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That clip, in my view, seems to lay the blame for the run up squarely at the feet of the crooked appraisers that played the game the lenders asked them to play. After all, if they wouldn't have falsified values, nothing else could have followed. Is that your view?
The really crooked appraisers were the ones giving credit ratings to mortgage derivatives. They were the final link that created the huge demand to purchase mortgages from the original lenders, and allowed the lenders to issue imaginative mortgages fully knowing that they would sell the mortgage shortly and didn't care if they were good or bad mortgages.
It seems to me that the above applied to virtually everybody involved in the process including seller, buyer, lender, agents, appraisers...
Love Hound,
There are thousands upon thousands, and upon thousands of stories of how Realtors and Mortgage Brokers threatened the Real Estate Appraiser.
There are the same amount of stories of how no one listened and how the rest of the professionals covered it all up, until it was too late.
Appraisers had to decide between going bankrupt/losing their career and feeding their families, while they fought the wrong in hopes that regulators would assist.
It took a lawsuit within the secondary market (Freddie and Fannie) to stop at least half of it, as of today. An Attorney General finally listened.
Last edited by Greeenback; 02-26-2011 at 11:45 AM..
Reason: I forgot to use green font
The really crooked appraisers were the ones giving credit ratings to mortgage derivatives. They were the final link that created the huge demand to purchase mortgages from the original lenders, and allowed the lenders to issue imaginative mortgages fully knowing that they would sell the mortgage shortly and didn't care if they were good or bad mortgages.
What does one need to control, when manipulating supply and demand, on account of greed (for anyone, profession, or entity)?
I don't get the foundation being the appraisers... They were simply complicit and played a role like the investment banks to Madoff. They knew what was happening was very wrong, but they wouldn't stop it for fear of losing money flow. Someone was sure to step up and do it if they wouldn't. Wrong for sure and culpable, but not the foundation of the issue. Just another in a long list of checks and balances that didn't trigger a circuit breaker.
Tech Bubble -> Credit Bubble... Tech bubble was the match and the easy "money" (debt) pumping the demand side was the fuel. You don't have to do anything else if you give away mortgages, HELOCs, and push ARMs as crack. Everything after that was a natural reaction.
I don't speak to Realtors and real estate market consultants on this forum. However; I will make this one exception so I can let you know that you are extremely incorrect. As I said, I don't speak directly to certain professionals on this forum, so this will be the last reply.
Have a nice day
Your statement makes no sense. Are you implying that if you had done the appraisal on a home in 2005 that is now upside down you would have seen the turn coming and disregarding the comps supporting the value in order to appraise the home on what it would be worth 5 years later as opposed to what it was worth at the current time of purchase? And if so, aren't you failing to do your job as an appraiser to appraise based on the most recent data available by speculating on future value?
That clip, in my view, seems to lay the blame for the run up squarely at the feet of the crooked appraisers that played the game the lenders asked them to play. After all, if they wouldn't have falsified values, nothing else could have followed. Is that your view?
That's what it seems to me as well? I thought appraisers were independent and hired as an unbiased 3rd party to protect the banks value? Greenbuck seems to be saying otherwise.
I've only been an agent since spring '05 so I mostly missed out on the big run up around here but I don't follow how agents could have been responsible for it and it seems disingenuous to read an appraiser's complaint that agents "threatened" appraiser's livelihoods. The argument that everyone was throwing the rules and guidelines out the window doesn't stand up. We are all professionals and we have an obligation to not only do the right thing but to report those who don't to the appropriate licensing/regulatory entity. Weren't appraisers hired by lenders back then, too? Sure, agents could offer comp suggestions but I don't see how they could apply any leverage. If I am wrong, I apologize and I welcome the explanation.
I don't get the foundation being the appraisers... They were simply complicit and played a role like the investment banks to Madoff. They knew what was happening was very wrong, but they wouldn't stop it for fear of losing money flow. Someone was sure to step up and do it if they wouldn't. Wrong for sure and culpable, but not the foundation of the issue. Just another in a long list of checks and balances that didn't trigger a circuit breaker.
Tech Bubble -> Credit Bubble... Tech bubble was the match and the easy "money" (debt) pumping the demand side was the fuel. You don't have to do anything else if you give away mortgages, HELOCs, and push ARMs as crack. Everything after that was a natural reaction.
That is a good observation, Mikey Kid. Well done.
Independent Real Estate Appraisers are the only ones in the industry who tried to stop what was going on. Realtors, Mortgage Brokers/loan Officers, Banks, Fannie Mae, Freddie Mac, the government and organizations all looked the other way. Many Real Estate Appraisers stayed away and many played the game for money (because of threats, blackmailing, and blacklisting) -- they had to feed their family -- but, they spoke up ad fought against it.
The media feared to report it. They feared they would lose their job as they would be threatened.
Although Real Estate Appraisers were already supposed to be unbiased, Appraiser Independence was more or less born into law when an Attorney General from New York listened to the Appraisers. The Independent Real Estate Appraisers introduced the first major change to correct the market. It is called the Home Valuation Code of Conduct (HVCC). It took a lawsuit against the major secondary market investors to get it done! I have the original in my documents (PDF). Unfortunately, the commissioned and profit driven were able to hijack parts of it before it was implemented.
The best features include the fact that Appraiser Pressure is very serious offense for anyone. It bans the Realtor and the Mortgage Broker from the appraisal process altogether. There are some other great parts of it.
Here is a Fannie Mae Appraiser Independence requirement to show a piece of the pie (be sure to read "Appraiser Engagement"):
Real Estate Appraisers were not hired to be Independent and Unbiased, even though it was their job to be Independent and to be hired as an Unbiased expert. This is sad. And, it is even more sad that it took a lawsuit to try to turn it around.
You know what else? Banks, Mortgage Brokers, and the NAR used certain rules to engage Realtors to give them a biased, uneducated, inexperienced, incompetent, no standard valuation in order to hit numbers that will benefit all of them together. This was done through out the prior decade at high levels. This was done to bypass the growing number of Independent Appraiser who fought, and fought, and fought...
Edited to add: Agents and Brokers misuse the term comparable everyday. When a Realtor gives you comparable property suggestions, remember that they are not qualified nor are they licensed or Certified to do so. It takes years of being an Independent Real Estate Appraiser to fully understand what a comparable property is and how to use it properly. There is more to valuing and consulting than just comparable properties, as well. If an Appraiser is a Realtor, too, then it is against the law to be both at one time. Agents and Brokers use what is called, "competitive properties."
Last edited by Greeenback; 02-26-2011 at 01:19 PM..
I don't get the foundation being the appraisers... They were simply complicit and played a role like the investment banks to Madoff. They knew what was happening was very wrong, but they wouldn't stop it for fear of losing money flow. Someone was sure to step up and do it if they wouldn't. Wrong for sure and culpable, but not the foundation of the issue. Just another in a long list of checks and balances that didn't trigger a circuit breaker.
Tech Bubble -> Credit Bubble... Tech bubble was the match and the easy "money" (debt) pumping the demand side was the fuel. You don't have to do anything else if you give away mortgages, HELOCs, and push ARMs as crack. Everything after that was a natural reaction.
I just want to emphasize that the "appraisers" I am talking about in my explanation of why the bubble happened are not the real estate appraisers. I am referring to those companies who rated the value of real estate derivatives (a batch of mortgages bundled together and sold together as an investment) who evaluated the safety and reliability of the mortgages that made up the derivative. (I'm somewhat limited by not being in the business and not knowing the proper terms.) An investment house would bundle a bunch of mortgages and create a bond(?) and then they had to have it rated before they could sell it on the market. They would have it rated by whoever charged them the least or whoever would give them the best ratings. The problem was those rating appraisers lost the business if they didn't play along. They were under pressure to give AAA ratings or whatever the highest could be given. The flaw that brought the system down was that these people were not independent!
The real estate appraisers were appraising houses compared to other housing sales. In other words it's a sliding scale. The market goes up, appraised values go up. Market goes down, appraised values go down. Value is relative to the market, not any absolute.
Quote:
Originally Posted by Brandon Hoffman
That's what it seems to me as well? I thought appraisers were independent and hired as an unbiased 3rd party to protect the banks value? Greenbuck seems to be saying otherwise.
The banks weren't the major problem. Many of the banks sold the mortgages to investment houses as soon as they could, sometimes within mere weeks of initiating the loan, maybe even days. These banks couldn't lose. The investment houses bought the mortgages, bundled them together and sold them as real estate derivatives, after having them rated by people who had a motivation to give good ratings no matter what they really thought. That's what put the air in the bubble. Like any fantasy it finally ended and the bubble popped.
It seems to me that the general realtor on the street (not the ones who were involved in fraudulant mortgage deals) could not do anything except what they did and I think it is passing the buck to blame agents. Agents don't set prices they report them to sellers and buyers who then act on them. If prices are going up at 2-3% a month (as they were here in 2005) and appraisers are giving the go ahead to the lenders how can an agent not keep reporting the increases to sellers? If agents told sellers that the market was overheated and they should keep their asking price down, what do you suppose would have happened to the agent? They'd either be thrown out of the listing appointment or sued after the fact. And, if buyers are willing to pay X dollars for a property in a super heated market and their lender approves, and the comps support the price, is the agent supposed to tell the buyer to offer last year's price? They'd never be able to buy anything! We in the Sarasota, FL area were literally the fastest rising market in the country in the summer of 2005. Agents were basically riding the wave but that doesn't mean they created the wave. And, agents certainly rode the wave all the way back down, too. If agents had the power to control prices, wouldn't they have held the market up with their magical power? And, the way I remember it, the media was doing everything they could do to kill the market. Remember all the "bubble" stories?
I think this whole deal belongs to the banks (who ultimately loaned the money and then sold investors a bill of goods that they knew was junk) and congress who created the climate in which the banks could operate.
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