Blog for Appraisals by Appraisers of Las Vegas with News, Facts, Stats and Analysis of the Las Vegas, Nevada Real Estate Market. Appraisers of Las Vegas

Las Vegas real estate, mortgage, appraisal blog

WaMu Crashes and Some Are Crying "Told You So!"

September 26th, 2008 1:57 PM

I did a little digging after hearing about WaMu being taken over by the FDIC and then bought by J.P. Morgan. Washington Mutual (or WaMu), in 2001, announced that they would be using AVMs instead of appraisals and for many that was the turn towards failure. An article on Access My Library from Origination News dated August 1, 2001 went a little further into it.

Washington Mutual Home Loans & Insurance Services Group has announced an initiative to integrate automated delivery of real estate appraisal data into its Optis mortgage origination platform.

Called OptisValue, the new system is scheduled to be deployed in third quarter 2001 to streamline the appraisal process and cut costs through to provide electronic delivery of appraisal reports. OptisValue incorporates FNC Inc.'s Collateral Management System (CMS) to support OptisValue. The system is slated to offer 24/7 access to information and real-time status of ordered appraisal services.

Washington Mutual-approved appraisers will be required to use Appraisal Institute (AI) Ready software and to use FNC Inc.'s Appraisalport.com website to electronically receive assignments and submit completed appraisals.

"Our new real estate appraisal system will help support WaMu's substantial loan production and will contribute to the efficiencies delivered by Optis," said Stacey Arens, executive vice president of operations for the Home Loans & Insurance Services Group at Washington Mutual. "The OptisValue system supports our goal to enable closings in three to five days. With the use of AI Ready software, the system will create significant cost savings for Washington Mutual and ultimately for our customers."

AI Ready software is currently offered by Day One, a division of Appraisal.com Inc., Buffalo, N.Y. "I see this as a very smart action on Washington Mutual's part," said Appraisal.com president and CEO Mark Yellen. "Today 90% of lenders are still receiving appraisals on paper, and WaMu's pro- active stance is an important step toward industry-wide acceptance of electronic delivery. Access to a common pool of data is a solution that is going to benefit everyone."

In a related announcement, AIRD Inc. (www.airdport.com) announced that Appraisal Partner Inc. (API) has incorporated the Open Appraisal Document Interface (OADI) for its forms software products. The interface allows forms companies to implement the Appraisal Institute's Residential Data Storage and Transmission Standard.

AIRD, a joint venture between FNC and the Appraisal Institute, is offered as the first XML-based Internet-accessible, nonproprietary national database of residential physical property data based on factual information submitted by appraisers.

Software conforming to the standard bears the logo "Appraisal Institute Ready" and allows banks and their vendors to transmit and receive data to and from other participating software, as well as AIRD, without re-keying.

"Through the standard and through the Appraisal Institute Ready initiative, API's clients will be able to deliver appraisals and retrieve information easily online and thus will be able to work more efficiently," said Ann Spitzley, president of AIRD Inc.

On May 4, 2005 Andrew LaPlante told the Federal Reserve that appraisals were unnecessary for every loan and that the likelihood of failure for those loans was minimal.

Institutions not regulated by the Agencies are better able to take advantage of the newer valuation technologies. Requiring an appraisal by a State licensed or certified appraiser for virtually every transaction with a transaction value of over $250,000 increases significantly to the processing time and origination cost to the potential borrower. For example, non-Agency regulated institutions are able to offer the enhanced speed and reduced cost of Automated Valuation Models (AVMs). Traditional appraisals represent a cost to the borrower of approximately $300 and take 5-10 business days to complete. An AVM is usually under $100 and can be completed in minutes.

Requiring a full appraisal on low risk loans is analogous to requiring the potential client to provide and pay for a full physical when applying for company sponsored health insurance. Yes, it would contribute somewhat to good decisioning on the individual transaction, but if a competitor had analyzed the risk of the entire pool and was able to offer competitive pricing without requiring a full physical, the physical would comprise a significant obstacle to competition.

Because the $250,000 transaction value exemption contributes a significant competitive disadvantage to Agency-regulated financial institutions, without a commensurate contribution to the safety and soundness of those institutions, Washington Mutual Bank strongly recommends that the de minimus exemption be raised to at least $500,000 for loans secured by residential real estate.

The LA Times had this to say about the largest bank failure in American history:

Before the mortgage meltdown, WaMu was a major originator of subprime and other risky loans. Of the $181.5 billion in home mortgages that WaMu had on its books as of June 30, $52.9 billion were adjustable-rate loans in which borrowers had an option to make lower payments, but exercising that option also put them in deeper debt and, many believe, more likely to default.

Of the rest, $16.1 billion were subprime loans to the riskiest borrowers.

With assets of $307 billion and deposits of $188 billion, the thrift is by far the largest bank to fail in U.S. history. The record had been held by Continental Illinois National Bank and Trust of Chicago, which had $40 billion in assets when it failed in 1984 -- about $84 billion in today's dollars, according to a Bureau of Labor Statistics calculator.

It looks as though relying on computers and giving out loans on values that weren't accurate helped create the largest bank failure in American history. It is vitally important, more now than ever, that lenders have accurate values for the homes they are financing. Appraisers of Las Vegas can give you that peace of mind by providing an accurate and true appraisal of the real property, residential or commercial.

Posted by Leah Barr on September 26th, 2008 1:57 PMPost a Comment (1)

Subscribe to this blog