Round and Round We Go

Posted by kevin on December 2, 2014 under Foreclosure Blog | Comments are off for this article

Prior to 2008, I viewed many appraisals with a bit a disbelief. The economy was growing at 3-4% but real estate prices in NJ were going up by 20%. Something had to give and it sure did.

When I started doing foreclosure defense work, I was shocked to see the mortgages that were being given out based on highly questionable income. How could a guy that worked as a manager at Home Depot get a $500,000 mortgage? Moreover, who, in their right mind, could believe that that person was making $10,000 per month? Welcome to the world of stated income loans.

Any sane person would conclude that the manager at Home Depot was not making $120,000 per year. One would think that an underwriter would come to that same conclusion. How, then, could the employer of that underwriter lend a half million dollars to that manager. If not based on income, it had to be based on the value of the collateral. Enter the appraiser.

More than a few appraisers were fudging their appraisals. The problem that I found was that it was difficult to get an expert to testify that another appraiser was playing games. A tight little group. At any rate, I was not able to go after any appraiser in my 5 years of foreclosure defense litigation.

That brings us up to an article in today’s WSJ about inflated appraisals. Banks are auditing loan applications, or so they say, and are seeing more and more questionable appraisals. As prices have leveled, appraisers are claiming that loan officers and real estate brokers are putting the heat on them to come up with values to justify the loans. Isn’t that fraud??? or predatory lending?? or both. The OCC and Freddie Mac are investigating.

The article goes on to say that surveys of real estate agents show that 31% lost deals because of low appraisals in March, 2012; 29% lost deals in March, 2013, but only 24% lost deals in March, 2014. Those numbers indicate that more and more appraisers are playing ball, but at the same time complaining that the real estate agents and bank officers are squeezing them

Finally, the article says that banks are turning to AMC’s (appraisal management companies) to assign appraisal work. This gets the loan officer (a source of pressure on the appraiser) out of the loop. However, appraisers now are complaining that the AMC’s are twisting their arms to come up with more favorable appraisals.

It’s funny. The appraiser blame loans officers, real estate agents and AMC for their own illegal activity. Sort of reminds me of my sons when they were little. Whenever I caught them doing something wrong, it was always someone else’s fault. More importantly, the question is what did the banking industry and their agents and the government learn from the 2008 meltdown. Looks like not much.