Comments on: Inflating Appraisals http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/ - solving problems one market at a time Wed, 07 Jan 2009 07:55:31 +0000 http://wordpress.org/?v=2.3.1 By: Wisest of the crowds » Coercion upon Appraisers http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-792 Wisest of the crowds » Coercion upon Appraisers Tue, 24 Apr 2007 23:02:18 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-792 [...] Harney also details a few scams worth a read but perhaps the key point is that the commercial incentives of banks and other intermediaries are wrecking havoc on the reputations of appraisers. Is it time to re-examine incentives and better structure the industry? Should buyers hire appraisers rather than bankers and agents? I discussed this earlier here. [...] […] Harney also details a few scams worth a read but perhaps the key point is that the commercial incentives of banks and other intermediaries are wrecking havoc on the reputations of appraisers. Is it time to re-examine incentives and better structure the industry? Should buyers hire appraisers rather than bankers and agents? I discussed this earlier here. […]

]]> By: Wisest of the crowds » My-Currency loves appraisers!!! http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-13 Wisest of the crowds » My-Currency loves appraisers!!! Tue, 06 Mar 2007 17:34:38 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-13 [...] karim March 5, 2007 Permalink Trackbacks 0 Marcie Geffner of Inman news has a great article about the conflicts and misaligned incentivesthat appraisers face today. I discussed this in an earlier post entitled “inflating appraisals” but essentially I agree with Marcie’s assessment about the state of the industry. Appraisers get pinched from all sides because those people that hire them are incented to get it wrong. A bank lender gets paid on volume. A real estate agent gets paid upon close of a transaction. A seller get more money. A buyer gets a loan, a house, and a sense of fairness (admittedly a false sense of fairness). [...] […] karim March 5, 2007 Permalink Trackbacks 0 Marcie Geffner of Inman news has a great article about the conflicts and misaligned incentivesthat appraisers face today. I discussed this in an earlier post entitled “inflating appraisals” but essentially I agree with Marcie’s assessment about the state of the industry. Appraisers get pinched from all sides because those people that hire them are incented to get it wrong. A bank lender gets paid on volume. A real estate agent gets paid upon close of a transaction. A seller get more money. A buyer gets a loan, a house, and a sense of fairness (admittedly a false sense of fairness). […]

]]> By: Ben http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-9 Ben Thu, 15 Feb 2007 21:33:03 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-9 I have been in the mortgage business since 2000. Currently I am a loan processor w/ a broker in Florida and have a good relationship w/ several appraisers. We always tell them to get us the best value they can, without crossing any lines. The money made on 1 fraud deal is not worth the consequences when you get caught. Our appraisers appreciate us because we do not push them to inflate appraisals. The boutique loans will fade away and be resurrected when the markets recover. The competition of the refi boom provoked many lenders to loosen Underwriting Guidelines, appraisal review guidelines and credit grade guidelines. Those lenders are now feeling the burn of too much paper that they cannot sell on the secondary market. We lost a lender today and they made thier living on the high LTV, I/o ARMS and other hybrids that they cannot get rid of. Review my appraisals, they are solid, re-underwrite my files, they are strong... I am not afraid of this lull in the market. I have been in the mortgage business since 2000. Currently I am a loan processor w/ a broker in Florida and have a good relationship w/ several appraisers. We always tell them to get us the best value they can, without crossing any lines. The money made on 1 fraud deal is not worth the consequences when you get caught. Our appraisers appreciate us because we do not push them to inflate appraisals. The boutique loans will fade away and be resurrected when the markets recover. The competition of the refi boom provoked many lenders to loosen Underwriting Guidelines, appraisal review guidelines and credit grade guidelines. Those lenders are now feeling the burn of too much paper that they cannot sell on the secondary market. We lost a lender today and they made thier living on the high LTV, I/o ARMS and other hybrids that they cannot get rid of. Review my appraisals, they are solid, re-underwrite my files, they are strong… I am not afraid of this lull in the market.

]]> By: Cindi Gardner http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-6 Cindi Gardner Wed, 07 Feb 2007 21:21:24 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-6 I agree with Mr. Ahearn, and after spending 21 years as a retail mortgage originator (with either a bank, mortgage bank or mortgage broker) I have seen several of these market cycles. The "boutique" products have existed for decades, other then a name change when the Negative Amortization loan became the Option Arm; but the big difference is the higher loan to values allowed. So the same pressures have existed in times where sinking property values have met with a borrower who finds they need to refinance. It will be exacerbated this time around by those high loan to values - and that is where the focus should be placed. Not the same old exotic products, not the questionable refinance appraisal values - but the high loan to values. Right now those guidelines are being changed by a broad spectrum of lenders (A, Alt-A, Subrpime) - not because they have seen the error of their ways - but because the demand for that pool of loans has dried up on the Secondary Market. Meanwhile, the debate will rage in the media and, now, in blogland. Personally, I have originated only 3 of those loans in the last 5 years - one was my own and none were higher then 80%. I agree with Mr. Ahearn, and after spending 21 years as a retail mortgage originator (with either a bank, mortgage bank or mortgage broker) I have seen several of these market cycles. The “boutique” products have existed for decades, other then a name change when the Negative Amortization loan became the Option Arm; but the big difference is the higher loan to values allowed. So the same pressures have existed in times where sinking property values have met with a borrower who finds they need to refinance. It will be exacerbated this time around by those high loan to values - and that is where the focus should be placed. Not the same old exotic products, not the questionable refinance appraisal values - but the high loan to values. Right now those guidelines are being changed by a broad spectrum of lenders (A, Alt-A, Subrpime) - not because they have seen the error of their ways - but because the demand for that pool of loans has dried up on the Secondary Market. Meanwhile, the debate will rage in the media and, now, in blogland. Personally, I have originated only 3 of those loans in the last 5 years - one was my own and none were higher then 80%.

]]> By: Patrick Ahearn http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-5 Patrick Ahearn Tue, 06 Feb 2007 22:44:08 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-5 I am lost as to how to respond to this article. First Mr.Hummel wants pressuring appraisers to be a federal offense, how? What is pressure on an appraiser, who will define "pressure"? That is a slippery slope for sure and one I wouldn't go down. Lenders created this mess with the boutique products and now that the piper needs to be paid they are pointing fingers. In the end the lenders will pay and a few appraisers and Mortgage Brokers will get slapped around a bit for show, but nothing more. History does tend to repeat itself and this time is no different than the last. I have heard all this before the last slow down we had, and it all ended well. Requiring a desk review on any loan with a high loan to value is just plain good sense. I realize it is not currently the norm but it will be soon. Having one person put together a report on Real Estate and then hanging them out to dry when thier opinion is second guessed is just silly. An appraisal is after all an opinion and there is no one correct answer. We need to put the blame right where it belongs on the executives at the Lenders who are introducing these high risk mortgages and expecting no issues to arise. Anyone in their right mind could have seen this coming and decided not to participate but most lenders didn't do that. I am lost as to how to respond to this article. First Mr.Hummel wants pressuring appraisers to be a federal offense, how? What is pressure on an appraiser, who will define “pressure”? That is a slippery slope for sure and one I wouldn’t go down. Lenders created this mess with the boutique products and now that the piper needs to be paid they are pointing fingers. In the end the lenders will pay and a few appraisers and Mortgage Brokers will get slapped around a bit for show, but nothing more. History does tend to repeat itself and this time is no different than the last. I have heard all this before the last slow down we had, and it all ended well. Requiring a desk review on any loan with a high loan to value is just plain good sense. I realize it is not currently the norm but it will be soon. Having one person put together a report on Real Estate and then hanging them out to dry when thier opinion is second guessed is just silly. An appraisal is after all an opinion and there is no one correct answer. We need to put the blame right where it belongs on the executives at the Lenders who are introducing these high risk mortgages and expecting no issues to arise. Anyone in their right mind could have seen this coming and decided not to participate but most lenders didn’t do that.

]]> By: tpe http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-4 tpe Tue, 06 Feb 2007 18:18:55 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-4 I did real estate appraisals for a few years in the early 90's and can tell you that the pressure definitely exists not to blow the deal. I also agree that this pressure comes from the mortgage broker who can always find another apraisal company. I disagree with your assessment that the buyer wanting a low appraisal has much influence on the final value. While the buyer may be the one paying for the appraisal he wasn't the one who hired the appraiser. The mortgage broker did. With that said the final appraisal doesn't have all that much to do with the sales price since, in all likelihood, it was performed after a price was already agreed on between the buyer and seller and a contract is in place. The appraiser knows what this price is and will consciously or unconsciously try to come as close to it as possible. Too low a value could cause the deal to fall through. Too high a value will piss off the seller, who now feels he should have gotten more for his house. He vents this anger at his realtor who didn't provide competent advice. Since the realtor has some influence in steering business to the mortgage broker he will express his displeasure with the broker who will pass it on to the appraiser. I did real estate appraisals for a few years in the early 90’s and can tell you that the pressure definitely exists not to blow the deal. I also agree that this pressure comes from the mortgage broker who can always find another apraisal company. I disagree with your assessment that the buyer wanting a low appraisal has much influence on the final value. While the buyer may be the one paying for the appraisal he wasn’t the one who hired the appraiser. The mortgage broker did. With that said the final appraisal doesn’t have all that much to do with the sales price since, in all likelihood, it was performed after a price was already agreed on between the buyer and seller and a contract is in place. The appraiser knows what this price is and will consciously or unconsciously try to come as close to it as possible. Too low a value could cause the deal to fall through. Too high a value will piss off the seller, who now feels he should have gotten more for his house. He vents this anger at his realtor who didn’t provide competent advice. Since the realtor has some influence in steering business to the mortgage broker he will express his displeasure with the broker who will pass it on to the appraiser.

]]> By: lokeshk http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-2 lokeshk Sun, 04 Feb 2007 18:15:00 +0000 http://www.my-currency.com/blogs/karim/2007/02/04/inflating-appraisals/#comment-2 I agree different parties to the transaction, at different times, have influenced appraisers to get the "Right" appraised value of the property, and that was very prevalent in the rising prices market. But in the falling prices market, buyers are not the ones doing this. Buyers do not even want the full price appraisal, they want the appraisal to be lower, so they can negotiate even lower price with seller. Even lenders are being very cautious and are not ordering any re-appraisals to get the appraisal corrected, although they are caught between falling revenues and risks associated with funding overpriced property. I agree different parties to the transaction, at different times, have influenced appraisers to get the “Right” appraised value of the property, and that was very prevalent in the rising prices market. But in the falling prices market, buyers are not the ones doing this. Buyers do not even want the full price appraisal, they want the appraisal to be lower, so they can negotiate even lower price with seller.

Even lenders are being very cautious and are not ordering any re-appraisals to get the appraisal corrected, although they are caught between falling revenues and risks associated with funding overpriced property.

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