Appraiser Full Employment Act ?

[Bama Bayou]

I am sure the government wants a true estimate of market value for the same reason the banks want to inflate the market value as much as possible: the higher the appraisal, the smaller the haircut the current mortgage holder(s) have to take.

I am not an appraiser and I am new to this forum. I came here essentially to figure out an answer to one question: how much appraisal fraud do you people think there will be under this legislation? The banks have a huge incentive to have the properties appraise high. How easy will it be for them to somehow cause this to happen?

Welcome to the forum.

I'm not sure if your premise is correct. It would seem to me that the incentive would be to value the properties accurately. The incentive for the lender is to get this crap off their books and put it on the back of the taxpayers. The banks wrote this legislation.

 

[Riick]

.....The banks have a huge incentive to have the properties appraise high. How easy will it be for them to somehow cause this to happen?

And the answer is:

But Mike... All those AVMs give high values
.....At least right now they do ROTFL....
If they somehow were "tweaked" for low values (Oh my G_D, how could that happen)
the Lenders will have bigger losses/write-downs

..

Priceless. I bet they have been working overtime this weekend "tweaking the model". Actually it takes about ten seconds of code writing to deflate what they have been inflating.

and lastly ---> "SKIPPY" has NOT left the building.

 

[Mztk1]

I came here essentially to figure out an answer to one question: how much appraisal fraud do you people think there will be under this legislation? The banks have a huge incentive to have the properties appraise high. How easy will it be for them to somehow cause this to happen?

In this case, I don't think appraisal fraud will be all that much in terms of higher values. The face to face contact between appraiser and owner, and the appraiser becoming empathetic towards the owner, is what influences the appraiser who can be manipulated the most, and I think it is what amounts to the greatest volume of appraisal fraud. Worse yet, these appraisers overappraising in these situations feel so good about "helping out" that they do not believe they are being fraudulent.

My guess is, if anything, the appraiser who can be influenced, empathising with the owner, is going to underappraise more often.

 

[SlyAce]

Welcome to the forum.

I'm not sure if your premise is correct. It would seem to me that the incentive would be to value the properties accurately. The incentive for the lender is to get this crap off their books and put it on the back of the taxpayers. The banks wrote this legislation.

Thanks. Yes, the lenders want the bad loans off their books, but the higher the appraisal, the smaller the haircut. Assume an $800k loan on a house worth $400k. The bank currently has a loss of $400k (plus transaction costs) that it has yet to take because it has delayed foreclosure for whatever reason.

If the appraisal comes in at $400k, the loss is $440k as the bank writes down the loan to $360k, thereby leaving the owner with 10% equity with the FHA guarantying the $360k loan. If the appraisal comes in at 600k, the loss is only $260k as the bank writes down the loan to $540k (the amount that leaves the owner with 10% equity).

The banks wrote the legislation and the only way this makes sense to me is if they believe they can obtain inflated appraisals OR they believe that the transaction costs would exceed the 10% they must write down over and above the "true" value of the home in order to leave the owner with 10% equity.

 

[SlyAce]

As for the incentive to appraise low to help out the homeowner, I had not considered that, but the banks would not want to go along since it would magnify their loss.

 

[ZZGAMAZZ]

Perhaps HUD will establish its own AVM with random secondary valuations being provided by HUD appraisers, and then third party valuations provided by independent fee appraisers if a discrepancy exists between the first two.

 

[Bama Bayou]

Thanks. Yes, the lenders want the bad loans off their books, but the higher the appraisal, the smaller the haircut. Assume an $800k loan on a house worth $400k. The bank currently has a loss of $400k (plus transaction costs) that it has yet to take because it has delayed foreclosure for whatever reason.

If the appraisal comes in at $400k, the loss is $440k as the bank writes down the loan to $360k, thereby leaving the owner with 10% equity with the FHA guarantying the $360k loan. If the appraisal comes in at 600k, the loss is only $260k as the bank writes down the loan to $540k (the amount that leaves the owner with 10% equity).

The banks wrote the legislation and the only way this makes sense to me is if they believe they can obtain inflated appraisals OR they believe that the transaction costs would exceed the 10% they must write down over and above the "true" value of the home in order to leave the owner with 10% equity.

My bold

Here's the rub. If the house is worth 400K and the appraisal comes in at 600K the homeowner won't bite on the deal. They will just walk away.

My fee for these types of loans will be large. Very large indeed. Higher than a relo appraisal.

 

[Riick]

Here's the rub. If the house is worth 400K and the appraisal comes in at 600K the homeowner won't bite on the deal. They will just walk away.

Excellent excellent point.

 

[c w d]

Could it be that they actually want a real value?

Sure. Maybe. Who knows? The full employment act? Ha! Right. Yeah, it'll be full employment at 1/2 pay through AMC's.

 

[timd354]

I am sure the government wants a true estimate of market value for the same reason the banks want to inflate the market value as much as possible: the higher the appraisal, the smaller the haircut the current mortgage holder(s) have to take.

I am not an appraiser and I am new to this forum. I came here essentially to figure out an answer to one question: how much appraisal fraud do you people think there will be under this legislation? The banks have a huge incentive to have the properties appraise high. How easy will it be for them to somehow cause this to happen?

I cannot imagine any lender agreeing to a write down of the mortgage without haivng a value provider by an appraiser that they have choosen. Thus the existing lender (lets call it Banco de America for this example) will get an appraisal of the property done. Say the mortgage balance is $400,000 and the Banco de America appraiser comes in with a value of $350,000 (of course he is pressured by Banco de America to push the value as high as possible), then Banco de America may tell the homeowner that they are willing to reduce the mortgage by $350,000 as a part of a refi. Now, the borrower goes to bank #2 in order to get the FHA refi loan (let's call this bank Banco de WAMU)....the borrower and Banco de America tell Banco de WAMU that a $350,000 FHA appraisal is needed to make the refi work......then these guys call their usual FHA skippy to make the deal work.