Just as one man’s terrorist is another’s freedom fighter, so to is a return to prudent lending practices now leading to “unintended consequences”, namely fewer loans being extended.
The post-bubble spin-mongering continues. New lending standards now mandated by Freddie and Fannie as a result of a settlement between New York State and the mortgage giants to settle charges that pressure from lenders had produced inflated appraisals requires that lenders get a second appraisal on 10% of the loans they sell to the mortgage giants.
Mirable dictu, this process is leading to lower valuations, which confirms that the pressure to goose prices was widespread. That isn’t surprising, given the extensive reports in the media of appraiser collusion and Cuomo’s findings. But the real estate industry is instead trying to characterize this as the new sobriety in valuations as the result of bureaucratic conservatism, as opposed to the market being depresses and appraisals correctly reflecting that.
DoctoRx also points out that banks only need one appraisal to keep a mortgage on their books or sell it to a local investor.
Nevertheless, the story reveals an increasingly common pattern in Bloomberg in the last couple of months, of the news service making the most bullish interpretation (in this case, the real estate market is better than the appraisals say) and making it prominent, both in the headline and the initial paragraphs of the story. The header is “Low Appraisals Threaten U.S. Property Rebound by Cutting Prices,” which clearly says that the appraisers are disagreeing with prices agreed between two parties. Folks, that is what happens in a normal lending environment. I’ve seen and heard of it on transactions in more normal time. The idea that an appraiser should rubber stamp what a buyer is willing to pay is NOT a prudent lending practice, yet that is what the article implies. The story starts with that theme:
There may be another culprit scuttling a U.S. housing recovery: low home appraisals.
Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined 17 percent in May from a year earlier.
“It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”
Yves here. The fact that this story appears to have come from industry-cheerleading NAR’s lips to Bloomberg screens is a red flag.
It isn’t until the eighth paragraph, which is below the fold in my browser window, that you get this:
When home values come in below the sales price, that’s not the appraiser’s fault, it’s a reflection of the market, the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers, said in a statement yesterday.
“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” the group said. “That mentality helped cause the mortgage meltdown to begin with.”
Yves again. But the story immediately undercuts that and returns to the “low appraisals” mantra:
More deals are falling apart in a housing market that needs transactions to recover from a three-year slump that has dragged the U.S. into a recession. Low appraisals join a list of suspected obstacles standing in the way of a rebound that includes rising interest rates, a glut of foreclosed properties, and the highest unemployment rate since 1983.
Yves here. Look at the second sentence. “Low appraisals join a list of suspected obstacles standing in the way of a rebound.” That suggests that the rebound would be happening NOW were it not for all these pesky problems. But if you look at the rather daunting list of fundamental problems (note that rising rates were not reflected in the transactions included in housing report issued yesterday), the more accurate phrasing would be something like “lower appraised values reflect factors that suggest a housing recovery is some way off, including….” The “low appraisals” as opposed to “low appraised values” is also a masterful bit of Orwellianism, since it again says the appraisers are coming up with results that are “low”, meaning systematically biased, while “low appraised values” would be more descriptive.
The story provides all of two anecdotes to support its case, as well as quotes from some sources that appear likely to be industry-friendly. It does add that:
The U.S. Office of Thrift Supervision last May called the deal “flawed” and said it should be reconsidered. The Federal Reserve said it should be scrapped in a June 2008 letter to the Office of Federal Housing Enterprise Oversight, now called the Federal Housing Finance Agency, that oversees Fannie Mae and Freddie Mac.
However, the clear plan of the Powers That Be is to goose housing prices, so I do not take the official protestations at face value.
It should not be all that difficult to prove evidence that appraisals are coming in out of line with incomes and rentals. As readers know, housing got way out of line with the buyer ability to pay and needed to correct. The notion that it should “rebound” from here across the board, given how badly priced it became in many markets is questionable. There may be markets where housing had indeed overshot on the downside and appraisals are proving an obstacle, but support for that viewpoint in this story is far from persuasive.
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Yves,
I could not agree with you more. Last time I checked pricing typically, but not always, occurs at the intersection of supply and demand. To say that someone, such as an appraiser, can artificially lower the value of a home is droll. When a reporter on CNBC mentioned this notion early yesterday morning, steam nearly shot out of my ear. Were I in the comfort of my home, and not on at work, I am certain several objects would have been thrown at the television.
The NAR, MBA and their like have been a joke for the past decade. Anyone who has done any serious research on real estate can attest to the fact their figures are seriously convoluted.
Yves: Great post. It's frightening that the "Powers That Be" are trying to essentially reflate the bubble. It won't work, of course, and will lead to greater pain down the road, which is the same road down which the proverbial can is being kicked. That can is looking a little dented and sad these days.
RPB: Yes, and that's why I don't watch CNBC any more. While all I have is an antediluvian 27" Sony CRT, I'd like to keep it for emergencies during the rest of GD II.
While Bloomberg has some good factual reports and an occasional interesting article, much of the reporting leaves you with the suspicion that boosting the sale of terminals is colouring the media reporting. My understanding of the issues was that the evaluations were taking to long and performed by evaluators which were unfamiliar with the locality. Even these arguments do not bear up to scrutiny, as I don't see how low sales volumes could represent a work overload for valuers. Eventually people will turn to media outlets that tell the higher quality unbiased truth.
Hmmm, These appraisals only come into play when a deal has been struck and someone is looking for financing.
So if a willing buyer agrees on a price with a willing seller that that used to be pretty good evidence of a 'fair' price.
Silly, old fashioned idea I guess.
If you require the buyer to put up 20% of that questionable value you still will have a good loan. FNM and a FRE and especially the FHLB are still making very high LTV deals.
If you lend 97% of a deal you better have your appraisals on the conservative side. So that is what is happening.
The DC lenders have it backward. 80/20 loans are good loans. High value loans, even when there is a tight appraisal, are the source of bad credit. As usual the Agencies are focused on the wrong thing
The appraisal problem begins with the fact that the mortgage broker hires the appraiser.
It's ridiculous….Take a mortgage broker who acts as a complete intermediary with no stake in the successful repayment of the loan. Then, have the mtg broker hire an appraiser to determine the value of the collateral…"just in case the repayment is unsuccessful".
And if that's not bad enough…allow the same mortgage broker to repeatedly hire the same damn appraiser. As a result, the appraisal process is not about reflecting an accurate value…it's about reflecting the needed value so the broker can get the deal done.
If the appraiser does not come in with the goods, mtg broker just "Appraiser Shops" until he finds one that does…
This condition, of course, also affects those lenders who originate and service their loans–and thus, do have a stake in the loan's repayment. It's hard for them to be competitive when the borrower can just get the desired loan to value with another broker.
If you have absolutely no interest in getting a refinance or selling your home…and yet the relationship between Mortgage Company "X", Appraiser "Y" and Borrower "Z" has a dramatic impact on the value of your home…it seems, then, that the appraiser is engaged in a public function and that this is not simply a private affair.
I know these kinds of suggestions have many unintended consequences, but there really should be some discussion about how to make appraisers be more independent and less intimate with the mtg brokers.
Yes, Heisenberg is at play here, and the act of measuring will always influence what's being measured…but we've moved beyond a mere "influence". The act of measuring is now more important than what was being measured in the first place.
Sales are no longer driving Measurements. Measurements are driving Sales.
Make the Mortgage Brokers hold onto–or at least be responsible—for the mortgages for at least 18-24 months. Make the brokers at least have some vested interest in the appraised value.
If that won't fly, make appraiser more independent…like a VA appraiser–who, on a VA Mortgage, works for the VA and not the Bank/Broker.
It's amazing how much of this calamity can be attributed to lack of independence on both credit rating agencies and property value rating agencies.
http://www.nytimes.com/2009/06/21/business/21gross.html
"SIMON JOHNSON, a former chief economist for the International Monetary Fund and now a professor at the Sloan School of Management at M.I.T., says he isn’t surprised that Mr. Gross is such a virulent foe of nationalization. As Professor Johnson points out, Pimco is a major bondholder in some of the biggest banks. Nationalization would hurt his portfolio.
“It would reduce the present value of his holding,” says Professor Johnson, himself a proponent of nationalization. “Therefore, he is not going to look good as an investment manager.”
P.P.I.P.’s fate remains uncertain. When the Treasury Department put 19 of the nation’s largest banks through a stress test, many passed the exam and their stocks prices rose. They have raised $50 billion in new capital. Now some of them are likely to hold on to their distressed mortgage securities in the hope that the housing market recovers — rather than face the pain of selling the assets at a loss now (a situation that may get dicey if housing doesn’t, in fact, recover).
The Treasury now says that Mr. Geithner expects P.P.I.P. to serve as “backstop” for banks that find themselves in a pinch.
There’s a darker scenario, possibly. If mortgage default rates do soar, some big banks may fail. Then the administration would have to seriously consider nationalization, which might devastate Mr. Gross’s holdings. He is, of course, well of aware of this possibility and says he’s watching Mr. Geithner as closely as he watched the blackjack dealers in Las Vegas.
“We just don’t want to flush it all down the drain,” he says. “You want to shake hands with the government. But maybe it shouldn’t be a super-firm handshake.”
Seems like the PIMCO Times story is related to the Bloomberg 'appraisals all fooey' story. Gross is juggling bank profits and legacy loan PPIP purchases:
"Amid all of this, Mr. Gross and his firm are trying to shape the government’s response to the economic crisis. He is one of the most fervent supporters of the Obama administration’s plan to enlist private investors to help bail out the nation’s ailing banks and try to revive the economy.
That effort, known as the Public-Private Investment Program, or P.P.I.P., has gained little traction so far.
Mr. Gross is hardly a disinterested observer. Pimco, owned by the German insurer Allianz, is jockeying to be picked by Mr. Geithner to relieve the likes of Bank of America, Citigroup and other banks of an estimated $1 trillion in soured mortgage debt so they can start lending freely again. Mr. Gross calls the plan a “win-win-win” for the banks, taxpayers and Pimco investors."
Speed-dial for PIMCO! Empty pocket for taxpayers. And the assessment debacle will play into local municipalities revenues as well.
Will Team Obama swoop to the rescue and fix housing prices? Manipulation of assessments helped bring us the bubble.
PIMCO represents the elite's money. I think Team Obama is invested in protecting that.
http://krugman.blogs.nytimes.com/2009/04/06/bank-scams/
Krugman's take on PPIP, "I was starting to come to the conclusion that the plan would simply fizzle — that even though participating players would get a large put along with their free toaster, it wouldn’t be enough to raise the price they’re willing to pay to a level banks would be willing to sell at, rather than keep assets on the books at far above their true value. But once you take into account the possibility of insider deals, that all changes. As Jeff says, a bank can create an off-balance-sheet entity that buys bad assets for far more than they’re worth, using money borrowed from taxpayers, then defaults — in effect a straight transfer from taxpayers to stockholders."
"Or other stakeholders in Citi, such as groups of bondholders and shareholders, could do the same."
Jeffrey Sach's criticism of PPIP: http://www.huffingtonpost.com/jeffrey-sachs/the-geithner-summers-plan_b_183499.html
Based on my recent personal experience buying a home last month, I believe there are appraisers who have their shoes tied too tight. The home I purchased (with 15% down) appraised for $10k less than any comps had sold for before or since my purchase. It wasn't an issue for me, since I had enough of a downpayment to cover the "shortfall", but it was enough to make me question the entire appraisal.
I feel quite certain that I know my neighborhood better than any appraiser, since I've actually toured the "comps" when they were for sale, and I purchased for less than any of them, yet the appraiser felt the urge to reduce the value of my purchase below not only my contract price, but below what any property in the neighborhood had sold for in the past past year, and there were three identical comps in the past 90 days, so it wasn't some really unusual property.
Even the NAR is right sometimes, like a stopped clock.
Yves,
You're not alone in finding Bloomberg an increasingly "house organ" type voice of the financial orthodoxy.
Since after the TARP passed, they have clearly planted themselves in the "wishing will make it so" camp of activist financial journalism.
What happened to Joe Mysak, their muni bonds analyst, who was one of the first in the mainstream financial press to pronounce the bond insurers deceased?
It's a shame that a "news" organization — especially one that works on a subscription basis for so many individuals — has resorted to shilling.
Didn't America learn anything from the rush to the Iraq war? Here is the fourth estate, once again captive to the people who allot press availabilities and ignoring its duty to impartially report the truth.
There is an additional party in the room, which are state and local governments who collect property taxes based on appraised values.
Our local county has put a freeze on property tax adjustments until next year, locking in 2006 values on homes that have dropped 40% and more in value.
Didn't Marx call religion "the opiate of the masses"? Well move over great gods of olympus, the 24 hour media is the new drug of choice, TV the new deity
@Fraud Guy:
The county appraiser here in Palm Beach county does not include foreclosures in their appraised valuation. The appraiser also performed the appraisals in April this year instead of the customary June date. Along with these unfair practices, the county is planning to increase property tax by 15%, while the true values have plummeted 26% in my area IN ONE YEAR.
Karl Denninger says the true value of a home is what someone else is willing to pay for it.
Max Keiser says that the government's role in markets is to fix prices.
there is a serious problem with appraisals…and the articles and comments do not fully address it
1st) the appraisers are regulated by state laws, in SC the lender has to pick an appraiser from a pool, technically the person getting the loan "pays" the appraiser (taken out at closing) BUT the lender actually directs the appraisers action
2) 2nd…many lenders are fighting rate drift/movements, they have locked at a lower rate BUT they can not pass the paper on to the Federal Government at the lower rate, to get out of the problem they are directly the appraiser to stall the appraisal, to come up with problems that impact the valuation…and to drag it out so the 30 day locks expire…gets the lender off the hook…many of the appraisals are bogus.
3rd) valuations for property are all over the map…has nothing to do with selling price …instelad the appraiser finds a comparable sale and uses this as the basis for the appraisal…he usually lists 3 or 4 comps…but the appraiser picks them…so he can find lower sales or higher sales and slant the appraisal. I have had the same peice of property approased by 3 different appraisers with huge differences in valuations…by well over 15% (on a $600k property)
4) the problems with appraisals and appraisers are REAL…all of this is a direct result of the federalization of the mortgage business…so call mortgage lenders simply work against a line of credit…they always pass the paper on to the federal government…few keep the papers …so to get Fannie Mae or Freddie Mac to take the paper…the mortgage company dances to their tunes…and the tune is broken…get the Federal government out of this business…PERIOD
the FED has tightened lending requirements so much no one can get a loan (20% down), and closings are not being done in 30 days more like 60-90 days…so everything now is very very difficult for buyers…sellers are equally at risk…and folks trying to refinance are in limbo…YOUR/OUR GOVERNMENT AT WORK
wait until they run health care
few will tell you the truth about this
Problems with appraisals will continue until the entire process is changed. The fact that you could have one person drive two or three counties over to appraise a home in an area he has never been before undermines the entire process.
And add to that the fact that most appraisers have never go inside the comparable properties they use to derive value and you have another reason to not trust an appraisal.
You can argue all you want about low appraisals and high appraisals and who has what agenda but the fact of the matter is relying on one persons opinion (appraiser) based on comps never seen is absolutely ridiculous.
@ Dan Duncan
I understand your frustration, but appraisals are NOT ordered by originators/brokers anymore. HVCC is what its called. the originators/brokers are not leagally allowed to contact the appraisers directly. The appraiser is selected thru a bidding process
Taking 30 days to get an appraisal completed because of this. Here is a recent email from a friend of mine st Suntrust Bank, RETAIL, just today:
We have ZERO contact with appraisers, I don’t even know who is doing the appraisal until I get the report back.
They have no idea what value we need, unless it’s a purchase (they get the contract), so I would say we are getting very honest appraisals at this point, and they don’t hit the value on 40% of the purchases by the way.
I am not sure if the article mentions it, but 70% of the appraisals we get have the value reduced further by our appraisal review department, and that’s after about 30 to 40% are rejected and we turn down the loan completely (because there are no comps, or they just don’t like the property).
We will not see a recovery until housing hits bottom, we will not see housing hit bottom until the government gets stops taking measures to artificially hold, or prop up , the price of housing (which is exactly what they are doing now).
Low prices are not hurting the rebound, artificially inflated prices are.
I don’t know if you are originating any loans on the side, but it’s a complete nightmare right now.
I just got screwed out of buying my first condo last week because of this. The agreed sales price was $210K, the appraisal came in at $190K. That means I would have to bring an additional $20K to closing than planned, which I don't have so the deal fell through. The seller wouldn't budge on the sales price either.
I was really shocked about this, its in the Tysons Corner area of Northern VA and the sales price was on par with other units in the building. The appraiser mentioned the oversupply of condos in Northern VA as one of the reasons, along with the length the properties are staying on the market.
Thanks Yves for parsing the words used in this article where the battle is being fought by stealth -very sneaky, noisy, and unrelentingly. Its a noble undertaking (no literary prizes). These "Orwellian" tactics have proved so successful over the last 30 years that the PTB can't be expected to voluntarily give it up. It seems to be accelerating; hopefully that's because we're more aware of it.
Confronting and exposing the tactic is necessary as are addressing the issues with possible solutions and discussion:
A single-family house is a place to live -a necessity.
Securitization of necessities like residential home ownership must be fought and BANNED.
Debt burdens imposed by the FIRE sector conspiring with government is not being discussed from the point of view of the non-Imperial-sized-bonus-receiving American people.
It's the finance industry that should be bailing out the public not the other way around; they seem rather to be emboldened. Where are the ideas for corporations and finance executives to repay the people who have been covertly seduced and ripped off -by them? Here they are are on the TV book publishing and looking for adoration for their civic mindedness. Wow!!
Tyler Darden made an important point I believe when he warned a few blogs back about class tensions; that we should anticipate more tension between classes once investor fortunes improve. And that seems to be where the Corporatists are now concentrated as claims are made that the economy is improving and attempts at stabilization thwarted by the bad independent real estate appraisers, while in truth, the additional millions who have lost their jobs are scheduled to be left behind, remain unemployed -soon to be added to the statistically invisible.
Investment banking and personal banking must be separated along Glass-Steagall lines. It will allow the market to rebuild the local community bank branch system where 'know your customer' can have meaning.
"Know your customer' is part of Obama's reform bill.
As per usual, thanks for the excellent post, Yves.
I particularly enjoyed the "one man's terrorist is another man's freedom fighter" opening too!
And here I thought our all-wise Free Market Economy was able to automatically self-correct and adjust prices as to reflect reality. Or, is that religion considered to be gospel truth only as long as it also coincides with somebody’s selfish (and often sinister) interests?
I say prices have not fallen far enough. When millions have lost their jobs, retirement, homes, and hope, we need affordable housing in this country. The fat cats of real estate speculation need to get used to a low calorie diet.
It’s the New Economy, kitty, so better start purrrrring!!! Meow!!! :)
Vinny G. (a.k.a. “Vinny de Chicago”, Euro aristoCAT)
Love your stuff Yves. Great talking points and cut thru the crap like a Ginsu. Well done. Keep up the good work,
Shanky
Since Yves used the terrorist word, may I ask whom is a terrorist, in the Governments eyes. Umm lets see…
The Department of Defense is training all of its personnel in its current Antiterrorism and Force Protection Annual Refresher Training Course that political protest is "low-level terrorism."
The Training introduction reads as follows:
"Anti-terrorism (AT) and Force Protection (FP) are two facets of the Department of Defense (DoD) Mission Assurance Program. It is DoD policy, as found in DoDI 2000.16, that the DoD Components and the DoD elements and personnel shall be protected from terrorist acts through a high priority, comprehensive, AT program. The DoD's AT program shall be all encompassing using an integrated systems approach."
The first question of the Terrorism Threat Factors, "Knowledge Check 1" section reads as follows:
Which of the following is an example of low-level terrorism activity?
Select the correct answer and then click Check Your Answer.
O Attacking the Pentagon
O IEDs
O Hate crimes against racial groups
O Protests
***
The "correct" answer is Protests.
for more good times link…
http://animalspiritspage.blogspot.com/2009/06/terrorist-meme-spreads-among.html
Skippy…Sir I engaged the mom with the shopping trolley cuz I thought it was an IED…she had fear in her face whilst looking at us (heavily armed men)…thought she was going to detonate the trolly…my bad, it was just tubes of grain from hole foods, making bread I guess. NVM trooper we must stay vigilant, terrorists are every where…all enemy's foreign and domestic, right, carry on son.
If it is your own money, go ahead and pay whatever you want. It is a free country. But if you want to borrow the money, the lender SHOULD be very conservative in assessing the collateral. In case anyone didn't notice, fraud in lending played a major role in the creation of the bubble.
For those who want government out of mortgage lending, I couldn't agree more. Right now taxpayers are forking over $15billion/quarter on GSE losses. Shut down FHA and the GSE's and you'll see mortgage rates at 10%+ assuming a minimum of 20% down.
Alan,
Here's a more complete version of Marx's comment which, IMO, adds weight to your analogy:
"Religious suffering is, at one and the same time, the expression of real suffering and a protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, and the soul of soulless conditions. It is the opium of the people[1].
The abolition of religion as the illusory happiness of the people is the demand for their real happiness. To call on them to give up their illusions about their condition is to call on them to give up a condition that requires illusions. The criticism of religion is, therefore, in embryo, the criticism of that vale of tears of which religion is the halo."
[A Contribution to the Critique of Hegel’s Philosophy of Right, 1844]
Yeah, but when Marx wrote his utopian garbage that ultimately lead to hundreds of million of murders, he just didn't know enough neuroscience to understand the devils that human beings really are.
Our brains make their own natural opium — it's called endorphins. So if religion, communism, "irrational exuberance", the media, heroin, morphine, or Obama won't get us high enough, then we'll just make our own opium in desired quantities, and we'll screw up the day just the same.
Utopian trash Marx style is a dime a dozen nowadays. What we need are more Orwell-style books, to help out our seriously impaired reality testing abilities.
Vinny G.
/Skippy/
You could add that governmental authority in Iran also would classify 'protest' as low level terrorist activity.
Ah, the irony is excruciating.
And yes Yves, one would wondered at all the troubled water that has flowed under the bridge, what has really changed?
em
There is a problem with low appraisals. It is real, and people are getting screwed. We can argue until we're blue in the face about what market prices "should" be, but at the end of the day, what do we really have to go on except what they are actually selling for? What else could we use? Some formula–square footage times acreage times year built divided by zip code?
I'm trying to refinance my condo that I purchased 15 months ago for $525K with 20% down, under Obama's plan that allows re-financing up to 105% of the property value. (The point I'm making has nothing to do with whether that should really be allowed or not–that could be argued all day as well–the fact is that it is allowed and I'm entitled to benefit from it.) I was given an appraisal value of $320K, in spite of the fact that my condo is in excellent condition and no actual sales in my complex (including foreclosure sales of units in poor condition) have taken place at a price less than $400K in many years. The most recent sale was 2 weeks ago at $508K. (To add insult to injury, this was after the appraiser failed to show up for our first two scheduled appointments, that I had taken time off work for to meet him).
To give but one example, one of the comps used in my appraisal report was written down $75K for an "ocean view". This "ocean view" (which is only from one bedroom) is in reality more of a "freeway view" of a busy freeway, complete with the attendant noise and foul air as the freeway plugs up at rush hour. Yes, there is some ocean in the background. Historic sales data does not support any price difference–let alone $75K–in my complex between the units with the "ocean views" and those that don't have it. (Conversely, I ran into another appraisal problem a year ago with a rental property I own when the appraiser wouldn't give me anything–zero–for my nice view, vs. comps that had no view.)
I can construct an absolutely brilliant argument complete with colorful charts, graphs, ratios, and elaborate calculations, that a share of Starbucks should sell for $8. But if I want to buy one, I have to pay $14 because that's what "the market" deems it worth. And anyone wanting to sell one can do so for $14. So what is the value of that share? $14. It is what it is, no matter how brilliant my argument is that it "should" be otherwise.
That's all I'm asking for, is an appraisal value in line with actual market sales. That's not what I got. If the market falls, so be it, but don't make it out to be lower than it actually is right now. If appraisers are feeling a need to lowball values for some reason, then let's address that issue rather than blame the appraisers. But there definitely is a problem somewhere.
Actually, in my case, since I have a Freddie Mac loan I can only re-fi through my existing lender (if I have less than 20% equity, which I do). So it shouldn't even matter what the appraisal is–they already have the loan (and its attendant risk) as it is, whether they like it or not. In fact, it's more risky if I have a higher payment.
I've appealed the appraisal and haven't heard yet on the outcome, but if it's denied, then I'm being wrongfully denied access to a program that is supposedly there to help me. I'd be fleeced out of my $500 application fee with nothing to show for it by the very program that is supposed to help me. It's legalized robbery. At least if I get mugged, I can go to the police. What can I do here?
As posted on the Wall Street Jounral Development Blog:http://blogs.wsj.com/developments/2009/06/24/whats-with-all-the-moaning-about-home-appraisals/
Several of the comments presented in this article have a strong foundation for being valid. However, the word educated guess is an insult to those appraisers who are trained, experienced and act as professionals. With over 25 years of experience in the field of appraising, I have seen many educated guesses that were not worth the paper printed on and these appraisers cause the problem for the entire group. The old saying, one rotten apple… applies here as well.
For years, no one wanted an appraiser who killed a deal because of a low appraisal estimate.
That said, it is extremely difficult to appraise at Market Value when one-third of the sales are foreclosures and sales activity is 40% lower than levels of the last five years. Financial institutions require the most recent sales, not necessarily the best sales. What is an appraiser going to do if there simply are not enough sales to accurately determine a property value?
And, yes here is the educated guess. Three sales and three listings are presented in over 90% of appraisals. Think about this for a minute, a community of 5,000 homes and the appraiser is determining the value for one property based on less than 1% of 1% of all properties. Mass Valuation systems have been used for years by Assessors throughout the country to determine property assessments for taxation purposes. These systems use thousands of sales to determine value and provide statistical factors to prove the value, generally covering between 20% and 25% of all properties. There is a strong argument for more is better.
We can blame the appraiser, because in some cases we should. But we also need to look at the system and realize there is a more efficient manner to appraise where there is transparency. A perfect example is that the new rules require the reporting of a property sale going back three years. Prior to this crisis it covered only one year.
If this one rule was in place think of how many fraudulent transactions would have been avoided. And there are the builders. How did we build so many housing units that exceeded the national population growth? How did we end up with over 2 million excess housing units? It is not because the markets collapsed; it is because the demand was not there. As a result, the excess supply caused the markets to drop.
We can go on and on about the causes, instead we should be looking at the current system and determine a solution that works for all, is transparent and most importantly relies on professionals to be the safety value not the fall guy. History does repeat itself; these same arguments were presented 20 years ago regarding this same point.