Brokers: Keep Emili

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Any move away from automated valuation – and toward appraisers – could hurt clients, say brokers, anticipating fallout from a media report suggesting CMHC’s system inflates home prices.

“To put the market back in the hands of appraisers could make a complete mess of things for clients,” said Cameron Mackie, an agent with Dominion Lending Centres Your Mortgage Partner. “It would return us to a system of very conservative valuations and cost borrowers more on top of that.”

The comments follow the release of documents obtained by access to information requests and detailing bank and default insurer concerns about CMHC’s automated system Emili, specifically that the data it relies on is flawed and routinely overvalues properties.

Mortgage brokers were among those consulted for the report, although lenders appear to have registered the moiety of concerns.

While Mackie and others concede automated systems are subject to abuse, they’re concerned the report might undermine the use of those electronic databases and see default insurers and lenders turn exclusively to on-site appraisals.

Broker complaints about ultra-conservative appraisals – especially around non-CMHC refis  -- did, in fact, increase as mortgage rules tightened and OSFI shored up its lending guidelines.

“The major issues with appraisals are with clients that are refinancing and repositioning debt to consolidate,” Andre Semeniuk, a mortgage planner with Mortgage Architects, said in July. “Appraisers understand that because there’s no one waiting to sell the house there won’t be the same aggravation of coming in low on an appraisal on a refinance that there is on a purchase.”

 

  • Elfie Hayes on 2012-10-12 4:17:47 AM

    Is there a new designation now for Mortgage Agents????

    Andre Semeniuk, a mortgage planner with Mortgage Architects, said in July.

    Noted in the last paragraph of the article above.

  • MJ on 2012-10-12 4:37:15 AM

    I agree that appraisers are coming in low on values, but isn't an evaluation about protecting the lenders' interests and not the clients' wishes? One of the reasons our industry has been subjected to a lower LTV on refis is because properties may be over-inflated in value. The emili system can be manipulated and measures need to be put in place to prevent this from exposing our lenders to undue risks. Too many over-evaluations that go south, and we'll see more lenders exiting. No thanks.

  • Patrick on 2012-10-12 4:55:09 AM

    The Brokers have it all wrong. CMHC EMILI Program has already messed everything up ! ! !

  • Patrick on 2012-10-12 4:57:20 AM

    EMILI Program over-values homes from 5% - 15%

  • Derek Rowley, RMA on 2012-10-12 5:30:33 AM

    Good day

    This is really a catch 22 in one respect. Our prime concern obviously is the cleint but as professionals we need to ensure that we are looking out for our lenders best interests at the same time. In many instances I have had appraisals come in at the value and it was a good appraisal. On the flip side I have had appraisers come in too low and when asked why, they said they have to protect themself - duh.

    My biggest concern is when an insurer orders the appraisal and in too many instances, instead of it going to a local appraiser who knows the market in their area, it is assigned to an out-of-town appraiser and in many instances this has caused the appraisal to come in low and this really applies to the drive-by appraisals. The old saying, "you can't judge a book by its cover" really applies here. regardless, the bottom line is there is going to be a continuance of changes and there is really nothing we can do about it.Even the IMF is saying we Canadians are still too far in the hole and tigher regulations are needed.

    Well enough of the wining session. Need some cheese.

    best regards and continued selling to all

    Derek Rowley

  • Paolo Di Petta | dipettamortgage.com on 2012-10-12 8:29:20 AM

    AVM's are awful. Anyone who received their MPAC assessment recently can attest to that.

    As mentioned by "MJ" and Derek above, we're equally responsible to protect our lenders and our borrower clients. Appraisals, though more costly, are far more accurate - they take into account more relevant details that can only be observed by a human being in person.

    I'd also be so presumptuous to say that if a ~$250 appraisal is a deal breaker in a $400k+ transaction, then there are bigger problems than needing a mortgage.

  • Darrell on 2012-10-12 8:34:05 AM

    Making a complete mess for clients would be a shame. But, how close does that fall to looking out for your client's best interests?

    I've seen properties overvalued by 15-60% by an AVM. This percent difference isn't based of an AVM value to an appraised value. It's a straight comparison to what they sold for compared to an inflated AVM value. There have been properties that have been for way above average marketing time, the client is in financial trouble now and looking to refinance. The AVM valued the property well over what it's currently listed for/not selling for and much higher than what it eventually sold for.

    What values are appraisers low on? Are they squashing sales or just the number that's "needed" for refinancing? If the appraisal is for market value, it shouldn't differ in value whether or not it's for a sale. If you feel the appraisal is low, prove to them why it's low with real and recent comparable sales and they'll usually change it.

    I think AVM's should be used for nothing more than a reference point. Yes, that means the hassle of taking more time and the cost of an appraisal though. There are many AVM values that are close too, but the bottom line is appraisers know their local markets well. Management companies are making that harder with the point you made Derek about getting out of town appraisers. Hopefully we'll see some improvement in that sector soon.

    Trusting it entirely to a nationwide statistics program where data changes from street to street, day to day, and deal to deal is taking way too much risk for everyone. So all of this to save a bit of time and money? Find a good appraiser then. Treat them well, and there are plenty out there who will drop what they are doing to get what you need done quickly and be able to fully justify their reports.

  • David O'Gorman CPMB on 2012-10-12 11:02:00 AM

    Its about time! We all have a stake in the integrity of the financial system, the mortgage market & the real estate market. If one of those is out of whack , we all have a problem. EMILI has been the bane of the mortgage business.

    1) The reliance on EMILI by CMHC has caused "boost & flip" frauds to flourish. No physical inspection of the property & a reliance on an inaccurate valuation system, has caused systemic valuation issues.
    2) The frauds cause even more inaccuracy in the MPAC assessments of property values causing property owners to pay artificially high property taxes.
    3) It is humorous that lender's that relied on EMILI for property values which allowed the lenders to produce & sell huge volumes of mortgage backed securities are now turning against the EMILI.
    4) Why has this taken so long to come out in Canada? When the American market hit the wall in 2008, AVMs down there were challenged. Is CMHC a sacred cow?

    5) If you are going to lend money against real estate, nothing beats an experienced designated appraiser & I don't mean appraisal management companies, hiring people to appraise a property for $75.00 a pop.They should be the educated , experienced eyes, ears & nose of the mortgage lender, or the mortgage broker dealing in private funds

  • Ron Butler on 2012-10-13 5:34:15 AM

    Many of these comments ignore the fact that Emili has worked very well for 16 years. Mortgage Brokers love to tell their "one of" stories of terrible AVM results but CMHC has had an enviable record of strong profits and low defaults for a very long time. Something tells me the system has served us all very well during these last 16 years.

    I am also amused that many mortgage brokers think they are smarter and more proficient than banks in almost all property lending matters. Who are the richest companies in Canada: the big 5 banks.

    What is the ultimate source of 80% of the mortgage funds we broker: the big 5 banks.

    I think we need to mature as a group and realize that our specific observations based on the relatively small number (compared with CMHC or the banks) of deals we see with issues should not be a platform to attack a system that has served us and the Canadian public so well.

    There will be stresses in the mortgage system for the next few years but the real culprit will be very low interest rates for a long time leading to "over exubriance" in the Canadian property market and those chickens will come home to roost. CMHC and Emili did not hatch those chickens.

  • Max Cafissi- Broker on 2012-10-13 5:46:42 AM

    Amen, to David O'Gorman's comments. Banks are blaming EMILI when it's their Mortgage Officers and Mortgage Reps that have control over the process. We, as Brokers, do not have access to the EMILI Valuation system, so they surely can't blame the Broker channel. It's their greed in gaining Volume and Higher Market share, so now that someone has finally figured out that we may have a potential problem down the road, they start their whining and complaining. Appraisals should be done in person, by qualified individuals using current data. Nor only that, but they should charge a heck of a lot moire for their services.

  • Terry on 2012-10-13 10:04:01 AM

    Isn't that the truth! I want to comment on what I do know for sure: Not only do out of area appraisers not know the local market, if the Brokers themselves on their own could order the appraisal, and say called their friendly appraiser from a city that has many designated appraisers to appraise a property located in another major city that has many designated appraisers, that alone would be something of a suspicious nature. So, why is it, the insurer, NAS or Solidify is allowed to send these sometimes out of province guys? In regards to how appraisers look at a purchase value differently than a refi; absolutely a difference. When appraisers get the order for a refi, they usually have this fear that the homeowner could be in trouble and if foreclosed in future, they feel they could be putting their job on the line, so they will make room for that, if this should happen, meaning a lower value than what it really is. And, what really bothers me more are the differences in values when the order is for a private sale, versus a MLS Listing property. And, the reason I do know this for sure is: I personally called an appraiser I know here with a question and comment: I aksed this: When a property is MLS listed, is there any way you would want to write up a value that is lower than what it is listed for, because if you did, the realtors involved and all realtors would make sure you would not be given referrals anytime soon. The appraiser was put on the spot with this question, but admitted yes. So, what does that tell you about the truth, even when the insurer doubts value on these private sales. I had an incident where the listing agent was from the same Real Estate Comapany ans the CRA appraising the property. Truthfull, it just doesn't seem right when he appraises it for exactly the listing price, not a penny more or less. Hmm, seems odd. And, with NAS and likewise Solidify, it seems the appraisals are double the cost to the clients.

  • novascotiaappraiser on 2012-10-14 12:15:24 AM

    An appraisal is an estimate of value based on comparable sales and history of the subject. 99% percent of the time, a listing (asking) price of a property is what the owner or sales agent would like to get for the property. Generally the sale price (market value) is something less than the list price given a normal negotiation process. That being said any opinion must also consider other comparable properties that have sold and also consider active comparable listings as well. The estimate of market value (anticipated sale price) is the only supportable and true test of value.

    It is incumbent on appraisers to know the market. The competency provision in our Professional Standards (Appraisal Institute of Canada)should prevent appraisers from delving into markets where they have no experience. Perhaps brokers should suggest homeowners qualify the appraiser before they accept them into their home. Ask if the appraiser has adequate knowledge of the local market. We often are prevented from discussing the value of the subject property however we should be able to discuss general activities in the neighbourhood. If the appraiser waffles, request another. I know this may slow down the process but in order to make a sound financial decision you and the homeowner deserve an accurate, market supported estimate of value.

    PS: The situation of a CRA who is related to a listing or sales agent in the same company that currently has a property for sale, creates a strong possibility for conflict of interest and that appraiser should decline the assignment.

  • Paolo Di Petta | dipettamortgage.com on 2012-10-16 3:27:41 AM

    @Ron Butler - it's not that it "worked well" for 16 years - it APPEARED to work well in a generally up-trending market. Now that that trend has changed, the AVM's algorithm is showing it's major flaw - a lack of common sense.

    Moreover, I'd add that the AVM's didn't work well, and instead CONTRIBUTED to the problem. AVM's use a blanket, rudimentary formula that was one of the many factors that fed into the cycle of increasing valuations. Too many people turned a blind eye to bad valuations (i.e. "that's what the system says"), and that's what got us here.

  • Ron Butler on 2012-10-16 5:15:59 AM

    @Paolo - what you are engaged in is revisionist history. Consider the countless (and I do mean countless) homes that were bought, financed and sold during the last 16 years. Virtually nothing went wrong. At least anything that was wrong was well within tolerances.

    Now you somehow want to blame AVM for ramping up the cycle of property price inflation. Paolo, with all due respect I think 2.00% to 3.00% interest rates are 99% the culprit on that score.

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