Seattle Bubble

News & discussion about real estate & the housing bubble in the Seattle area.

Seattle Bubble - News & discussion about real estate & the housing bubble in the Seattle area.

Entries Tagged as 'appraisal'

Boo-Hoo: Tighter Standards Help Kill Chances of Bubble Returning

By The Tim on June 25th, 2009 at 2:00 PM · 85 Comments

I’m starting to sense something of a theme in some recent news pieces about the housing market. Consider the following quotes from two recent articles (emphasis mine).

Reuters, June 22:

Two U.S. Democratic lawmakers want Fannie Mae and Freddie Mac to relax recently tightened standards for mortgages on new condominiums, saying they could threaten the viability of some developments and slow the housing-market recovery, the Wall Street Journal said.

SeattlePI.com, June 25:

Are new appraisal rules holding back the nation’s real estate markets?

Lawrence Yun, chief economist for the National Association of Realtors, sure seems to think so.
…
“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales,” Yun said. “In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

What do you suppose folks like Laurence Yun mean when they use the phrase “housing market recovery”? Given the types of things they are objecting to, I’m inclined to conclude that what they really mean by “housing market recovery” is a return to the days of double-digit appreciation, frenzied buyers engaging in bidding wars and waiving inspections, and flippers snatching up pre-sales to turn a huge profit once construction completes.

Newsflash folks: It ain’t gonna happen.

You can cry all you want about the new tighter standards that are slowly but surely coming online in lending, appraisals, and other aspects of the home-buying process that were allowed to get wildly out of control during the bubble, but even without these new standards, we’re not likely to see a return of a real estate bubble in our lifetimes.

Too many people have been burned—and continue to be burned—by the rampant dangerous excesses of the housing bubble for things to just ramp right back up into an out-of-control mania again after just a few years of contraction.

Tighter regulation is just one of the necessary consequences of the housing bubble. Real estate professionals need to spend less time complaining and more time finding ways for their businesses to thrive within the framework of a housing market in which people buy reasonable homes, for a reasonable amount of money, as a place to live not a super-leveraged jackpot mega-investment.

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Cramdowns Rejected by Senate, Appraisals Insulated from Banks

By The Tim on May 1st, 2009 at 9:18 AM · 126 Comments

Two good news stories on the national front that are worth sharing this morning.

Story 1: Senate Defeats Mortgage ‘Cram-Down’ as Democrats Balk

The U.S. Senate rejected a measure that would let bankruptcy judges cut mortgage terms to help borrowers avoid foreclosure, a victory for banks and credit unions that said the legislation would increase loan costs.

The proposed “cram-down” amendment to a housing bill was defeated today in a 51-45 vote, with 12 Democrats among the 51 opponents.
…
Banks that refused to negotiate a compromise were “greedy, stubborn and unreasonable,” said Senator Sheldon Whitehouse, a Rhode Island Democrat.
…
“The answer is not to incentivize bankruptcy by making it the means to save one’s home,” [Arizona Republican Senator Jon] Kyl said.

This is good news, in my opinion. Banks should be eating the losses on these homes in the open market, not by writing down the principal to help the home “owner” stay in a house they obviously simply cannot afford. So you lost “your” home—yeah it sucks, but go find a cheap rental and move on. Maybe next time you buy a house you’ll be more prudent.

Note, I am not saying that everyone who is being foreclosed on bought more house than they could afford, or used their home as an ATM. I figure that probably describes at least 70% of the current foreclosures, and such people are the primary reason for the “foreclosure crisis” we’re currently watching unfold.

[Update: As I mention in the comments below, I also believe we should be prosecuting the banks and the people at the banks for the massive fraud they willingly and knowingly perpetuated through these loans during the boom.]

Story 2: Realtors, Mtge Brokers Push For Delay In New Appraisal Rules

Realtors and mortgage brokers are in an 11th-hour push to delay by a year new Fannie Mae (FNM) and Freddie Mac (FRE) rules governing real-estate appraisals.

The rules, which take effect May 1, have sparked criticism from many corners of the real-estate industry.

The National Association of Realtors complained in a letter last week that the industry was given scant guidance and too little time to implement the rules. Appraisers worry the rules, which will put middlemen between loan originators and appraisers, will squeeze their fees. Meanwhile, mortgage brokers say the changes will make them uncompetitive.

“This is going to be devastating for everyone,” Marc Savitt, the president of the National Association of Mortgage Brokers, said Monday.

The rules arose from an investigation by New York Attorney General Andrew Cuomo into alleged collusion between mortgage lenders and appraisers to pump up home values. Fannie and Freddie, which became targets of probe, agreed in early 2008 to require all appraisers on mortgages they buy or guarantee to adhere to a new code of conduct.
…
The rules are intended to reduce collusion and fraud in the appraisal industry, which has been blamed for generating wildly inflated home values during the housing boom. The new code requires lenders to go through third-parties, known as appraisal management companies, to order appraisals. Lenders with in-house appraisal staff must set up safeguards to ensure loan officers don’t influence the home appraisal process.

Oh yeah, that sounds really “devastating,” doesn’t it? Shouldn’t safeguards like this have been in place from the start? I can think of one reason that banks and real estate agents would not be on board with this: they like being able to influence appraisals.

It’s nice to read some good news for a change when it comes to all the meddling the government has been doing in the housing market lately.

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Appraisers “Pressured to Hit the Value Every Time”

By The Tim on July 31st, 2007 at 9:40 AM · 37 Comments

And the understatement of the week goes to… Aubrey Cohen of the Seattle P-I, for his sub-headline gem: “As market slows, buyers may find they paid too much“.

Moss blankets the house’s roof. The siding is rotting off. And mold has spread through the interior.

But the home’s condition is “average,” according to an appraisal.

It’s one clear example of how many appraisers hide problems and affirm inflated prices willingly or under pressure from the mortgage brokers and bankers who give them business — calling into question whether home buyers are getting what they pay for.

“We’re pressured to hit the value every time, every single sale,” said appraiser Richard Hagar, who showed pictures of the mossy house while teaching a class on mortgage fraud earlier this month for 25 appraisers, mortgage brokers and real estate agents.

It’s a problem that is more common as buyers vie to outbid each other in recent go-go markets such as Seattle’s. And increasingly buyers may find in coming months that they paid too much, as slowing appreciation and rising mortgage interest rates force them to sell at a loss.

“I think we’ll see it come to a head here in the next year or so,” said Ralph Birkedahl, manager of the state’s appraisal program. “We may see more foreclosures than we’re seeing now.”

I don’t really understand why the appraisal process works the way it does. Wouldn’t it remove most of the opportunity for corruption like this if the lender was only allowed to work through a neutral third party to hire an appraiser? It could be “appraisal escrow.” The process I’m imagining would go something like this:

  1. Buyer makes offer on home.
  2. Buyer submits offer and house details to lender.
  3. Lender sends house details to appraisal escrow.
    • Appraisal escrow agency is not permitted to access any information about pending offer or listing price, etc.
  4. Appraisal escrow sends house details to appraiser.
  5. House is appraised in an unbiased fashion, since the appraiser has no prior knowledge of listing price, offer details, or even who the lender is at all.
  6. Appraisal is sent back to appraisal escrow, who then forwards it to the lender.

So where is the flaw in my logic? Other than the fact that this process would result in yet another layer of fees in the closing process, I don’t see why it wouldn’t work. Since lenders are the problem, a law implementing such a system could dictate that the appraisal escrow service be paid for solely by the lender, with fees not permitted to be (directly) passed on to the buyer. Obviously it isn’t perfect, but it seems like it would mostly eliminate the trouble of appraisers being pressured by the lenders to hit a certain dollar amount.

Of course, the entire conversation about appraisals completely ignores the fact that $470,000 for the “median” home in King County is insane to begin with… But hey, whatever.

(Aubrey Cohen, Seattle P-I, 07.31.2007)

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