I thought homes were already appraised for property tax

@Ministry of Truth,

The property value is called an assessment and can be totally disconnected from the market price appraisal.

Well that's just weird...

Seems like this would reduce the number of loans made... Totally goes against Frannie's purpose... Hopefully Bawney Frwank Fwixes dis swoon.

Thank god this is in effect. Brokers manipulating appraisers is at the core of all things that went bad in the housing bust. Why would it make sense for Wells Fargo retail to appraise a home for 200k through their management company, but a broker selling in to get their own appraisal, sell it back to Wells Fargo, and value the home at 300k? Consistent rules are very necessary.

It also seems like this will benefit the big banks that run the big appraisal firms - B of A, Wells, and Citi... suprise suprise

Seems to me that appraisals should simply be the responsibility of whomever owns the final mortgage, if you lend money on an asset then it is up to you to check the value of the collatoral?

I'm not expert but the entire appraisal market seems to be an offshoot of socialized real estate markets in America, Fannie Mae, if there were not government backed lenders then home prices would decline drastically to whatever people could afford with thier wages and appraisals would be up to the local lenders? or am I crazy?

I know an appraiser that never goes out to the home, does a search on the local MLS and finds comparible houses in the area, fills out an on-line form, done.

Trying to make real estate marked to market while we allow banks to mark to fantasy--methinks the latter much better than the former.

Rules implemented during a crisis often are irrational, yet effective short term. The simplest way to fix this problem has been mentioned--make the issuer of the mortgage keep a certain portion of it til maturity--say 30%. Therefore the pain stays in house (weak pun). This system only works if lenders don't pay bonuses based on volume.

OT: My report of the Sunday press shows

This Week with George S:

Rahm Emmanuel was on. George asks (paraphrasing) "the NYT times says Obama hasn't taken a hard stance on anything yet. What do you say?"

Emmanuel replies, "Well,... you see... let me tackle this from 2 points. First let's look at the Presidents "accomplishments" in the first 90 days. The bailouts, recovery act, credit flowing... blah blah... and fighting special interests"

Being a taxpayer, I didn't like being called a "special interest" so I turned the TV off.
--------------------------------

Meet the Press

Larry Summers is on. David asks some intro questions about Cuba. Then he asks (paraphrasing) "Are you worried the bailouts etc. are helping wall street at the expense of main street?"

Larry's reply (almost 100% positive on the response), "No...uhh...David...uhh...not really... uhh..." blah blah blah after that. The was his answer. "Not Really". And I turned the TV off.

Both shows had a bunch of talking heads after the Obama-ites.

Rob Dawg said:
What if this is a first step to introduce HVCC throughout the mortgage system?

Dawg,

It's not a fair comparison. What the banks hold are loans or bonds backed by loans. Use HVCC to value an individual loan? Yes, that works. But it's the bonds which are the problem. They are backed by thousands of loans, so even if you got HVCC appraisals on all the properties, you would have to simultaneously sell them all in order to value the bond. Although that works in theory, it's not realistic.

In the case of Citi and others, those bonds were re-securitized yet another level into CDOs, making valuation even more non-transparent. Point #3 in the following link is an approach I have previously offered and Dr. Hussman very clearly outlines.

http://www.hussmanfunds.com/wmc/wmc090330.htm

Does sOmebody miss the insight of Phil Gramm and Hank Paulson?

"In an increasing market, your sins are buried."

I agree with JimPortlandOR: there is no major reform here. In the end, our system of appraisals (and yes, of assessments for tax valuation, too) is always and everywhere based on comps. If a bubble starts, everybody rises together and with black-and-white printed justification. Putting an extra layer in the system and charging more does not address this is any meaningful way; it simply may end a few of the more obvious shortcuts to buying the 'right' assessed price.

I think you have to tie appraisals somehow to construction costs, with everything over-and-above (location premium, etc) going to the borrower to cover by some other means - not as a part of a mortgage. It would be quite a radical change and I really doubt if we will ever get there. The system worked for a long time - from perhaps the late 1930s to the mid 1980s - but the abuses began to creep in even then. The speculative element in mortgage borrowing is the issue here. The proposed reforms avoid that question. In the meantime, the attitude and mindset is now there and may or may not be removed by the financial crisis we are going through.

FHA's problems took off when they went from FHA selected appraisers to lender selected appraisers, even though it was FHA, not the lender, that bore the risk.

The stranger thing about Harney's article is not his complaints about an extra hundred bucks for a hopefully better appraisal, but his complaints about the extra fees for risky loans. He seems to suggest that high fees for a high LTV, low FICO, Interest Only condominium in a declining market would be a bad thing. Isn't it the case that low fees for risk layered loans is exactly what got us into this mess in the first place?

"In an increasing market, your sins are buried."

That's why the White House and Congress are trying so hard to cooperate with the Wall Street hypercriminals to get these markets ponzi-blasting back to the moon.

They're trying to postpone the reckoning to hide from their crimes.

Of course that just makes the final reckoning that much worse.

BSR: didja catch a load of the links?! agreed, awesome link!!! of course, that is what you were referring to?

Deficits are an issue.

Sure is.

The future of the earned income exclusion for trait0rs (I mean, foreign residents) is important to some of us.

As a couple of people have pointed out, appraisals aren't set up to prevent a housing bubble. If all home prices rise, then appraisals keep up, even if the increase turns out to be unsustainable in the long run. What appraisals can do is limit fraud, where the value of one home is overstated relative to the rest of the market in order to defraud the lender. In order to limit this abuse, it makes sense to require that the lender have some control over who does the appraisal, and it makes sense that an appraisal company be held responsible. Individual appraisers might be tempted to run a few millions of fraudulent transactions through a lender, knowing that they can retire from the business and go back to telemarketing if the lender cuts them off. But a large appraisal company would have a lot to lose if a big lender found they weren't supervising their appraisers enough to limit fraud.

As far as limiting the bubbles in the first place goes, it makes sense to limit CLTV ratios, period. Just accepting 20% would make a lot of sense. Also gradual withdrawal of all government guarantees from the home lending markets.

Sorry, thought debit and credit card marketing was the same. know it's not.

Tom Stone, on apparisals, thanks for this and many other front line messages.

After reading your posts for a couple years now, and after spending some of my best days in your neck of the woods, I will certainly look you up if the time is right. I wanted to write "when the time is right", but I've got some people to convince.

Anyway, your everclear n root recipe has been saved.

dawg wrote:
"If the banks' argument is that these transactions are too complex and opaque to be monitored then I insist those complex and opaque transactions are to dangerous to exist at all."

I'm not going to argue that point with you, but the reality is that they do exist, the banks and other financial institutions own huge chunks of them, and thanks to Paulson and Geithner we as taxpayers are going to backstop hundreds of billions of future losses embedded in them. My point to you was that having the thousands of housing assets which back the loans reappraised might give you a theoretical value for the bonds, but not a realistic one. Five thousand mortgages are not going to be liquidated in one fell swoop.

There is a better and more realistic way to value these bonds. As Dr. Hussman put it:
"Allow toxic asset purchases using public funds only to the extent that the entire issuance of various securitized mortgage pools can be purchased all or none at a moderate percentage of face value. This would allow the underlying mortgages to be restructured - ideally writing them down to a similar percentage of face - reducing their foreclosure risk, and increasing the likelihood that public funds will be recovered."

In other words, get leverage out of the system by unwinding deals.

crabsofsteel, your bypassing the value of the underlying collateral - the houses - provides everyone here a good insight into the thinking at the Fed and Congress etc. The assumption is that home prices now are lower than they "should" be, and so basing the loan values on those lower home prices undervalues the loan securities. Govt efforts just have to be given enough time to reinflate home prices, and we will all be back on track. Maybe home prices won't go immediately all the way back their peak values, but they "shouldn't" be a allowed to go down as much as they have.

The mandatory appraisal management company seems like a good idea to me, contrary to most every other plan than I have heard. The extra $130 seems kind of high, but it is only $130 and the appraisal could be done only after conditional loan approval.

jeff in indy - I agree that it's not worth penny-pinching on the front-line defense against fraud and overvaluation in general, but I don't mind if more money goes into supervision of the appraisers to ensure they avoid fraud, and to pay damages on cases of fraud.

I bought and sold 5 houses in the bubble time. I never could understand how the appraisal always was exactly what I was paying for the house. Now I know.

The question who is going to supervise and regulate the appraisals and the appraisers.
Under the present method of the Congressional sub committee for appraisals who responsibilities include
making sure that the states who appraisers meet certain criteria to do appraisals for federal transactions has been
a failure. This was Reported by the Associated Press who did a 6 month investigation. in 2008.

I live in Ohio which had the most appraisal complaints in the AP investigation. I lost my home of seven years because Amtrust Bank FDIC #29776 through their Ohio licensed on staff appraiser violated 5 state appraisal laws and his appraisal of my home the state concluded was done in a negligent reporting manner.

After a year the Bank's attorney and the states attorney met in 2007 behind closed doors.The agreement reached was one where the appraiser would plead guilty for 2 lesser citations and have to do 14 hours additional
hours of real estate education.The State of Ohio acknowledged my complaint and my vindication was that I lost my home in foreclosure.
I complained to the Congressional sub committee which told me nothing they could do. Ohio politicians said that is the way it goes.
Objectively after 6 years with the appraisal game, my experience tells me, if you have an honest,well educated appraiser consider your self fortunate.
Other wise you have the full faith and protection of the federal government in this case which means you have absolutely nothing.
If you are in the state of Ohio you are in harms way if a problem arises.

I should mention that this flawed appraisal done in 2003 with this appraiser who was licensed in 1991 violated Title 12 CFR 564
which is the federal regulation for appraisals. The Office of Thrift Supervision refused to address this issue by stating that there are "No Federal Consumer Banking Regulations" therefore they would do nothing."

The bottom line is that all this is window dressing-it means absolutely nothing. Do the research, this housing meltdown has been going on since the 1980's. The government, these professsional organizations deliver all these rules regulations which
are worth a pound of cow manure.

It is almost impossible to fight a lie.
It is absolutely to hide the truth.

MIchael LittleBig
4-18-09

patientrenter wrote:

"Govt efforts just have to be given enough time to reinflate home prices, and we will all be back on track."

Surely you are kidding. If a 400 pound man takes a heart attack after eating 4 whoppers a day, do you tell him that it's OK, he can go back to his usual lifestyle? This is what the government is doing in trying to re-inflate the credit bubble. Let me repeat: housing prices went sky high because too much credit was too easily provided. Trying to provide even more credit makes no sense, only delays the inevitable, and is an abominable use of public funds.

I see you have an appraiser fee at $450 listed here. The lenders and title companies now own the management companies that are auctioning off the appraisal assignements to the lowest bidder more than 50% of the time. On average the management companies are keeping half or more of that fee (to send a fax from point A to point B). The appraiser is making maybe $200 for the work which takes at least 8 hours and can take up to 16 hours to complete in my area. Costs to the appraiser include software (annual subscriptions), annual MLS dues, annual insurance premium, gas, office supplies, training, rent/office space, phones, Continuing Education, regulation/licensing annual dues, hardware, and general business/typical overhead. An appraiser in my state has to have a Bachelors degree before they can start to apprentice which takes 2 years of making less than $25,000 er year to complete.

Appraisers are fighting for the consumer's interests against new regulations that are going to push the experienced and honest appraisers out of the business. The public should pay attention to the fleecing of our citizens at the benefit of the same 8 banks that are on CNN every week. The appraiser is the ONLY PARTY in the trasaction that has no bias based on the value of the property (pay is not tied to our results).