The Decline of the Appraisal Industry: An Unsustainable Future

[Non Sequitur]

You are overlooking a key issue. A 30 year mortgage ties up a banks assets for 30 years. When interest rates go up, banks lose money on their lower interest rate-bearing mortgages. They are forced to pay depositors more in interest but, with a fixed-rate 30-year product, they can't adjust their loan portfolio to compensate.

I agree, you just added a little more detail. They can’t tie up the money for 30 years for the reasons you mention, and there's other factors.

Back in the day regulations were very different, it was the wild west. In my market (and I'm sure most if not all others) many lenders did just about everything in house. The S&Ls in my area owned an appraisal firm, title company, insurance company, etc. So it wasn't just the interest on the loan, it was all of the upfront revenue, and trust me they didn't pull any punches on fees. Oh and here's the kicker, when the S&Ls needed money guess what they did? Unload those seasoned loans, and to guess who? Fast forward to today, without the other revenue streams 30 year mortgages are a loser out of the gate.

 

[Non Sequitur]

And I'll add: The GSEs were formed to provide liquidity to the market, not be the market. Unfortunately there's a lot of politics involved but IMO they need to get back to being in the background or let's start over with something else to add liquidity to the mortgage market.

 

[TerryRohrer]

Mortgage backed securities are just another form of American addiction that demands gratification now. There is no "need" for GSEs, we have just become addicted to current consumption of future earnings.

"The US mortgage market is quite unusual. A review of mortgage terms in 11 countries other than the United States demonstrates this: nonrecourse loans are rare, as are fixed-rate mortgages that allow free prepayment. Moreover, the mortgage-backed security structure that underpins the American mortgage is rarely found elsewhere in the world. Most countries rely on banks for mortgage finance, and so mortgages more often than not have variable rates. The United States has also had the worst mortgage default performance of any country in the aftermath of the financial crisis, likely because outside of the United Kingdom, it has had the weakest underwriting standards. Hong Kong and Korea show that using LTV policy to lean against housing booms and busts may well be effective."

https://www.sciencedirect.com/science/article/abs/pii/B9780124017436000081

 

[George Hatch]

My point was the GSEs aren't the only conduit that can participate in MBS and loan securitization business.

 

[Non Sequitur]

My point was the GSEs aren't the only conduit that can participate in MBS and loan securitization business.

Big difference between can and do.

 

[NC Appraising]

Fannie and Freddie lost market share as the bubble grew: The companies backed roughly half of all home-loan originations in 2002 but just 30 percent in 2005 and 2006. In an ill-fated effort to win back market share, Fannie and Freddie made a few tragic mistakes. Starting in 2006 and 2007—just as the housing bubble was reaching its peak—Fannie and Freddie increased their leverage and began investing in certain subprime securities that credit agencies incorrectly deemed low-risk. Fannie and Freddie also lowered the underwriting standards in their securitization business, purchasing and securitizing so-called Alt-A loans. While Alt-A loans typically went to borrowers with good credit and relatively high income, they required little or no income documentation, opening the door to fraud (which was often perpetrated by the mortgage broker rather than the homebuyer).

 

[George Hatch]

Big difference between can and do.

True. I'm just saying that if for some wildly unlikely reason the GSEs were retired outright the greedy capitalists on Wall St would figure out how to continue.

 

[Carnivore]

There are HUD jobs out there that res appraisers can transition to.

https://www.HUD.gov/sites/dfiles/PIH/documents/UPCS_Inspector_Certification_Training.pdf

https://www.cidinspections.com/HUD-...spection is,starting at $220.00 per property.

https://apps.HUD.gov/offices/reac/products/pass/PDFs/steps_become_upcs-inspector.pdf

 

[TerryRohrer]

Obviously, the "need" for GSEs is overstated. First, there is about 70% equity in the housing stock. GSEs hold 70% of the 30% debt load. Interestingly, MBS quality is so good that the FED has to own 26% of it. And GSEs are so good at transferring risk to the taxpayers that commercial banks, who can't hold their own bad loans with the attendant risk, do hold 32% of the GSE MBSs. And to George's point, there are already players in place that could take up some slack if only they could get the GSEs on the same level of playing field. We simply have a house of cards being sold to us as a necessity.

 

[TerryRohrer]