Today, we find these decision makers analyzing the real value of the appraisal process and considering alternative solutions.

Industry complaints surrounding the appraisal issues of 2016 were taken seriously on Capitol Hill, causing politicians to demand explanations and solutions to the problem. If one thinks politicians will have no impact on the appraisal industry, think again. Remember back to 2009 when Congress and the POTUS restructured the automobile industry and fired the President of General Motors. Those actions changed the automobile world forever, leading to the collapse of Buick and Pontiac and leaving shareholders in the poorhouse.

GSE executives, for their part, have frequently denied allegations that they would approve an alternative to the real estate appraisal. Even so, they rolled out their revised Home Value Explorer and the Appraisal Waiver Programs in 2017. Where the terms have been in existence for some time, the programs have recently been refurbished to permit as many as 25% of refinance transactions to close without an appraisal report as opposed to less than 2% in prior years.

Another challenge, though there is some question as to how serious it is, is the shortage of new appraisers entering the business. Where there may be a shortage of appraisers during peak times, during normal business cycles under normal business conditions, appraiser turn-times return to reasonable tempos and fee increase requests recede in most markets, which leads one to conclude that the shortage may be somewhat overstated. That said, we cannot ignore the fact that the average age of a real estate appraiser is approximately 53 years old. Regulators are in the process of addressing the aging appraiser population and believe they have a remedy close at hand.

Despite all of these challenges, most markets are now seeing appraisal turn-times returning to more reasonable timeframes and service levels normalizing. For reasons outlined above, appraisal fees will continue to be an issue while the mortgage lending industry as a whole attempts to establish an appraisal fee equilibrium. We will still experience slower turn-times and higher fees during peak times in the business cycle, which is normal, historically speaking.

Appraisers ability to deal with these challenges in 2017 will impact the business environment in 2018 as surely as the events of 2016 have impacted this year. Understanding the business cycle and establishing business cycle expectations at the front end of the transaction across all parties will go a long way toward smoothing out the process for everyone and ultimately ensuring better borrower satisfaction.