Appraisal House Blog

I received an email today (in my junk folder, where it belongs at least) from a guy selling "credit repair" services.  Now, I understand that occasionally things show up on your credit report that shouldn't be there, and it is important to contest them with the credit bureaus to have them removed. 

However, this junk mail -- titled "Credit Repair Offers Hope for Builders and Realtors" -- was such a BS sales job that it was almost funny.  Almost, but not really, because I know that realtors and mortgage brokers are out there pushing it, and people are buying it. 

I can already hear the proponents.  "It helps people buy homes!"  "It is a valuable service!"  I agree that removing something that shouldn't be on your credit report will improve your credit score and potentially help you qualify for a mortgage.  However, the entire email was written to give the (false) impression that they would "remove the negative items" in the report.  They never mention that because you failed to make your credit card payment on time for 5 years straight, or had your car repo'd, or filed bankruptcy, you are still responsible and those items will stay on your credit report regardless of what you pay to this company.  They market it as though they will just go in and wipe out anything negative on your report, and this is just false. 

"No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost." -- (From the FTC.gov website) 

I think what scares me most is twofold:
(1) That someone who is considering making the biggest purchase of their lives, and will be the biggest monthly expense for the next 30 years, has no clue that you can get (and should get) a free credit report every 4 months, and challenge any items that you believe to be incorrect - FOR FREE.  Is someone with that little basic financial knowledge really ready for the committment of owning a home?  If they don't know about their credit, can they be expected to understand escrowed taxes, insurance, maintenance costs, ARM's, homestead exemptions, and everything else that goes along with purchasing a home? 
(2) That a realtor or mortgage broker would push this service onto their clients, instead of advising them on how to do it themselves. 

It seems to me that after getting a copy of their credit report (either directing them to www.annualcreditreport.com or getting it from the loan officer), it would be a good service feature for the realtor (or more likely the loan officer) to examine the report with the client, see if anything is incorrect, and then instruct them on the next step to contest it.  Why would you direct your client to a company that will likely charge them thousands of dollars to do what they could do in 10 minutes online?  No computer?  Go to the library, use the one on your realtor or loan officers desk, work with a friend.  Or call the credit bureaus and request a form to do it in writing.  In my opinion, anyone that sends a client to one of these shops is doing a disservice to their client.    

Appraisers and mortgage brokers have an interesting dynamic between them.  And the recently proposed HVCC (Home Valuation Code of Conduct) proposed by the New York Attorney General and Fannie Mae and Freddie Mac, does not really help any.

The vast majority of appraisers -- those that primarily do appraisals for mortgage transactions -- need the lenders/brokers/LO's in order to survive.  It's that simple.  Without the business my clients send me, I have no business.  Yes, some appraisers make a living doing divorce work, tax work, legal work, etc., but it is not nearly the percentage that work on mortgages. 

Conversely, mortgage professionals have a variety of sources to get valuations from.  AMC's (appraisal management companies) and AVM's (automated valuation models) have continued to make inroads and take away business from the "traditional" appraiser.  Additionally, if the mortgage pro is unhappy with my work for any reason, there are 100 other appraisers that would love to take my place.  So the mortgage pro has only a minimal need for my services, and no specific need for me in particular. 

So the relationship is not balanced, but it never will be.  The only thing I can do to diffentiate myself is provide good quality reports, a wide service area, and fast service -- and let's face it, the fast service is the only thing that the mortgage pro wants. 
Or at least the only thing I am willing to consistently provide.  "Make value, and make it fast" as one LO told me when I asked how I could gain his business.  Sorry, but I plan to be in this business for a while, so I can get it to you fast, and make it a good quality report that gets through underwriting quickly, but it will be valued at what it's worth.  I'm not going to lose my license over a $350 appraisal.

So the mortgage pro has a phone book full of appraisers that would be more than willing to do work for him tomorrow morning, if not sooner.  And I would guess 30% would be willing to push values as well, which is "gold" for a lender.  (Just my estimate from doing reviews, nothing scientific.)  
On the other side of the fence, I can cold call all week and maybe pick up a client that will send me 1 or 2 reports a month.   So for me to lose a client, depending on what kind of volume they do, might cost me 40 hours in cold calling to replace, while the lender is out 5 minutes on the phone. 

However, I think it is very important to note that after quite a bit of turnover over the years, I now have a good roster of clients that (a) want to do what is best for their clients, and so want to see the true value, and (b) respect the quality of my work and rely on me to get the job done and done right.  I like working for them, and they like the work I do for them.  A relationship that is beneficial to all involved parties, including the buyer.

With any profession, there are good and bad apples.  Like the broker who told me to "make value, and make it fast", there are those people who I know are never going to be the clients I want.   And I have no doubt that there are plenty of appraisers out there who wouldn't think twice about doing work for them.  I've heard the argument from some of these pushers - that "everyone is doing it".  And judging by some of the appraisals I review, I know it happens regularly. 

I don't think the HVCC will do anything to stop this kind of activity between appaisers and lenders.  It's not an activity that is specific to one category of mortgage professional.  I've been pressured by the guy working at the bank that will hold the note just as much as the independent mortgage broker.  So the HVCC's provision to disallow brokers to choose their own appraiser (which it essentially does) doesn't help with everyone else in the pipeline.  And it does hurt some very good brokers that I do work for.