Stick-built vs. production builder

[Jo Ann Meyer Stratton]

The descriptions above is why I did cartwheels and yelled whoops of joy when Fannie Mae's Annoucement 02-02 came out in January and then has been incorporated into the latest guidelines. Too many appraisers and lenders just could not understand that a land/home package was not an arms length transaction!!! So I am certaintly hoping that Fannie Mae does follow through and start making lenders buy back their loans that were based on land/home packages used as comparables. That is what will get the attention of the lenders, not sanctions, complaints, hearings or anything else. But if they have to buy back a loan--that hurts in their pocket book and it might finally dawn on them that land/home packages are not sales to be used as comparables!!! And maybe some of these appraiser that went so happily along with land/home package deals will finally wake up and realize what their limiting conditions form 1004b actually says!

 

[Caterina Platt]

You are exactly right, Jo Ann. These bad loans are coming home to roost with Conseco. Green Tree then Conseco kept and serviced the large majority of these loans and never sold them off in the secondary market. The mortgage broker bunch are the ones who farmed them out to lenders and then onto Fannie Mae. We can only wonder if those lenders are still even in existance and financially able to eat them. Blood out of a turnip?
I hope they can at least make some examples out of a few.

Pamela,

Appears these bad loans are exactly what is taking Conseco down. $6 Billion to purchase Green Tree just as the B lending market went to the dumpster in mid '98. I have to wonder how much Green Tree hid from Conseco when the purchase was tendered. At that time, I was working in a MH dealership. (selling land for them, not appraising!) Green Tree's New Mexico repo inventory was 40 pages thick!

 

[Caterina Platt]

Austin,

I'm driving back from looking at a property in BFE and thinking about getting home, grabbing a Twisted Tea, typing reports and checking in here. (I promise, I will get a life when this rate crunch slows down!) Suddenly, it occurs to me, I never answered your question regarding how Conseco and others got these appraisals accomplished.

The deals that went through what the dealers referred to as 'outside lenders' (to us that would mean typical conventional mortgage lenders and brokers) were largely accomplished using land/home assembledge comps, phony comps, what have you. These are precisely the ones Jo Ann Meyer Stratton is referring to in the Fannie Mae 2-02 guidelines. These comps, along with several lap dog appraisers, and cha ching! You have a successful MH dealership able to finance the weakest of customers. Loans were generally made based on 70-80% of the appraised value, not the acquisition value. Buyers generally didn't have a dime into the deal and moved in.

The less marginal credit folks got the 'in house approvals' through the 'Trouse lenders'. Conseco/Green Tree, Duetsche, United Funding, and a string of other 'Trouse' lenders only required appraisals on the land. They took the land appraisal and added it to their NADA book amount for the particular model along with the costs of the perm foundation and all utilities. First grave error. We appraisers all know that A + B + C does not necessarily equal market value. 'Oh well, who cares?' Greentree said. We are a 4 star rated company (Forbes in '96 or so, I believe) and we can do whatever we want. The others followed suit to keep up with the competitor. B of A's MH division was the only trouse lender that I recall requiring a full appraisal.

Next big error- financing many non-real estate items into real estate loans. Refrigerator, washer, dryer, temporary steps (yes, I'm not kidding at $250 a pop), and my personal favorite - credit life insurance (which btw, only covered the first 7 years of the loan and typically ran a couple grand). Then the icing- the 10-11 points the buyer paid to get the 'good rate'. And there you have it, the recipe for turning an $85,000 deal into $105,000 loan.

 

[Austin]

This whole manufactured home con game took place right under the noses of the appraisal regulators. This is a monumental financial fiasco and it makes me ax: “Why are we sitting around here talking about a new version of USPAP and a new USPAP class every two years with this kind of abuse going on right under our noses? The problem is not more USPAP CE, the problem is a total failure of the regulators to enforce the existing laws. How could something this monumental be going on over this period of time and them not knowing about it? When you see homes selling for $90,000 one day and six months later selling for $25,000 and a hell of a lot of them, it can only mean the regulators are not up to the task. Instead of going after these gross abuses the state boards are going after people like Steve Vertin, Tom Hilderbrandt, David Johnson, and a host of others on personal vendettas with lengthy cases running on for up to 8 years based on charges that are laughable. Or so it would seem to me. Wouldn’t you agree?

 

[Jo Ann Meyer Stratton]

Some of you might remember some the heated discussions several years ago and even recently on this and other appraisal chat rooms when I and a few others argued against land/home packages as comparables. It is just starting to dawn on some appraisers that a land/home package (I love Fannie Mae's expression-created sales-because that is what they are) is not an arms length transaction. And when Fannie Mae's Announcement 02-02 came out there was again heated discussion that Fannie Mae didn't know what they were talking about.

All the reasons that Caterina mentioned is why a land/home package is not an arms length transaction. The loan amount includes credit card payoffs, down payments, furniture, etc, etc, etc. But the invoice doesn't list all those items. Instead it shows a $25,000 trade in value for a 1960 mobile home 8x30 or a $25,000 cost of installation instead of the actual $5,000 or a $25,000 down payment that did not occurr, etc, etc. Then appraisers that believed a land/home package was a reflection of the market would use that inflated value and other land/home packages with similar inflated values as comparables because "that was the market".

And just like I brought up at a NAIFA chapter meeting a couple of days ago. There are suppose to be over 80,000 appraisers out there. The Appraisal Foundation had a lot of publicity and held public meetings all over the country regarding the proposed changes to USPAP. Only about 150 appraisers out of that 80,000 responded. The same way with organizations, only about 20,000 belong and out of that 20,000 probably less than 5,000 actively participate in the organizations. There is a purpose for USPAP and a bonafide need for organizations but if few people (75,000 versus 5,000) are doing anything, all sorts of strange things happen. Appraisers are their own worst enemy. So those estimated 5,000 people that are doing something--I salute you!!!!

 

[Jo Ann Meyer Stratton]

Correction to sentence:
"ARE NOT doing anything"

 

[Jo Ann Meyer Stratton]

wait a minute I was right the first time. Grammer was my worst subject in school!

 

[Rich Heyn]

JoAnn:

If you like the term "created sales" you'll enjoy this.

A few years ago I was teaching the Manufactured Housing seminar in Macon, GA. One of the class members handed me a newsletter from the GA Appraisers Board that discussed land/home sales. It referred to them as "manufactured sales."

Rich Heyn

 

[Jo Ann Meyer Stratton]

Rich:
I have found one article on the GA board--is there more than one? Could you email me the address? Yes I do like that term manufactured sales! Now I'll stir up things again! Land/home packages (created sales) (manufactured sales) are not arms length transactions for site built homes either!!!!

 

[Caterina Platt]

Land/home packages (created sales) (manufactured sales) are not arms length transactions for site built homes either!!!!

I agree, Jo Ann. Although none of the shenanigans mentioned above are taking place with the typical custom home transaction, they still have not been offered on the open marketplace. Really no different than the folks who hand us a list of improvements and costs for same when we are doing their home for a refi. Just because they paid $zzz for custom track lighting and $XXXX for the pond in the backyard, it does not equate to 'market value'.