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Wait a minute! You say USPAP and neighborhood analysis don’t go together? In one sense, you’re right. USPAP does not use the word neighborhood in Standard 1 or 2. For reasons unknown, the GSEs continue to use the word neighborhood, even though, in a certain context, it could have racist overtones. Seems a little hypocritical to me. But the GSEs have not asked me to function as their ethics police.
So, when it comes to USPAP and neighborhood analysis, does the appraiser have to analyze the neighborhood? That raises the question, “OK, how does one analyze the neighborhood?”. You have to remember that the GSEs look to us for more than merely a value conclusion. They look at us to peer, prophet-like, into the future and tell them what will happen. In this way, we aid the GSEs in understanding and mitigating risk. What risks do the GSEs take? One of their risks (among many – most not related to appraising) is underwriting the loan. From the GSEs come the money you and I use to purchase our homes. Since the GSEs want both a return on their investment, as well as a return of their investment, they must understand the risk factors of purchasing mortgage loans.
So, we appraisers likely do not think of USPAP and neighborhood analysis in the same mental sentence. But the GSEs do. We help them manage risk. Since housing plays a huge part in the economy of the US, our ability to help the GSEs manage the risk of buying those loans is crucial. This is why, even in the GSE’s eyes, appraisals are a significant cog in the US’s mortgage money machine. Therefore, are we helping the GSEs manage risk, or just providing them with useless boilerplate?
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