AVM is Number Hitter - I'm Just the Appraiser

[Joe Birrell (NY)]

Just returned from 1920 vintage time-capsule that needs a complete gut-rehab, at least $100,000 in repairs, which includes rotted exterior wood siding (easily seen even if it's done as a drive-by). There is a recent mortgage recorded for $160,000 with Washington Mutual. My assignment is a refi via mortgage broker who is placing loan with guess who ? - WaMu.
Amount of loan requested - $161,000.

I call mortgage broker and explain, they say "we'll get back to you".
Call back comes minutes later, "please cancel, and we'll pay you for your time, WaMu is going to do a evaluation based on AVM data, which is how they got last mortgage, Mr. Owner is a good friend of so and so at WaMu "....................so much for the DeMinimus level crapola.

I CAN'T WAIT FOR THIS WHOLE STINKING MESS TO BLOW UP IN THEIR FACES !

 

[Restrain]

As long as they make the payments, it's not going to blow up. If the home goes into default, the assumption will be that it is a downturn of the economy, not necessarily the use of AVMs, that caused the loss. The only one to blame using the AVM is the lender/Fannie/Freddie. They're not going to own up to the problem.

 

[Mountain Man]

:idea: But if he quits making payments, I wonder how long he will have a friend at WaMu. :?:

 

[Richard Carlsen]

The amount of the loan is essentially no longer based on the value of the security but on the ability of the borrower to repay.

I call this "Risk-Based Lending".

 

[Tim Hicks (Texas)]

Another important fact that is being overlooked is that AVM's are "forcasting" their sales for market changes that are not there. I have noticed AVM's using the same sales I have, but sgnificantly higher sales prices. They are inflating sales prices in an effort to stay competitive. However, the market has not shown the great appreciation that it had in prior years and current data does not support the forcasted data. AVM's are also worthless in rural areas. Have you ever had a 2075 assignment and looked at their estimated value and been happyy you were not having to support that ridiculous value? One last thing, it is their loan, so if they want to rely on unreliable data, it their choice and their demise.

 

[slacker]

The amount of the loan is essentially no longer based on the value of the security but on the ability of the borrower to repay.

I call this "Risk-Based Lending".

And there should be more of it.

The value of the security is only worth the potential accounts receivable entry created by the borrower. If the borrower goes belly up, the property is no longer an income producer, regardless of its value. More weight should be given to the financial health of the borrower and less to the potential value of the property.

 

[Real3992004]

If the value of the security is only worth the potential accounts receivable entry created by the borrower, then why is the property secured by a mortgage or deed of trust?

If the borrower's ability to repay were the only factor in the decision to make a loan, then why wouldn't the investor just accept an unsecured note? Borrower's loose jobs, [email protected]$% happens. The purpose of the note secured by the mortgage is to minimize losses. A prudent investor needs an appraisal to ensure the security of the loan.