Real Estate Associations Want Appraisers To Inflate Home Prices

The housing market is still struggling because appraisers are being too tough assessing the value of homes.

That's the self-serving argument being made by realtors who are complaining that lower appraisal values of homes are delaying deals, ruining sales and prolonging the housing crisis.

Their solution? Delay reforming the appraisal industry for another 18 months, then we can worry about the real value of a home. Until then, they argue, what's wrong with a few inflated prices?

Well, as Barry Ritholz puts it:

Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price.

New York Attorney General Andrew Cuomo, in an attempt to prevent this kind of appraisal fraud, instituted the Home Valuation Code of Conduct, which took effect May 1. According to the Wall Street Journal:

The code covers any mortgage that can be guaranteed by Fannie or Freddie, which means the majority of all home loans. It bars loan officers, mortgage brokers or real-estate agents from any role in selecting appraisers. The idea is that people who are hungry for commissions shouldn't be in a position to lean on the appraiser.

Now, NAR and other real estate lobbying groups, who are trying to maintain stay in business despite the total destruction of their market, are mobilizing a major effort to reach out to Congress and housing officials.

As NAR economist Lawrence Yun said earlier this week, "Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales." Instead, Yun and his bunch want appraisers who won't be too tough. As Yun puts it, "There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected."

With so much going on in Washington, it may be an uphill battle drumming up support for delaying reforming the real estate market in the wake of one of the worst housing crisis in modern history. Hey, but that's just us.

HVCC Moratorium Lockheart

Call to Action _June 4,2009

Comments

[Appraiser]

They do care about how good you are as an appraiser the only thing that matters is how cheap you can work. Quality means nothing. I will repeat myself again the quality of your appraisal report means nothing. The only thing that count is how cheap you can work. A lot of AMC are asking for drive-bys for FHA appraisals. The guideline for a FHA appraisal is intensive interior inspection. But the're appraisers taking these appraisal reports for $100.00 an appraisal. The are doing full appraisals for $200.00. These management companies don't care if you know the area all they care about is if you take the assignment and get your $200.00. The Appraisal management companies charge you homeowners $500 for the appraisal. Welcome to HVCC, I know you homeowners will love giving your corporate banks, Bank of America and Wells Fargo more of your hard earned money in appraisal fees with no guarantee that the loan will close and no way to transfer the loan to another bank without paying for another appraisal. I personally think it is unfair to the consumer, the mortgage broker and the appraiser. It is the best deal for the banks because they have more control over the consumer and mortgage broker because they can't shop around, and more control over the appraiser because they control how much money the appraiser will make and determine the price of the appraisal. Remember all of the big bank own appraisal management companies.

[Appraiser]

I am a Certified General Appraiser in the state of California. Rels wanted to add me to their panel. I told them my fee was $350 they told me they could not work with me because my fees were too high. They want me to work for $245. A Certified General appraiser is the highest appraiser's license the state of California gives. I was making $250 and appraisal as a trainee. They want fee to work for less than what I was making as a trainee. I told them I will not work for such low fees. All of the good appraisers I know are refusing to work for the appraisal management companies. I rather work with a mortgage broker do a comparable check and determine whether or not an appraisal would be needed. Most of the time I told the broker the value was not there. This saved the home owner $350 dollars and the broker a lot of time. Now under HVCC the homeowner has to pay $500 for an appraisal the appraiser get $245. The appraisal management company knows the property will not come into value and they still order the appraisal the homeowner is out $500 to $1,000 (if they order another appraisal), the mortgage broker wastes a lot of time and money and the homeowner is left thinking the appraiser and the broker screwed them. Appraisers under HVCC are not making $500 an appraisal. It’s the appraisal management companies who’re making all of the money.

[Puneet Khurania]

I think if the real estate prices are going to inflate, it is going to hampen the growth of the housing market...It is already in trouble....these activities will totally be negative for it.

Loved this article
http://www.housingnewslive.com/is-the-housing-market-recovering.php

It says that we aleady are in trouble and even government's efforts are not helping us at all. In such scenario, inflating the home prices will be a terrible thing.

[Sputnik45]

["An appraisal IS NOT the number needed in a file in order to make a "deal" go through"]

[elfNW]

Reading all these comments I see interesting points raised on both sides of the issue. Still, for me at least, the inescapable conclusion is that not having real market appraisals put in places is just attaching a 1 cfm pump to a beach ball that is leaking from various holes at the rate of 2 cfm; madly pumping air (read tax payer dollars) in a vain attempt to keep unrealistic prices sustained.

[nomorefed]

As the growth of the financial bubble coincided with the repeal of the Glass-Steagall Act of 1933, maybe it would be wise act to reinstate it as it kept the Banks under control for 66 years.

hat tip to http://www.makeitbrief.com/avupq for the good articles

*****
Glass-Steagall Act
A 1933 act that prohibited commercial banks from undertaking investment banking activities such as underwriting the securities of private corporations. The legislation was passed to keep banks from entering into nonfinancial businesses (for example, owning corporate stock) and more risky activities. The Glass-Steagall Act was repealed in 1999. Also called Banking Act of 1933.

[Sharon908]

BING the word Moratorium....this is where the worst of the bank loans reside and are due to come out. The housing market is getting worse not better. Modifications CANNOT work unless banks would do a PRINCIPLE REDUCTION. With the real estate values plunging and the negative OPTION ARM loans coming due , the buyers are $40,000 plus underwater. The banks would only add that amount to a silent second making the modification worse. These loans and subsequent derivative packaging in securities and hedge funds are not going away as moratorium has only kicked the can down the road. OPTION ARMeggedon is just around the corner. Review the following you tube videos on the ALT A and OPTION ARM loans and resets. The other site listed is loaded with links to inform all of the real estate market as opposed to Wall Street manipulation.

http://www.youtube.com/user/markmti
http://ml-implode.com

[robbrian]

Dear Robbrian,

The reason that Realtors are trying to get prices up is that they have a willing buyer, willing to pay a seller what they want.

TheFederal Reserve, as a member of a body that controlled the Appraisal Rules Foundation members, asked for and received an appraisal rule change in 2005. The change was a new rule....Scope of Work Rule.

The Appraisers are being forced to get value down by the Fed's Scope of Work Rule and their demand to tie it to the banks risk management, and it is interferring with the real value of property.

Let the Fed explain the following:The Miami Herald published a graph of South Florida properties values. The graph showed there were no buyers to take market values down, and that is what real estate always does, it just stagnates. Then the graph showed little blips of up and down, and then, in the beginning of 2008, values catapulted off a cliff like lemmings, decreasing over 40%.

The new rule said that it could be used for the “intended use of the client.” In the Foundations 2007 advisories, the Federal Reserve then came along and said the intended use of the client could be . . . and then . . . with some emphatic advisories, must be "the banks' “risk management.” It went into effect in January 2008, and that was the end of trillions of dollars of American wealth.

Andrea Silverthorne

Hollywood, Florida

Campobello Island

Wilsons Beach, New Brunswick

[MadAppraiser]

Nowhere in the “Scope of Work” concept and “Scope of Work Rule” definitions are the estimate of final market value addressed. The “Scope of Work Rule” defines:

A. Problem identification
B. Scope of Work necessary to develop credible assignment results.
C. Scope of Work disclosure in the appraisal report

The Appraisal Foundation's “National Uniform Standards of Professional Appraisal Practice (USPAP)” instituted the “Scope of Work” concept in 2005. The “Scope of Work” concept replaces the “Departure Rule” attributable to the confusion the application created in the appraisal profession. The “Scope of Work” concept was modified in 2006 with the definition: the type and extent of research and analyses in an assignment. The original “Scope of Work” concept definition was transferred, and enlarged in the new “Scope of Work Rule.”

It is increasingly evident given America’s economic, and real estate market conditions, the only working professionals are American attorneys. All of this appraisal professionalism, and American financial institutions engage in any type of covert financial operations they desire. It is very, difficult to write about a profession that has been pillaged, and raped!

[econ1]

Add to this Barney Frank's recent suggestion that Fannie and Freddie "loosen" the mortgage requirements and you get the feeling we are going to see another bubble / solvency issue in a few years.

The US devotes far too much of its' capital to housing through tax and subsidies, compared to other countries. Many of the provisions (mortgage deduction, capital gains roll over etc.) simply inflate the price of the house. Good for realtors, good for banks, certainly good if you have a mortgage on your house, but not good if you are seeking housing. Also it diverts capital from other uses such as production capability which hurts job creation.

We haven't learned a thing.

[Mrpbody44]

I have worked as a real estate appraiser for the last five years. As an honest appraiser I was blacklisted by local banks and real estate agents for providing accurate reports. The system was rigged big time by lender, realtors ,builders and mortgage brokers to scam the public. The public got scammed big time and never had a chance. The appraiser is the referee in the transaction and supposed to be impartial.

In the past Realtors working with lenders would weed out appraisers that did not make the deal go thought. Now with the HVCC and new rules Realtors and brokers can't pick their corrupt appraiser buddy as it is now the luck of the draw with AMC's. Most of the appraisers that work for AMC's are the bottom of the barrel. They may get $150 to do a 1004 standard appraisal. Most good appraisers work for investors and attorneys where they make $400-$600 or more for the same work.

The only way to solve the appraisal problem is for the government to have a rotation panel that picks the appraiser with a set fee of $500 that goes to the appraiser. No middle men. This would bring good appraisers back to the market and eliminate the old buddy system that was full of fraud. This has worked for the VA very well for a number of years.

[dukeitout]

I still don't get it. Why would a bank want an appraiser that values property too high? This madness would do two things: (1) make it more likely that a buyer would get in over his head by borrowing too much and (2) assuring the lender that they are at high risk of not being repaid for the money they loaned. This scenario only makes sense if the lender is assured he can sell this stupid loan to gullible people real fast. Does the word "derivative" ring a bell? How really corrupt can we get?

[MadAppraiser]

The Federal Housing Association (FHA) had a national, rotational appraiser panel that was disbanded under the guidance of lobbyist. Fannie Mae and Freddie Mac (government sponsored enterprises) effectively bound the hands of appraisers by instituting illogical, recent appraisal guidelines. These appraisal geniuses specify that appraisers input improvement chronological age instead of effective age in the appraisal sales grid analysis section. Appraisers normally adjust for effective age differences in the sales grid. Consequentially, some appraisers do not adjust for differences in improvement age in the sales grid analysis that follow this ignorant appraisal methodology!

[Artos]

Politicians aren't going to want to go against this upward assessing of houses most especially local Politicians They profit from it as well, since if a house goes up in it's appraised worth they can assess more taxes. More taxes means more money for them to play with and raise their wages to boot. Has anybody seen any local or state politician volunteer to lower Property taxes on homes with lowered values? I haven't. Do you really think they are going to get behind a move to keep the appraisers honest. Our whole system is gamed and gamey.

[GravitonX]

I had a reassessment of my home value and the county lowered my taxable value by $167,000. Of course, the three separate appraisals provided ample evidence of the value drop.

[Artos]

I don't know what State or County you live in but mine apparently doesn't operate like that. They like seeing the money come in and hate to part with it. I'm inclined to believe that the higher percentage of them are more like that. Take Take Take but never relinquish a dime if they can help it.

[camanokat]

The appraisal for a real estate transaction is not given to the county for assessment purposes. The county has assessors to do that for them. My primary home is assessed at over $100,000 more than I can sell it for yet my rental is under-assessed by nearly $75,000.

[eladora]

Other side of this coin that maybe goes unnoticed. People that think this is going to cure anything--these appraisal ports --- are wrong. Countrywide owned Landsafe--- and now forces you to sue them to get a loan there. (boa now) Wells Fargo owns Reils---only company they will use for their loans--
can you see the pattern . These big banks forced this as a way to cure the issue but at the same time set up profitable appraisal ports . They charge $450 for an appraisal and pay the appraiser $280. So with the hvcc being done the way it is written , the banks have just made more money doing what should be illegal --- marking up a third party cost . But the banks rule this issue. Those saying that the
bankers, brokers, and agents caused all this have no idea how many appraisal reviews were done,
no idea how many good people in the business screamed and hollared about the abuses , but noone would listen. There has to be a better way --agreed--but this wasnt it . I am not a member of any lobby. I just know that these banks are making xtra money now on these appraisals--what a crock.

[MikeKNY]

FBI FINCEN & MARI consistently reported that during the run-up, 2003-2006 ONLY 10-22% (depending on year) of fraudulent mortgage applications had something to do with an appraisal report i.e. users of reports DOCTORING them, stealing Appraisers signatures, deleting sales, comments, and changing VALUES. ie 78-90% were the result of intentional fraudulent actions by many of the same members of both MB and RE associations mentioned in the article.

"if it ain't broken, don't fix it". It WAS and IS (subprime players have INFESTED FHA) Fix it.

[lvdragonlady]

AGAIN, with the lobbyists. OUTLAW all lobbyists.
I agree that new appraisals need to be done BUT not to benefit the lenders but to help out the owners.
Have a new appraisal, reflecting the CURRENT values INSTEAD of the inflated values of the last few years and then issue new loans based on the CURRENT not INFLATED value. Do this would drop the payment and make it easier for the people to handle.

[MikeKNY]

CORRECTION:

FBI FINCEN & MARI consistently reported that during the run-up 2003-2007, ONLY 10-22% (depending on year) of fraudulent mortgage applications had something to do with an Appraisal Report - AND Not necessarily involving the Actual Appraiser. Doctoring Reports after receipt, stealing Appraisers electronic signatures etc WAS (and may very well still be) RAMPANT. ie. 78-90% were the result of intentional fraudulent actions by many of the same members of both MB and RE associations mentioned in the article.

"if it ain't broken, don't fix it". It WAS and IS (the SAME subprime players have INFESTED FHA) Fix it.

[grace14]

banks lobbyist wall street big business want to control us and are they running our Nation with their lust of greed and worship of money? Do not want regulations period..do not want to follow just fair laws for all. Want a legal license to steal plain and simple..who is destroying America on all fronts? Lobbyist? rich and the powerfully so they think? Who does congress really work for and serve? all a illusion the real game is being played behind close doors....all is an illusion