Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California

Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California
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Wednesday, March 23, 2022

PAVE Task Force Action Plan from White House Released by Mary Cummins Real Estate Appraiser

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PAVE task force report is out. The White House press release misquotes and twists the data to fits its agenda. It then goes into their issues. Nothing here that we didn't already know. It is sad to see the government continuing with the false racist white appraiser narrative. Racist appraisers exist but every appraisal you don't like is not the result of racism. 

For the 100th time, the cause of the wealth gap between blacks, POC and whites is the income gap. If you make less money, you have less money. If you have less money, you buy and own a less expensive house. Real estate appraisers, automated valuation methods are not devaluing the homes of blacks, POC. They bought less expensive homes to begin with. If you want to solve the wealth gap, solve the income gap. Don't scapegoat appraisers and appraisals. It's clearly easier to blame appraisers than fixing the income gap which I realize is a difficult problem.

White House Press Release

https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/23/fact-sheet-biden-harris-administration-releases-action-plan-to-address-racial-and-ethnic-bias-in-home-valuations

PAVE Task Force Action Plan Executive Summary

https://pave.hud.gov/actionplan

Actual PAVE Task Force Action Plan as pdf

https://pave.hud.gov/sites/pave.hud.gov/files/documents/PAVEActionPlan.pdf

Rooting Out Bias in Home Appraisals: The PAVE Task Force Action Plan to the President. Join Vice President Harris, White House Domestic Policy Advisor Susan Rice, Housing and Urban Development Secretary Marcia Fudge, and Americans who have been negatively impacted by the home appraisal process on new actions the Biden-Harris Administration is taking to root out bias and ensure that every American has a chance to build generational wealth through homeownership. 

https://www.youtube.com/watch?v=UPtS0lPpiT4

My comments on the full PAVE report are below. I'm sad to see the misinformation, false data and twisted interpretations made it into the final government report. I had hoped the final report would be fact and science based. It's mainly political talk to incite and appease certain groups. 

Pg 1. The report starts out with a fact. "Today, the median white family holds eight times the wealth of the typical Black family and five times the wealth of the typical Latino family." They should have followed that up by stating that whites make more money than blacks and Latinos.  This is the main cause of the wealth gap. 

Pg 2-3. They refer to Andre Perry's paper but don't mention his name or paper in the text. They merely list it as ref 2. Maybe they finally realize Andre Perry's paper was not independent, peer reviewed or published research. The pre PAVE reports listed him by name extensively. 

Pg 3 While referring to Perry's results they state "Recent research has identified appraisals as one of the drivers of the gap." There were no "appraisals." Zillow zestimates or AVMs were used. Even Zillow states their zestimates are not appraisals.  Zillow has the least accurate AVM which is just one reason the research is meaningless. 

Pg 3. They misquote the Freddie Mac research. Freddie Mac clearly stated they don't know the cause of the differences. "First, our analysis has not yet determined the full root cause of the gap." Danny Wiley of Freddie Mac stated "We have not reached any conclusion for cause of the gaps or correlation." The gap could have many causes such as revitalizing areas and condition. AVMs assume average condition, average everything. Perhaps the homes appraised by appraisers over AVM values were in better condition than average, better than average location, better than average view, upgrades...

Pg 3. They stated a recent analysis of appraisals for government insured loans revealed some contained racial or ethnic references. "From millions of appraisals submitted annually, a keyword search resulted in thousands of potential race-related flags." That is 1,000/1,000,000 = .001% or 1/1,000th of 1%. This is a minuscule amount. While there should be no such references they did not say or show the references affected the value. 

Pg 3. Appraisal gaps exist and are part of the natural market. They are caused by the historical approach to value based on closed sold comps. It happens to everyone in a quickly rising market. They infer it only happens to people of color POC. They state it negatively affects the entire community. No, it doesn't. It happens in a quickly appreciating market. It does not effect property value for property taxes. They also forget to mention that it affects areas where there are black, brown, white people. If it were only related to race, color, it wouldn't affect the white people in the same exact area but it does. 

Pg 4. Black home ownership rate is 44% and white is 74%. "Eliminating the gap in homeownership would help reduce the wealth gap." Agreed. That is accomplished by helping them increase their income. The more money you make and have, the more expensive house you can buy. These people think appraisers set the values of homes. We don't. Buyers, sellers do. We just report it. 

Pg 4. "I live in an all-Black community. My lot and house are bigger, yet my home is valuated at $25,000 less than the house two doors from me, which is an all-white community. The Biden-Harris Administration acknowledges that the communities of color like mine have lost billions of dollars solely through the appraisal process. We’re committed to taking meaningful action to increase homeownership and generational wealth for all. HUD Secretary Marcia L. Fudge."

Great, now I have to evaluate Marcia Fudge's house 26910 Emery Rd, Cleveland (Warrensville Heights), OH 44128, 3 bed 2.5 bath, 2,423 sf on 1.49 acres built 1952 last sold 1976 when she was 24. I have a feeling her statement is not the truth. And it's not! Marcia Fudge appears to be comparing her older home to a newer development across the street, highway. This is the description of the newer development across the street. I have no idea if it's "all-white" as I have no way to know that. Should this woman be the head of HUD if she doesn't understand the fundamentals of real estate and real estate valuation? 

"Fabulous model Quality masterpiece built by Skoda Construction with all the bells and whistles! Stunning chefs kitchen with High-end appliances, granite countertops, wood / Laminate flooring, tile, and more! First floor office, family room overlooking the stunning kitchen and backyard with a deck. Upstairs offers a fabulous master suit, second bedroom and laundry room. Finished lower lower, bonus room and full bath in lower level!! This is your opportunity to have your dream home in this Upscale Community! Clubhouse in development. 15 Year tax abatement at 75% of home only! IF you are Military, the 15 Year tax abatement is 100% of home only!"

Pg 5 1.5 "Address potential bias in the use of technology-based valuation tools through rulemaking related to Automated Valuation Models (AVMs)." AVMs are biased against every home except an average home with no upgrades, no views, in average condition. AVMs cannot see condition, view, additions, upgrades, specific location in a neighborhood (on top of a hill, on a cul-de-sac, next door to industrial property). Garbage In Garbage Out. GIGO. You need a live person to see the type of view, remodel, upgrades... There is no number for view. They should not be used in place of an appraisal because they are not accurate. 

Pg 5. "Update appraiser qualification criteria related to appraiser education, experience, and examination requirements to lower barriers to entry in the appraiser profession." Except for the trainee program, the qualifications are already very low. You don't need a college degree or even a high school diploma. You just need to take the classes, do your hours and pass the test. 

Pg 7. "Expanded use of alternatives to traditional appraisals as a means of reducing the prevalence and impact of appraisal bias." The alternatives are AVMs which are biased against all properties except average ones. Hybrids are also biased. The appraiser does not do the inspection with a hybrid. The inspector who only has 2-3 days of training max will miss major flaws in the home or neighborhood.

Pg 7. "Use of value estimate ranges instead of an exact amount as a means of reducing the impact of racial or ethnic bias in appraisals." How will the loan amount then be determined? As a range as well? 60-80% LTV? Lenders could choose the lower range of the value. Did anyone think through these issues or are these ideas that people just blurted out at a meeting to write on a dry erase board?

Pg 10. "Black Americans who do own homes hold less home equity, on average, than white homeowners." This goes back to income inequality. Whites make more money. People with more money own more expensive home and have more corresponding equity. Whites own more expensive cars than blacks, latinos. Is this also the cause of real estate appraisers?

"An uneven recovery from the 2008 housing crisis cemented these differences: houses in majority white neighborhoods regained value more quickly than those in comparable Black and Latino neighborhoods." This goes back to income inequality. Homes in the lowest price ranges may not have recovered as well initially because they were lower priced originally. The lower the price, the less desirable they are to the market. This is econ 101. 

"Frederick Babcock’s influential 1931 manual “The Valuation of Real Estate,” hypothesizes that neighborhood decline results inevitably from occupation by “…the poorest, most incompetent, and least desirable groups in the city,” and describes how “…racial heritage and tendencies seem to be of paramount importance” in influencing property values." 

They state these ideas were included in the 1933 HOLC which estimated financial risks on a map. This goes back to income inequality and correlation. The first HOLC maps included race, ethnicity and nation of origin in their maps along with many other factors. This was determined to be racist language so race, ethnicity and nation of origin were removed from the maps. All of the other factors are still used today to determine risk. Removing race, ethnicity, nation of origin didn't change the risk. I'm glad they got rid of race, ethnicity and nation of origin.

Not allowing black and other people to live in certain areas was very wrong. I'm grateful the government worked to make that illegal. I'm glad we have the 1968 Civil Rights Act. We've come a long way but have more to go to root out racism and discrimination if it's even possible. We humans may always have an "us" versus "them" mentality based on any factor. 

Pg 14. They argue that appraisers used to over appraise to satisfy lenders, borrowers. They further argue that this "caused" the run up to the great recession. This is false. Appraisers report values. We don't set them. I lived and worked during that run up. Appraisers generally missed the contract price. There were appraisal gaps. We were called "deal killers" back then. Because of today's political climate we are now called "racists." Because the values went down during the great recession some are falsely stating we must have appraised the properties too high originally. We did not. Now the same people are complaining that we're appraising too low. If we appraise at contract, we're in cahoots with lenders. No win situation here. 

Pg 14. "For the purposes of this Action Plan, the Task Force will use the term undervaluation to refer to valuation estimates less than a reasonable estimation of market value, understanding that there is imprecision in that term." What is this "reasonable estimation of market value?" None of these entities have done actual appraisals of their own on any of these properties. Why not compare appraisals to appraisals instead of AVMs or contract price? I believe it's because the results won't fit their agenda. Their agenda is the racist appraiser narrative in order to get votes by POC and people with less money. This is all based on Joe Biden and Kamala Harris' campaign promises. FYI I'm a Democrat and voted for them. In this instance they created a problem then promised they alone could solve. This all started during the 2020 campaign. The PAVE task force was basically a campaign promise. What about Kamala's promise to give over $70 billion to black colleges? That's too difficult. So is income inequality. Let's attack appraisers instead and say we're keeping our campaign promise. 

Pg 14. And one paragraph of truth. "In purchase appraisals, when a property appraises at less than the contract price, it may be the sign of an undervaluation. A purchase appraisal below contract price is not necessarily inaccurate or harmful. In fact, an appraiser’s well-considered valuation that is less than a contract price can serve precisely as the control that appraisers are hired to provide. A fully justifiable valuation less than contract price can benefit both the buyer (who may then be prevented from overpaying) and the credit risk holder."

Everyone needs to remember that the appraiser works for the lender and not the seller, buyer, borrower or real estate agent. Our job is to determine risk for the lender and investor. Our job is not to help the seller, buyer make a deal. They can hire their own appraiser to represent themselves if they like. 

Pg 15 If an appraisal comes in lower than the contract price "the buyer (has) to come up with additional funding to make the deal work. Obtaining more funding can be difficult for many borrowers, especially borrowers of color, whose median wealth lags that of white borrowers." Exactly. Whites have more money than POC. People with more money are more likely to be able to pay back a loan. You're not doing a person with less money a favor by getting them into a property they can barely afford. One life emergency and they'll lose their home. You set them up for failure. It's better to help them earn more money and let them save, buy and pay for their own house. They're more likely to make the payments. Getting people with less money into a house with a low or no down payment, lower fees doesn't help them keep their house. I see these people lose their homes. It's horrible. 

Pg 16. "When a neighborhood exhibits a pattern of low appraisals, the cumulative effect is a dampening of home values in that neighborhood, thus reducing the realized wealth of all of the neighborhood’s homeowners." No. If a neighborhood exhibits a pattern of "low" appraisals, it means the neighborhood is worth less. No one dampened the home values but the market. The market is the buyers and sellers the people the government is saying are being lowballed. If that's so, then buyers and sellers are lowballing themselves with their agreed upon contract prices! Appraisers don't set value. We just report it. 

Pg 17. This makes sense except it's not "undervaluation" but "market valuation." "Undervaluation patterns in neighborhoods are not always directly traceable to racial and ethnic bias in individual appraisals. Housing markets with more distressed properties, fewer transactions, or rapid house price growth are correlated with undervaluation. Similarly, one-bedroom, older, and lower-valued properties are correlated with underappraisals."

The PAVE report cites Andre Perry's paper multiple times without naming it. I think it's because they don't want people to Google him or his meaningless non published, non peer reviewed paper. 

Pg 18. The report talks about property tax assessment value and property taxes. Real estate appraisers who work for the lender do not appraise the properties for tax assessment purposes.The county tax assessor does that. Some cities, counties, states base the assessment on recent sales like Texas and some lock in the value upon purchase like California. Appraisers have nothing to do with this. Blame the counties and states. 

Pg 21. I knew this was part of PAVE! "On February 14, 2022, DOJ filed a statement of interest to make clear that the Fair Housing Act prohibits discrimination in home appraisals. The statement relates to a motion to dismiss filed in Austin, et al. v. Miller, et al. (N.D. Cal.), a private lawsuit alleging that the defendants violated the Fair Housing Act by discriminating on the basis of race in a home appraisal. After the defendants’appraisal, the plaintiffs — a Black couple — erased all evidence of race from their home and had awhite friend pose as the homeowner for a second appraisal, which set the home’s value at nearly$500,000 more. The statement of interest explains that appraisers may be liable under the Fair Housing Act, highlights the United States’ commitment to combat appraisal discrimination, provides an overview of the Fair Housing Act’s broad purpose and remedial intent, and addresses the pleading standard for Fair Housing Act claims."

This is a frivolous and meritless case. There was no bias, discrimination or racism. Black homeowners stated they wanted the appraiser to use comps from "white areas" and not "black areas" directly next to their home. They wanted the appraiser to use comps in Mill Valley over a mile away to appraise their home in Marin. Mill Valley homes are worth twice as much as Marin because they are higher quality homes in the hills with one of the best school districts in the state. Marin city is next to a port area. The area has poorly built federally subsidized telephone pole homes and apartment buildings. Read about this case here. https://mary--cummins.blogspot.com/2021/02/alleged-discrimination-home-appraisal.html

Pg 26. They're talking about controlling the use of the word "declining market." This generally comes from the 1004MC form. It's a math formula which considers all sales in the neighborhood within the last 12 months. Are list, sale prices going up or down over the last 12 months. That definition is not up to the appraiser but the numbers. 

Pg 26. They're talking about possibly delineating neighborhood boundaries specifically for appraisers. Neighborhood boundaries move and change constantly. The appraiser better knows the neighborhood than a suit in Washington and definitely better than an AVM. Some AVMs like inaccurate Zillow will keep widening the search to look for recent similar sales. It will go miles away into a totally different neighborhood. That is why the Austin case above has Zillow AVM values at the same value as the higher inaccurate second appraisal. More accurate Corelogic AVM values are similar to the lower appraisal value because it did not widen the search to Mill Valley which is worth twice as much. Zillow AVM values were twice Corelogic AVM values. That shows how inaccurate Zillow and AVMs are in general. Of all the AVMs I've seen, Corelogic is the most accurate. They still only kinda work for average homes. 

Pg 28. "While the exact number of instances of valuation bias is difficult to assess, recent media accounts, coupled with data and history regarding lending and appraisal practices, reflect a persistent mis-valuation and undervaluation of properties experienced by borrowers and communities of color."

PAVE members know how many complaints are based on valuation bias. They just don't want to say because most bias, discrimination complaints reported to HUD are based on disability and not color, race. Most complaints per HUD are dismissed. The recent media accounts have been very misleading. I researched all of the major appraisal discrimination stories in this blog and found that the first appraisals were accurate. The later appraisals were over inflated.

Pg 31 I agree that the trainee program for new appraisers is too difficult. I agree with PAREA for some experience. Appraisers still need to know what they are doing. They need hands on experience. I don't agree with eliminating all experience. "Reduce or eliminate AQB experience requirements." You're more likely to get biased appraisers if you do that. I am fine doing away with the college education requirements. You could qualify with other education as it is. There still should be some education at least a high school degree and some community college credits. I don't agree they should just pass a written test. You need to know how to inspect a house, measure it legally, choose comps, make adjustments via regression analysis, statistics, geometry... 

Pg 34. "Empowering consumers to take action." I sure hope they educate these people about what is real appraisal discrimination and what is not. An appraisal that is lower than you want is not bias or discrimination. It's most likely the market. I foresee many false and frivolous complaints. I also see borrowers, sellers threatening appraisers with complaints just to get the value they want. They're already doing it based on the false media articles. Maybe they should also give legal advice and free lawyers for the appraisers who have complaints lodged against them if they are doing the same for the people filing complaints. 

I hope when they inform people about ROV that they educate them about a proper and legal ROV. I've seen some where they ask the appraiser to consider a home sale where the house was twice as big and four miles away. Any new comps must meet the criteria which is basically +/- 15% GLA difference within half mile radius of subject sold and listed within the last 30-90 days preferably or up to six months in similar condition with a similar bed/bath count, view, upgrades and amenities. 

I fully support a goal to "reduce the prevalence and impact of racial and ethnic bias in residential property valuation." While there are racists in every profession I just don't see racial and ethnic bias to be a major problem in appraising. Real estate appraisals are based on a math formula. Actual appraisers are needed to get the data to put in the math formula. We select our comps based on a math formula before we physically step foot in a home. We know 99% of the value before we enter the home. We generally don't see the seller, buyer, borrower or neighbors. We generally don't know the race, color, religion ... of the homeowners, buyers or borrowers of the subject or the homes that sold or are listed.

Mary Cummins of Cummins Real Estate is a certified residential licensed appraiser in Los Angeles, California. Mary Cummins is licensed by the California Bureau of Real Estate appraisers and has over 35 years of experience.


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