‘Who Knows What We Don’t Know’ About Appraisals
Lew Sichelman at Realty Times looks at appraisal fraud. “A faulty or even fake appraisal is said to be at the basis of every fraudulent mortgage transaction. But not every appraiser is at fault, or at least willingly so. James Blaydes (owner) of a Peru, Ill., appraisal firm says that in many cases, appraisers can’t stand up to pressure put on them by mortgage brokers.”
“Either they ‘hit the numbers’ as instructed, he said at the Mortgage Bankers Association’s National Fraud Issues Conference in Chicago recently, or they are blackballed. If an appraiser refuses to inflate a valuation, Blaydes said, he won’t be getting any more business, at least from that particular broker.”
“Speaking for the Appraisal Institute, which has been calling on lawmakers to address mortgage fraud since 1981, when the problem was believed to be in its infancy, the Illinois appraiser said there are plenty of ways to fudge a valuation besides packing the final number.”
“Among other things, appraisers can ignore the best comparables, or use properties in better neighborhoods as comps, he said. They also can mis-describe a property. Or they can fail to mention physical problems.”
“But appraisers aren’t the only ones who commit such flagrant fouls, Blaydes told the conference. Sometimes loan brokers do their own dirty work. They have been known to alter an otherwise honest appraiser’s work by changing the values of each comparable, he said, deleting noted physical issues or other undesirable influences impacting the subject property or even forging their own appraisal reports.”
“The AI spokesmen said, lenders can help themselves by separating the appraiser selection process from loan origination and by preventing loan officers from having any contact with loan officers. ‘That’s something we can do ourselves,’ agreed Erik Stein, executive VP and director of fraud risk management at Countrywide Home Loans. ‘Loan officers shouldn’t get to pick the appraiser.’”
“Stein said faulty appraisals are ‘the single most important issues in collateralized lending.’ ‘All fraud is bad, but the reality is, if the house is worth what the appraiser says, if I have value in the collateral, I’m going to break even.’”
“Emblematic of the scope of the mortgage fraud problem throughout the country is what’s going on in Illinois, where three out of ten appraisals are found to be forged, according to Robert Gorman, an East Hazel Crest, Ill., appraiser. ‘That’s a significant number,’ he told the meeting. ‘And that’s only the ones we know of. Who knows what we don’t know?’”
“Gorman said in some cases, appraisers who have had their licenses lifted continue to make valuations using someone else’s identification. In other instances, he also said, the ‘appraisers’ were never licensed at all.”
“Gorman told of one crew of 13 fake appraisers who are working out of a factory on Chicago’s South side. The authorities would like to shut down this appraisal factory, he said, but they can’t. ‘They’re not licensed, so there’s nothing we can do,’ he said. ‘So they are still there.’”
A related press release:
‘Jobs in the appraisal field are growing, and the organizations responsible for the regulation of education and standards have put in place a new and more stringent set of education requirements to ensure that appraisers conduct their business at the highest standards.’
‘Effective January 1, 2008, the rules will change: Licensed Appraiser — Education hours will increase from 90 to 150. Certified Residential Appraiser — Education hours will increase from 120 to 200 hours and an Associates Degree will be required. Certified General Appraiser — Education hours will increase from 180 to 300 hours and a Bachelor’s Degree will be required.’
‘Real estate appraisal is a highly regulated industry with strict standards of practice and ethics. Substantial fines are given for those who do not follow the rules. But the high salaries and flexible schedules continue to make appraisal an attractive career.’
Man. I wish I had thought to be a fake appraiser.
I always wanted to pretend to be an architect.
Giddyupp, George.
Yeah, the most stringent requirements in the world don’t matter if fake appraisers can just keep on working!
Doesn’t that seem strange to anyone else?
Either they ‘hit the numbers’ as instructed, he said at the Mortgage Bankers Association’s National Fraud Issues Conference in Chicago recently, or they are blackballed. If an appraiser refuses to inflate a valuation, Blaydes said, he won’t be getting any more business, at least from that particular broker.”
As a former practicing appraiser for 21 years, I can say with all due certainty, the directives from the national Appraisal Standards Board with it’s namby-pamby, totally BS, continuing ed cirriculum is an absolute crock of shit, 100% compromised by the above statement, emanating from of all people the MBA!!!!!!!!!
I’ve taken the state required Uniform Standards of Professional Appraisal Practice dealing with ethics and appraisal development procedure, 10X (once every 2 years), and it has done me virtually nothing relevant to the sustainability of my business.
The rubber stamping crooks and hacks are in control!!!!!!!!!!!!!!
Agreed!
‘Real estate appraisal is a highly regulated industry with strict standards of practice and ethics. Substantial fines are given for those who do not follow the rules. But the high salaries and flexible schedules continue to make appraisal an attractive career.’
More lies and fabrication…the dude who offered this quote must be doing serious drugs.
The glut of appraisers nationwide was the result of the re-fi craze.
With the demise of that source of income, combined with the total fall-off in sales activity, the only way to score business now, is to be the biggest whore on the block, whereby you’ll punch in any number for the L/O’s in order to keep the work coming.
The scammers and hackshops will be the last ones standing, because no L/O in these desperate times will take any chance of retaining an appraiser who has the ethics and moral caliber to flush a deal if the numbers don’t work.
In the end, it is up to the Illinois Attorney General to shut them down on the basis of consumer protection. Why are they hiding behind the rather sad defense of “they are not licensed, so we can’t stop them”? Either they have been paid off, or there is an active investigation and they don’t want to tip their hand.
30% of appraisals in Illinois are forged? That is huge. And how many of the other 70% are simply inflated or fraudulent? It looks like some lenders are going to take some serious losses from this, IMO. Why don’t the lenders demand better results? I know, they want the business - but is it really worth it to get the business when you have no idea whether you actually have collateral to back the loan? I guess as long the bank plans on pooling and selling the loans, then they just don’t care. And, apparently the pension funds, hedge funds, etc. that are buying the MBS don’t seem to care much about the underwriting and loan standards of the banks generating the loans. It just boggles my mind that no one in the process seems to care about this risk, and no one is demanding any risk premium when these types of risks are actually known. No one seems to care about the fallout that is surely going to take place at some point in the not too distant future. I see the situation unfolding, and I just can’t believe that the participants in this mess just continue in their careless ways without a care. Oh, well, Nero fiddles while Rome burns - same as all of the participants in this mess.
“And, apparently the pension funds, hedge funds, etc. that are buying the MBS don’t seem to care much about the underwriting and loan standards of the banks generating the loans.”
The dubious rating process for these mbs “products” is right up there with the RE appraisal techniques.
Interestingly, the other 70% would suffer from unduly inflated or forged appraisals because they support comps for sale elsewhere. The sole safety mechanism is that a comp is only a comp so long as someone actually goes to settlement on it. So the fraud flows from the appraiser to the buyer, thence back out into the marketplace where other, honest, appraisers, use it for a legitimate comp - since a fool bought it.
Excellent point. Even one fradulent appraisal in a neighborhood is enough to lift the value of all surrounding houses. I laughed out loud when I saw one outrageously priced property with the first sentence in the listing “Price supported by sale of MLS XXXXXX”. If you feel you need to justify the price in your listing, it’s probably a bit high. Didn’t have my blog back then, so I didn’t save it.
On my foreclosure blog I had an article recently where a foreclosure expert said 7 defaults in a subdivision of over 200 brought down prices by 8%. This was in the Dallas.Ft. Worth area. In North Carolina, some neighborhoods have foreclosures of around 15%. You can imagine what that will do.
Yes, it is worth it to them because the focus is now so much on the short term. Bonuses are based entirely on quarterly goals. You are the hero or the goat of the office based on how well you meeting goals THIS week.
Everybody turned a blind eye to the risk because everybody was profiting. Everybody mouthed the mantra of Real Estate nirvana because everybody else was mouthing it and who wants to be the negative voice.
Mortgage brokers aren’t “lenders”. Nor are financial institution managers that stand to gain by making bad loans to inflate their companies’ near-term earnings so as to get high pay and large bonuses and then jump ship before the losses come in. The lender is whoever is actually supplying the money to be lent, and you can be very sure that they aren’t willingly making loans based on inflated appraisals — they’re being assured in writing that the collateral backing all the loans has been independently appraised by licensed professionals.
“The AI spokesmen said, lenders can help themselves by separating the appraiser selection process from loan origination and by preventing loan officers from having any contact with loan officers”
A few of my lenders have started doing this already. They don’t even tell me who the appraiser is until after the transaction is closed, so there is no possibility of coercion. I don’t know why more haven’t adopted this.
As long as you have originators ordering the appraisal, their will always be pressure exerted on appraisers to “hit the mark”, and their will always be appraisers willing to risk their licenses to get the business.
The lenders probably have not cared in the past, because of the rapid appreciation that was going on in most of the country. Now that appreciation has slowed down to nothing, appraisal reveiws have become more common. The bottom line is nobody gets paid until the deal is done.
friend of mine was doing appraisals for a bank, and her boss let her know in no uncertain terms that if she failed to hit the number for their “preferred customers” her name would be taken off the appraisal and the numbers would be adjusted to meet their needs.
It only takes ONE inflated appraisal to inflate an entire neighborhood. The inflated value is used as a comp to inflate another and so on and so on.
PS: This works in reverse as well.
Sorry, I parroted this above. But regarding working the other way, it’s amazing now how sellers (agents?) totally ignore recent comps if it doesn’t fit their range. I continue to be amazed here to see listings daily crushing comps from less than a month ago! I think maybe the message has not gotten out to everyone yet that rubber-stamping is over.
So would Donald Rumsfeld call this one of the “unknown unknowns”?
I was thinking the very same thing!!! That retard was quoted saying some nonsense such as, “well, we know what we know, but we don’t know what we don’t know, so until we know what we don’t know….” LOL!!
“well, we know what we know, but we don’t know what we don’t know, so until we know what we don’t know…”
Sadly this is a true statement. Not very profound either and maybe it reiterates the obvious but I am not on the news media so the whole world can criticize my every remark thank God. That would be pretty embarrassing you Monday morning quarterback beyotch. It is liberal hippie terrorist like you that are ruining this country for the rest of us. So please shut your pie hole now and go cuddle up with the Lingus and let us concentrate on the housing bubble!
back at ya!!! I was merely making observation because I LOVE Rumsfeld, regardless of politics, I find him real and fun!! He faces the press and doesn’t give a hoot what anyone thinks!! YOU shut yours until you know what you know and obviously YOU didn’t know ANYTHING!!!!! A–hole!
You love the “retard”? Please bite me and move along little lady.
You need to take your wrath elsewhere! Those of us who have been on this blog for months now enjoy a little humor and cutting remarks and most of us don’t find it necessary to be so vicious. We enjoy our blog and each others opinions and for the most part don’t find it necessary to be jerks! If you can’t find anything nice or fun to say then perhaps you should find another blog because the rest of us will always have something that reminds us of something else funny and want to share it. If you’re too sensitive to stand it, then too bad. We enjoy our humor, however bent or cutting it may be!!!
“It is liberal hippie terrorist like you that are ruining this country for the rest of us”
Jesus. STFU already. It simply amazes me how many times politics are brought to the table regarding the shit that has been going on for the last TWENTY YEARS or so.
Again, this isn’t a “Republican” vs. “Democrat” issue. In the famous and great words of Bill Hicks — “Just how far up your ass do these guys dicks need to be before you realize you’re being f*cked?!”
This applies to both Republicans as well as Democrats. By even playing that stupid “Red vs. Blue” shell game, you are missing the larger picture to the detriment of all of us.
Thank you - well said.
The problem is most of the fraud is going on in the near south burbs or south side of the city. For so many years south cook county has been surpressed….and now everybody and their mother wants duplexes, and fourplexes for INVESTMENT PURPOSES. In the end this will all lead to huge fraud problems and leave ordinary citizens in a tough position.
By the way does anyone else get nausia when they read the market reports from the so called real estate experts on realty times? I have to tell you leather skinned blonds reporting on the Phoenix market take the cake.
I hear you on Realty Times market commentaries. I read them with sick fascination. Their logic is twisted and contradictory. Their arguments are weak and transparent. Don’t get me started on their grammer and spelling. Most of them can’t have graduated from high school.
The Realtor exam can’t be more than multiple choice fluff.
Question 21:
Real Estate in your market:
A) Always goes up
B) Is currently undervalued
C) Is great buy now
D) Is Different from other areas
E) All of the above
Question 45:
Real Estate in your market is currently:
A) Experiencing a soft landing
B) Undergoing a healthy adjustment
C) Taking a breather
D) Anything other than a bubble
E) All of the above
Question 63:
Real Estate, compared to historical appreciation is:
A) Look, shiny!
B) I have pretty hair.
C) Where should we go for lunch?
D) Look, still shiny!
E) All of the above.
Feepness, too funny.
Those realty times “local market conditions” entries confuse me. I don’t understand why they have a price scale where home prices are marked in a range between “falling and rising”. If prices never go down, shouldn’t the range simply be between “flat and rising”?
I think you mean “grammar”, somewhat ironically.
It’s a known joke around here, to spell “grammer”.
And the passing score is 6%.
I have a friend who has been an appraiser for a number of years and he tells me there is unspoken pressure that is put on all appraisers. The appraisers are dependent on the banks and loan officers for their business, many appraisers are independents and have one or two clients that they depend on for a lion share of there income. If they don’t hand in the “right” appraisal value more than once they are soon looking at a substantial decline in the volume of business they get. Nothing is ever said explicitly, but it is clear what is expected of them. This type of behavior is much more prevalent than explicit fraud.
I believe you are right. Further, why it is the appraiser’s place to have to stand between a willing buyer and seller who have agreed to make a trade? Or between a willing lender and the investors whose money is used to provide for the mortgage loan? Isn’t it the free market’s job to decide on a price which is fair to both the buyer and seller, and can’t either party walk away from a deal if they disagree?
The problem stems from a lack of underwriting standards and correct pricing of risk in the credit market which made it possible for buyers to borrow more than they can possibly afford to repay, and not the appraisers, IMO.
Paying an appraiser to overvalue a house is no different than paying a stock analyst to shovel “Buy” recommendations at you.
In the end the sheep will get what they demand, be they borrowers, lenders… whomever.
Uhhhhhh…. The appraisal is supposed to protect the ultimate provider of the funds for the mortgage by providing an independent, disinterested valuation to ensure that the collateral backing loans being packaged into a mortgage-backed security for sale to pension funds, insurance companies, REITs and other such investors really has the claimed value, so that a “willing buyer and seller” can’t collude to turn an 80% loan-to-value mortgage into a 100% mortgage by the seller inflating the nominal price and then kicking back 25% of it to the buyer. If the investors buying the MBS are being given written assurances that all the sale prices are independently appraised by trustworthy, licensed professional appraisers, and that is not so, then they are being defrauded. “Free markets” depend on honest dealing between the participants, and don’t give anyone a license to commit fraud.
Jm , well said .
Considering the appraiser is working for the lender, (after all it’s their money at risk) it shouldn’t be a surprise that the lender gets an appraisal they want.
the Illinois appraiser said there are plenty of ways to fudge a valuation besides packing the final number.
I’m not going to touch that with a ten foot pole!
You’re funny!!!
Actually, you just added fuel to the pun………it’s on the tee……who wants to drive it home. Anyone?
Did I hear “fudge” and “packing” in one sentence?
Part of the problem is there are two worlds in the mortgage business…retail and wholesale. Retail is where the loan officer works for the bank which is doing the loan. If the underwriters discover any shenanigans, the loan officer is held accountable and might even lose his job. In wholesale, it’s a totally different environment. An outside mortgage broker sends his loans to the bank, they then underwrite the loan and decide to do it or not. If the bank underwriter discovers fraud, they will decline the loan but the broker is free to shop the loan to a number of other banks. The second time they are usually smarter and know how to fool bank number 2. There is no penalty to the broker for trying to do fraudulent loans. They just shop the loan from bank to bank until somebody will buy it. Fraud on wholesale loans is at least four times higher than retail.
Who are the investors whose money is loaned out in the wholesale world? Do they get compensated with a higher interest rate (including a risk premium)?
Most larger banks have wholesale and retail operations. I underwrote for Countrywide and Chase doing wholesale but they also have retail shops. I’m not sure if there’s even any differentiation when it comes time to sell the loans to investors. I don’t think so though.
All I can say is, you should see the snakes out there in the wholesale world. Literally, when they get tired of selling used Chevys and Hyundias, they put on a tie and go sell mortgages.
i did an appraisal for a countrywide mortgage broker who was going through a differant mortgage company. he had a lamborginni in his garage. this guy was bossing me around like we appraisers automatically work for every mortgage broker. i happened to agree with him on the $415k value he felt his townhouse was worth, since her put a lot of extras into it over and above the standard finishes. a week later he calls me and wants me to reduce the value because the finance company will only do 70% ltv in my area on values over $400,000. i wouldn’t lower it.
he better keep his ass in gear with lamborghini sitting in the garage.
nice story, but banks don’t lend their own money anymore. didn’t you read the press about ameriquest, argent, etc. and their “internal controls”. the nice part about being a broker is that everything that you submit is a lie, so their qc department goes through everything with a fine tooth comb. where did you get that four times number anyway. sheeez.
First of all, I should have stated right off that not all brokers are bad and I apologize because there are a lot of good ones out there.
I’m sure you are.
I just pulled a report from my former employer, GE Mortgage insurance (now Genworth) which shows a whole bunch of risk factors in lending and the statistical probability that their presence will create a default claim for the mortgage insurance company. The data was tracked over the last five years. I wish I could post it here. According to this, brokered loans are more than twice as likely to result in a claim than non-brokered loans. The four times number, I don’t know, maybe the regional head of underwriting where I worked. Just why is Ameriquest QC treating brokers like everything they submit is a lie again?
Wow, that’s a little unreasuring. If I were a CRO, I’d have a hard time in a loss model that was developed with only 5 years of data since the last big bust was 25 years ago.
The secondary market should say that all mortgage broker lenders selling to them have to take back their defaulting loans or PMI or insure any high loan to value loans . The secondary market could demand a deal like that . The people with the money should make the rules not the front men .
Wiz-
Don’t they already have buy-backs. During the last downturn I know for a fact if it foreclosed within 6 mo’s the originator had to buy it back. Have they changed that policy the last broker pack I filled out had that also. Or is it once it’s sold to the secondary all bets are off.
It should be longer than a 6 month buy-back . Yes some lenders have that set up ,some don’t . Course I don’t know really what has been happening in the last few years .
Yea, I agree with boulderbo 4x my a$$. Some of the most fraudelent stuff I have come across has been from AE’s and Retail shops. Those guys make the penalty for fraud on a 1003 look like a parking ticket.
OT:
US surge in unsold homes may herald cooling market
“The number of unsold homes on the American market has risen by more than 1m over the past year, a gain of a third, increasing the prospect of a rapid cooling of the US property market.
“The inventory of new and existing homes waiting for buyers is now approaching 4m.”
“But this does not mean that we are going to take a nose dive, except in selected areas of overbuilding and highly inflated valuations.”
Is this an admission that the DC market is going to nosedive?
“But this does not mean that we are going to take a nose dive, except in selected areas of overbuilding and highly inflated valuations.”
That’s great news for…South Dakota. LOL
“The pace of home sales has slowed over the past year, but not dramatically. Existing home sales have fallen by just under 6 per cent over the past year to an annualised 6.75m units in April. New home sales are down from an annualised 1.27m last April to 1.198m units this year.”
6.75m + 1.198m = 7.948m
Time to clear current inventory =
12 mos X (4m / 7.948m) = 6mos.
This sounds right in line with other recent information on current supply conditions. It also once again points up how bogus are the Realtors (TM) “days on the market” figures.
NEW YORK, June 7 (Reuters) - U.S. mortgage applications fell last week as demand for home refinancing loans dropped to its lowest this year, an industry trade group said on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended June 2 decreased 1.4 percent to 534.4 from the previous week’s 541.9.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.60 percent, down 0.06 percentage point from the previous week.
But lower interest rates weren’t enough to lure a greater amount of potential borrowers.
The MBA’s seasonally adjusted purchase mortgage index was nearly unchanged at 395.6. The index, however, was substantially below its year-ago level of 479.3.
The purchase index is considered a timely gauge of U.S. home sales.
The group’s seasonally adjusted index of refinancing applications decreased 3.8 percent to 1,356.0, its lowest level since the week ended Dec. 30, 2005 when its reached 1,363.2.
Outside of a brief dip in December, refinancing applications were at their lowest since April 2002, the MBA said.
The customer is always right.
If the customer wants an inflated appraisal that’s what they’ll get.
If the customer wants an accurate appraisal then that’s what they’ll get.
No amount of regulation or training can change that.
The problem is that buyers don’t know if the appraisal is a correct one. The seller, the seller’s agent, the appraiser, and the lender work for the selling side in the booming market. Such conflict of interests usually destroys confidence in the market, that’s why we have SEC and similar agencies - we dont’ want corruption to drive out people who act in good faith.
Nothing stops the buyer from purchasing his own appraisal.
True, but how many buyers are even aware that they SHOULD get their own appraisal done. The level of fraud in the marketplace today is unprecedented –and is pretty much being ignored by MSM and government regulators alike.
Most buyers are told (NAR, Realtor, MSM, housing “experts”) that this is handled by the lender –don’t worry about it, nothing to see here. IMO, the appraiser should become a third party –something like an escrow agency– and always paid for by the buyer. That way, if the buyer wants a crooked “hit the number” appraisal, then who’s to blame?
Not unprecendented Harm thats overstating it a bit. These so-called issues have always been there. Even the article above said they had been harping since ‘81. They are just magnified now since so many people have been priced out.
This only increases transaction costs, and does more harm in macro terms, than good. Taking to the extreme, I can claim that people also have to take two .45 S&W just to visit a grocery store. Some sensible guards against corruption have to be in place, otherwise transaction costs will be large, and markets will be inefficient.
When I sold my house two years ago, the appraiser came from 30 miles away. He knew nothing about the neighborhood and had to ask my wife for directions. I found out later on that he appraised the house at 100K above the selling price. The lender was DiTech. That explains everything.
Come to think about it…during both our home purchases we laughed when we saw the appraisers numbers conveniently just above the sale price.
Friend of mine who lives in the south suburbs of Chicago recently had her home reappraised because she wanted to get rid of PMI. The appraiser came out and point blank asked her, “How much do you need me to appraise this at?” My friend told her and it was a done deal.
Foreclosureville
Nibbling on spam cake, watching the Fed break,
All of those landlords buried in debt,
Strumming my six string, on my mom’s porch swing,
Smell those FB’s they’re beginning to sweat.
Wasted away again in Foreclosureville,
Searching for my lost equity,
Some people claim that it’s Bernanke to blame,
But I know it couldn’t be me.
Don’t know the reason that I signed up last season,
For a balloon note I knew would come due,
But it’s a real beauty, a Fannie Mae cutie,
How I missed payments I haven’t a clue.
Wasted away again in Foreclosureville,
Searching for my lost equity,
Some people claim that it’s Bernanke to blame,
But I know it couldn’t be me.
Blew out my credit, jammed with a reset
Trashed my FICO, had to pack up my things,
‘Cuase I’ve been evicted,
I am a victim,
Of that frozen banker that sucks your lifeblood.
Wasted away again in Foreclosureville,
Searching for my lost equity,
Some people claim that it’s Bernanke to blame,
But I know it couldn’t be me.
Yes, some people claim that it’s Bernanke to blame,
And I know it’s my own default.
If you don’t make your living as a lyricist, then you have missed your life’s calling
No kidding!! That’s good stuff sport!!
You need to get that on the radio…right up there with “The 12 Days of Christmas R Such a Pain To Me”
Great work, Invest3.
You’d make Tennesse Ernie Ford proud!
X-Underwriter has an excellent post above. At many or most banks I am aware of, employee loan officers do not choose the appraiser. They are not even allowed t contact the appraiser. The bank has a list of approved appraisers. There are experience and education standards to get on the approved list. Their work is monitored over time to assure quality.
In the wholesale world, brokers choose their own appraiser. If the lenders taking brokered loans would start choosing appraisers, much of the problems would be reduced. However, most wholesale lenders will not take action for fear of losing business. They are deciding that taking losses from appraisal fraud is worth the higher business volume.
cbass - You need to take your wrath elsewhere! Those of us who have been on this blog for months now enjoy a little humor and cutting remarks and most of us don’t find it necessary to be so vicious. We enjoy our blog and each others opinions and for the most part don’t find it necessary to be jerks! If you can’t find anything nice or fun to say then perhaps you should find another blog because the rest of us will always have something that reminds us of something else funny and want to share it. If you’re too sensitive to stand it, then too bad. We enjoy our humor, however bent or cutting it may be!!!
Thank you nurseliz. There are plenty of political blogs where braindead comments like his would be most welcome.
Everything said, there are two basic accountability issues
(1)the lender should make sure of the value of the collateral
(2)the buyer should make sure that he gets value for his money.
In a non-recourse law state (1) will come back to bite the lender,
In a recourse state, (2) will come back to bite the buyer and (1) will come back to bite the lender (to the extent that even with recourse, the buyer is too deep in it that he cannot pay).
I have always wondered why a buyer would not get an appraiser for himself and get an honest opinion on the worth of the house he is purchasing. People do much more research when buying a car! The problem with that line of thinking is that one or a few idiots overpaying can screw up the comps. Does that mean that everyone else - even if sensible - has to pay more now? There have always been idiots who overpay, in every kind of market. But a herd of idiots was impossible, because stupidity was limited by payment capacity and credit availability. When a herd forms, comps get screwed up - and appraisal reform is not going to fix it.
That is why I say that the bubble is because of reckless lending. Idiots are not a new phenomenon. They have always existed. History is filled with idiocy and idiots.
And idiot borrowers will always be around even after this bubble.
This bubble was created by lenders and bad lending. It happened because idiot borrowers were irresponsibly given loans. It is irresponsible lending that created a herd of idiots where only few idiots could have existed .
Where is the money to extend the loan coming from? It would have been perfect if idiot lenders and idiot borrowers went down together as the bubble burst.
Unfortunately, bundling of mortgages has removed all transparency from the business. Because once a loan is in a bundle, does anyone knows what kind of fraud is included in the individual loans? Pretty soon we will find out that mutual funds and bond funds holding MBS have contributed to this mess. Then small investors/retirees also are going to demand a bailout along with the home ownwers.
My wish is that fraud be tracked down to its origin and perpetrators be made to pay for the bailout, rather than a big government bailout to clean up the mess. But I have no doubt that the latter is what’s going to happen - because accountability for fraud will mean lots of really big guys - banks, brokers etc will have to pay. Why should they, when they have the option of spreading it out over the whole population by a government bailout?
An apt anecdote about JP Morgan make the contrast
————————————————————————————————
At the end of his life Morgan was questioned by a congressional committee about the workings of Wall Street. “Is not commercial credit based primarily upon money or property?” the committee’s counsel asked.
“No, sir,” Morgan replied. “The first thing is character.”
“Before money or property?”
“Before money or anything else. Money cannot buy it. … Because a man I do not trust could not get money from me on all the bonds in Christendom.”
[Quoted from http://www.americanheritage.com/articles/magazine/ah/1989/5/1989_5_78.shtml
————————————————————————————————
Can you reconcile the current lending/banking business with that philosophy? A knee-jerk response would be to cite the Fair Lending Act. But if anyone claims that the Fair Lending Act dictated this reckless lending, then I have a bridge in Brooklyn to sell you.
Bubba — nice post.
I have an odd appraiser story, 4 yrs ago while the market here was still in the doldrums and about 2 weeks after I bought my house, an appraiser knocked on my door and asked if she could peek inside. Of course I asked why, and she said she was doing an appraisal on another house in the subdivision, same model, which was being purchased about $9K abouve what I had paid. She seemed to have been halfway honest even coming to my house, but I heard her mutter to herself repeatedly “Somehow I’m going to have to get the price”. Obviously even back then the appraisal “result” was known before the appraisal. LOL
hehehe…The big number hitter in the city I used to practice in got busted for FED income tax invasion and had to do 6 months in jail.
Did the state yank his license for conduct unbecoming the profession? Hey, if you can lie about your taxes to the IRS, you sure can lie about a MBS being sold to some Chinaman.
Not on your life…His underlings use to bring him the appraisals they completed as “trainees” to his cell, and he would sign the reports as the “review” appraiser.
All the real estate brokers loved his azz, ’cause HE ALWAYS HIT THE NUMBER and they used the mortgage company he was affiliated with, exclusively.
The FIX IS IN, folks!!!!!!!!!!!!!
I interviewed an appraiser here in Arizona who told me that developers also shop for a ‘go to guy.’ This issue is the elephant in the livingroom, IMO.
I second your opinion.
The general public has no idea how much the home values been inflated over the past few years.
I’m seeing a growing number of honest and ethical appraisers losing their shirts right right now because they have been blackballed out of the business.
several years ago my parents had their home appraised (near Boise)so they could take out a HELOC to add a garage and shop. The appraiser never left his truck! He drove by- stopped for a few minutes out front and then left- talk about shady!
At least he wasn’t using Google satellite maps to do the appraisal from home !
If you talked to a HARD MONEY LENDER in the 90″s ,they would tell you that nothing is more important than the appraisal . Why? Because the hard money lender knows that he might get the property back in forclosure so they want to make sure there is enough equity .
Prime lenders seem to put the appraisal second to credit scores and income of the borrower .(Some give equal value)
But , the appraisal is the most important element of a loan . A good borrower could lose their job or have health problems ,so that appraisal needs to be right . If you give a borrower a refinance and your wrong on the appraisal and that borrower goes to sell the property and he’s upside down ,and they can’t bring money to the table, he could end up with a forclosure .Lenders got to have a margin for forclosure costs and interest lost .
Worse ,if your a lender and your the victim of con-artists sitting up a phony sale ,(in order to take a bunch of money and run out of the country ), you would of wished the appraisal had been right .
When Lenders use to carry their own notes they were concerned about the appraisal /borrower risk .
One time I remember the Lenders were all in a uproar ,(in early 90″s)
because the secondary market back off on buying loans and the lenders were stuck holding the loans so they got tight for a while .
This attitude that the secondary market is a garbage bin so it doesn’t matter how much fraud goes into the loan packages is wrong .Any Lender could end up holding the bag of their own loans .
Shouldn’t a buyer of a property ,who pays for the appraisal ,get a accurate appraisal ? Who gives the mortgage broker ,the appraiser and realtor right to con the buyer/borrower . Yea , right ,these people are your friends?
The best underwriters that I have ever seen in my life were ex-appraisers .
Anyway ,when the market turns more ,lets see how important the appraisal fraud becomes .
interesting thread and it makes being an appraiser (also licensed as a real estate broker) difficult to admit to. but the truth is most appraisers are honest and ethical, just as most real estate agents are, most attorneys, most accountants, most everybody etc.
and you’re right. if an appraiser does a lot of mortgage work, there is pressure. and if an appraiser does relocation work, there is also some pressure, but usually to go to the lower end of the range rather than to the middle or upper end.
which brings up a good point. an appraisal is an OPINION of value as of a specific date (generally the date of property insection). if you have 5 appraisers appraise a property and don’t mention any anticipated value, you’ll get 5 different values. same thing if you have 5 agents give you a CMA or 5 neighbors give you their opinion of value for your home.
now hopefully, all of the above opinions(appraisers, agents, neighbors, etc) are within a relatively narrow(5% or 10%) range.
also, keep in mind that an appraisal is as of a specific date. the value may be totally different 1 year later, or even 1 month later.
much of the problem is the due to the lenders abdicating their responsibility. when i first got started in the early 1980s, lenders required that independent fee appraisers generally have at least 3, 4 or 5 years experience, provide work samples, provide references, belong to a professional appraisal organization, etc.
not anymore. all they want is a license, which is not that hard to get.
will things change in the future?? i don’t know, but i hope so. it would be nice if lenders would start taking appraisals seriously again and not looking at them as deal killers. maybe if/when prices/values start decreasing.
Good information
PW, I’m sure there are good appraisers out there ,but one wonders how little work they may have been getting because they didn’t conform in the last 5 years . No one can find fault with an appraiser that comes within 2% to 5% on a sales transaction . I’m talking about the person who has three recent comps in a cookie cutter neighborhood ,but goes outside that neighborhood to justify 20% over the fair market value . That appraiser is just trying to bring it in for the mortgage broker/realtors .Or I’m talking about the appraiser that just makes up the numbers .
You would not believe how much buyers count on the appraisal being accurate and they always ask .
The buyer’s were trusting these appraiser to tell them if they were overpaying or not . As I said ,the buyer is the one that is charged for the appraisal even when the Lenders are the ones that order the appraisals.(There are a few Lenders that don’t charge for the appraisal ).
As you know ,when a sale didn’t hit the buyer had the option of putting more down , cancelling the transaction ,or giving the seller the option of carrying back a second or coming down in price ,( and prior to this real estate boom this happened alot on transactions ) .
I just find it odd that the appraisers and lenders supported 20% ,30% ,50% ,appreciation rates in one year in many areas without making the speculators put more money down .
You would not believe how much buyers count on the appraisal being accurate and they always ask .
Sorry Wiz, but I have to respectfully disagree.
My experience is that buyers become virtually “brainwashed”
in the homebuying process by realtors aided and abetted by commissioned L/O’s to collect a commission on any deal.
I’ve never nickled or dimed a deal for a few thousand-but when the numbers start to move over $10k there’s a problem.
I’ve had buyers look me right in the face and tell me to f*ck myself when presented with the facts they were substantially over-paying for a property. They were egged on by their realtor and L/O benind the scenes by accusations against my “competency”….LMAO-Of course they then go out and get a one year tenured “trainee” who’s desperate for work to punch the number, and they are fully accommodating to that that.
I’ll weep to no tears for the legions of FB’s who chose to ignore common sense and professionalism.
Yes ,but your a good appraiser hd74man . I agree that during this real estate boom the buyers have been blinded by the appreciation potential . When it gets to be a more normal market ,or in a declining market the buyers are real concerned about overpaying . Of course on refinances the owner always wants the highest appraisal possible and will try to push it .
It just seems to me that people have not been acting normal in the last three years .
You have been out in the trenches lately ,so I accept your take on the buyer mania in this boom market.
What magical genie does this woman in RIchmond want to pull out of her A$$? I guess she is expecting the PPT to come and rescue her, or Bushie and his buddies? Maybe Jesse Jackson, the biggest idiot around, might come to her rescue? Or Useless Ted Kennedy?
Laura Burns said she and her husband were grateful they had been able to weather their financial storm without losing their house. But she said the experience had left her somewhat bitter.
“I have no faith in the American dream anymore,” she said. “You bust your hump year after year, going to work and paying your taxes. Then you get in a hole, and there’s no one there to help you out of it. The government doesn’t help you, the bank doesn’t care.
“If someone legitimately can’t pay their bills — not won’t, but can’t — there should be some type of help for you. We found out there wasn’t.”
There is help: it’s called bankrupcy.
Just a note here, one poster said that a single sale in a neighborhood could help or hurt that appraisal. One fundamental premise of appraisal work is that ONE SALE DOES NOT MAKE A MARKET. I’ve seen many a person years past who moved to FL and grossly overpaid because what they were buying here at the time seemed like such a “deal”. These were typically cash buyers who had sold out of the ca market and moved to this area and didn’t need an appraisal to buy a home. They got their clock cleaned more than a few times.
Were I to move to an area and didn’t know property values one of the first things I would do would be to hire at least one appraiser to value the property I was interested in. I’d surely do this prior to making an offer. More than likely I’d hire two appraisers, what is $700.00 on a $400k deal…
I quit doing almost all residential work and focus mostly on estate/tax/litigation work now. I just couldn’t take the unrelenting pressure from some of the low life mortgage brokers to make the deal. It was VERY common for them to want you to ignore sales within the subdivision and go outside the neighborhood to make the deal work. I was not and am not willing to put my livelyhood at stake for a mortgage brokers deal. Sure, there are a few honest and ethical mtg brokers out there but by and large most are just interested in “getting the number”. I was on the VA panel for 11 years and quit last year because they started applying the same pressure though in more subtle ways.
I catapulted my knowledge from appraising to investing and now own a considerable amount of commercial property that brings in over 6 figures a year and I own it all free and clear. This gives me the golden opportunity to pick and choose who I want to work for. If I get a call from ABC mortgage company whom I’ve never heard of, chances are I won’t be working for them or it will only be cash in advance with no guarantee of value. Many appraisers get stiffed on their fee if the deal does not go through. In the past 5 years or so my accounts receivable that were uncollectable were -0- because I was lucky/fortunate enough to develope a passive income stream.
If you want to read up on the problems simply go to appraisersforum.com and read what other appraisers are posting. It is sad in a way as many appraisers, mostly honest and ethical won’t cave in to the lender pressure and now are having to find other means of employment while the “skippies” (an appraisal term for any appraiser who will always get the value) remain in business in some shape form or fashion.
There is a sweeping trend of separating the loan officer from ordering the appraisal and choosing the appraiser, this should help significantly.
Finally, please excuse all typos and syntax errors, I am very tired but just wanted to respond.
FLreappraiser.
Thank you for your post .
I was on the VA panel for 11 years and quit last year because they started applying the same pressure though in more subtle ways.
FLAppraiser-
I too left the VA panel. They wanted to burn both ends of the candle…Keep the vet “happy” and don’t make waves in the report. Then after the deal would close, they’d do a “review” and rip your azz.
The guys manning the regional office in NE were morons.
Should have seen the incompetence when I asked them for help in converting to the PDF format.
Doesn’t surprise me a wit some lamebrame took home the data which will allow identity thieves to access personal info on 12 million vets. YOu can bet your azz all he’ll get is a letter or reprimand.
I use to post on the AppraisersForum allot, but I noticed it started to be taken over by the “punch the number” chucks. I always liked the people 2 years into the biz, who have more work than they can handle-LMFAO…
This is a much better place to hang.
Congrats on your commercial aquisitions. Good position to be in.
Your damned if you do and your damned if you don’t if your a appraiser . I think the pressure might be off soon and if anything lenders are going to be wanting conserative appraisals IMHO.
I was in contract to buy a house in summer 2004 and the appraisal came in magically for exactly the contract price. Even then I thought, How could that possibly have be an independent appraisal? No one has to “pressure” the appraiser, the appraiser knows what needs to happen to keep getting business. More important than who picks the appraiser is that the contract price should never be revealed to the appraiser until after s/he signs the report. I couldn’t believe it was so blatant as to come in for exactly the amount. I wondered how much faith the lender had in this appraisal so I asked whether if I could negotiate the price down further, would I then have the difference in equity to apply towards cancelling mortgage insurance. Of course the answer was no - actually the answer was laughter. So clearly even the lender knew it was bullshit. Ultimately we didn’t end up buying the house due to serious undisclosed defects.