Tag Archives: mortgage lending value


UPDATE MAY 11 – I think I mentioned in a prior post that about 1/3 of all restaurants are expected to close and stay closed.  Alternative use for those will be interesting.  Also, the expectation is that 20% of hotels may not reopen.  The almost unanimous alternative use is affordable housing.  That is probably a win-win for the housing industry (more supply in the much needed lower price range) and hospitality industry (lower supply in a future world of lower demand).

APRIL 30 – Although it will likely be 3-6 months before we have closed transactions that were negotiated during the COVID-19 crisis, that doesn’t mean real property values haven’t already declined.  Key indicators are available that provide an indication of how much prices have likely declined.  Reduced asking rents, increased vacancies, increased cap rates, and lowered list prices are among the indicators that we can analyze.

Based on my analysis of these key indicators, I believe prices have already DECLINED as follows:

5%-10% for residential, 10% for apartments, 50% for golf courses, 30% for hotels (economy 20%), 5%-10% for industrial, 20%-30% for office, and 25%-35% for retail.  Obviously, these are general figures and specific properties can be doing better or worse.  It is likely another 5% to 10% decline over the next year will occur.
One exception exists to the above…A flight to quality is occurring worldwide.  U.S. Treasury Bonds and the U.S. Dollar have been beneficiaries during this crisis.  In real estate, Net Lease properties appear to be the only property immune to a decline in value.  However, the Net Lease market appears to be bifurcated.  Most of the investor interest is directed towards corporate tenants that have top tier credit ratings (Moody’s – A3 and better; S&P – A- and better).  These properties are experiencing cap rate compression and thus higher prices.  At the other end of the spectrum are corporate tenants with credit ratings in the B’s.  Analysts are forecasting that 40% of corporate bonds rated investment grade will be lowered to junk status.  These properties are subject to negative price adjustments as credit ratings are lowered and cap rates rise accordingly.
Hopefully, appraisers are applying Market Condition adjustments to all sales and adjusting the various factors in the Income Approach accordingly.  It is no longer acceptable to use a 0% Market Conditions adjustment or the excuse that transactions aren’t available so it is not possible to know what has occurred.
As I have preached for 10+ years, Germany has performed Mortgage Lending Value appraisals for 120 years without using sales transactions.  When the American appraisal industry started in the 1930s it didn’t base Market Value on sales transactions either.  Appraisers do not need comparable sales to know what Market Value is currently.
Best of luck out there.  Stay safe.
The Mann


July 24, 2017 – The Federal Agencies published the following on July 19th:

The FDIC, the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency (the Agencies) are jointly issuing a notice of proposed rulemaking titled Real Estate Appraisals (Appraisal NPR) that will be published in the Federal Register for a 60-day comment period. The Appraisal NPR proposes to increase the current appraisal threshold for commercial real estate (CRE) transactions from $250,000 to $400,000. The Appraisal NPR addresses comments received during the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) review process, which requires that, not less than once every ten years, the Agencies, along with the Federal Financial Institutions Examination Council, conduct a review of the Agencies’ regulations to identify outdated or otherwise unnecessary or burdensome regulatory requirements.

You can get their full 60-page report at:


The one thing I found amusing was their statement that it takes about 40 minutes to review an appraisal.  Who did they survey?

I have reviewed over 4,000 commercial appraisal reports for the past 25 years.  I consider myself extremely fast.  Plus, many times I am reviewing reports of the same appraisers I have seen 10 or 20 or 50 times before.  That helps to speed up reviews as we know where everything is in a report.

In all of the time studies I have been part of or heard about for the past 25 years, the average time to perform a Compliance Checklist is 2 hours and to perform a Technical Review is 4-8 hours.

But, that is not an important issue.  The only suggestion being made is to increase the $250,000 threshold for all commercial loans up to $400,000.  The business loan exemption will stay at $1,000,000 and the residential (1-4 units) loan exemption will stay at $250,000.

These are minor changes and quite surprising to me.  Based on inflation alone (which they present in their report), I would increase the $250,000 to $500,000 and the $1,000,000 to $2,000,000.  Based on the stats they present, this would keep appraisal volume at 1994 levels (appraisal volume has increased steadily over the past 23 years).

If I really had my way, I would eliminate appraisals for all business loans and residential loans.  Appraisers know that the value when a new loan is made is meaningless.  These type of loans are based on credit not real estate.  The banks only need to know the real estate value years in the future when a foreclosure might occur.

Which, of course, always brings us back to my call for America to adopt Mortgage Lending Value/Long-Term Sustainable Value…..but, I digress.

Remember, you have the opportunity to send in your opinion to the Agencies.  This is probably the first time in 23 years that your opinion has been asked for in regard to FIRREA.  And, it will be the last time for another 10 years.  Speak up…this is the time to do such.

The Mann


May 17, 2017 – As most of you know, I have been promoting Mortgage Lending Value (MLV) in America since back around 2009.  For the first time ever, HypZert is going to offer the course in America.

Information about the course is below.  The cost is $3300, which is a lot cheaper than the $20,000+ I spent on courses, travel (to Berlin), and the exam.  This is a great opportunity to learn new appraisal theory as it is introduced to America.  It is spreading in Europe and I believe it will be commonplace in America within 10 years.  I encourage you to go for it!

Training Course „Mortgage Lending Valuation“, Sep and Nov 2017 in New York – Please Register before 30 June 2017

 German Pfandbrief banks have recently intensified their activities in the U.S. real estate markets. This results in an increasing demand for real estate valuers with local market expertise who are qualified in Mortgage Lending Valuation (MLV) according to the German regulation (BelWertV).

 The vdpPfandbriefAkademie offers a compact training unit covering the methodology of MLV. The training consists of 4 seminar days in New York City including extensive study material and prepares for the corresponding certification as a HypZert Real Estate Valuer for Mortgage Lending Valuation.

The CIS HypZert (MLV) certification guarantees that its holders fulfil, without restrictions, the legal requirements for valuers according to § 6 of the German Regulation on the Determination of the Mortgage Lending Value (BelWertV).

 HypZert is Germany’s leading recognized institution in the area of certification of real estate valuers. HypZert certified experts are appreciated by clients and employers in the finance and real estate industry.

 For more information on the Seminar and Certification, please contact Nadine Roggendorf at roggendorf@pfandbriefakademie.de



October 18, 2016 – As I mentioned in my very first post on this blog, one of my goals is to get Mortgage Lending Value (MLV) adopted in the USA.  Between new bank regulatory guidelines (specifically CECL) and the proposed Basel IV, things are looking good for Long-Term Sustainable Value (LTSV) being adopted here.

Since 2009, I have made it known that my 10-year goal was to get MLV/LTSV used by American banks and to eliminate the use of Market Value as currently defined.  Market Value may not be eradicated, but the use of MLV/LTSV will greatly reduce future loan losses and market volatility.

The following is from the October 17, 2016 edition of the Appraisal Institute’s Washington Report and State News.  I have placed in bold the wording that makes it clear that prices that exceed value (like what is occurring currently in almost all markets and property types in America) are to be adjusted downward accordingly.  It is great to see the World recognize the difference between price and value.  It will be better when the American valuation industry has to recognize this, also.

7 years into this….in 3 more years I might need to move on to another long-term goal.

Planned Basel IV Includes Valuation Provision
The banking sector is on high alert as the Basel Committee on Bank Supervision expects to finalize its new accord (Basel IV) by the end of the year, the Appraisal Institute reported Oct. 17. The Second Consultation Document, which was released for comment in March, pays significant attention to real estate risk requirements, including real estate valuation.
The so-called “Basel Accords” are issued by the Bank for International Settlements and establish regulatory capital requirements that bank regulatory agencies around the world have committed to following.
For exposures secured by real estate, the accord proposes to use the loan-to-valuation ratio as the main driver for risk-weighing purposes, and to use a three-category classification (from less risky to risky) as follows:
  • General treatment for exposures secured by real estate where repayment is not materially dependent on rent/sale of the property;
  • A more conservative treatment for exposures secured by real estate where repayment is materially dependent on cash flows (i.e. rent/sale) generated by the property. Specialized lending (corporate) exposures assigned to “income-producing real estate” under the IRB approach would be classified under this category; and
  • A conservative, flat-risk weight for specialized lending real estate exposures defined as “land acquisition, development and construction” (i.e. loans for unfinished property that meet the definition of specialized lending).
The proposed accord also includes the most extensive commentary relating to real estate valuation of any current accord, and includes a provision directly relating to market value:
Value of the property: the valuation must be appraised independently using prudently conservative valuation criteria. To ensure that the value of the property is appraised in a prudently conservative manner, this value must exclude expectations on price increases and must be adjusted to take into account the potential for the current market price to be significantly above the value that would be sustainable over the life of the loan. National authorities should provide guidance setting out prudent valuation criteria where such guidance does not already exist under national law. If a market value can be determined, the valuation should not be higher than the market value.
These market value constructs appear consistent with current bank regulatory requirements in the U.S., with one exception. The “life-of-loan” concept is new to U.S. bank regulatory requirements and could be interpreted to include “long-term sustainable value,” which is found in accords used in other parts of the world, including Europe.
As noted, the Basel IV accords are expected to be finalized in the coming months. U.S. banking trade organizations such as the American Bankers Association have called on banking regulatory agencies to release a notice of proposed rulemaking for any changes to the risk capital requirements to help avoid piecemeal application and increased complexity. Once finalized, expect implementation of Basel IV provisions in the U.S. to take considerable time.