The Decline of the Appraisal Industry: An Unsustainable Future

[TerryRohrer]

Much, if not all, of this trend is due to Congress giving people what they demand...something for nothing. Social engineering and tax collections require fools acting in concert in large numbers in order to achieve the desired result. If the taxpayer no longer had to bail out everyone who made a stupid mistake while acting in their own free will, they would be rewarded with the opportunity to make smart decisions on their own behalf, enjoy the rewards of that, and pay less in taxes. But, as long as the argument goes "if we fix the mess someone might suffer", the problem will only continue to get worse. In the end, we get the mess we require.

"In the past, an average house in the U.S. cost five times the yearly household income (aka our labor). As of November 2021, that ratio was 7.5 times, exceeding the record set in 2006 at 7.0 times."

Real Estate Prices vs. Income

In this Chart of the Day, Sam looks at the home prices compared to the income.

www.crews.bank

 

[George Hatch]

The market abhors a vacuum (so to speak).

If the GSEs were disbanded tomorrow the greedy capitalists on Wall St would back another secondary mkt investor by the opening bell on Monday. If not sooner.

The pricing and the underwriting might be different, though.

 

[Mike Ault]

"Private-label securities", with more transparency into how the collateral and credit risks were underwritten would seem to have a market out there somewhere. Things like that don't have a chance to get off the ground trying to compete with the implicit government guaranteed ones, however.

 

[BRCJR]

do you think that they won't offer 30-year mortgages in that case? More like 10, max 15 years? Or ARMs? In the 90s as interest rates were dropping I was in ARMs, my brother advising when my loan would be advantageous to refinance. It would be more like a 1950s bank scenario.

A couple of issues as I see it, a floating loan or one that is a balloon after X years is a commercial loan. An owner occupied loan is to follow consumer lending laws. This means all the consumer regs would need to be followed.

The purpose (owner occupied) of the loan is a significant factor in the structure of the loan.

Think in current terms. Borrower has a locked in rate of 3.5% for 30 years.

Current interest rates are 8%. I, the lender, have my money locked up for 20 or more years at a lower rate.

I am losing the potential income/profits of that money based upon what I could loan it for, currently.

I am not willing to take that risk long-term. I want to sell that long term loan and reloan that money again (and again).

 

[Mike Ault]

A couple of issues as I see it, a floating loan or one that is a balloon after X years is a commercial loan. An owner occupied loan is to follow consumer lending laws. This means all the consumer regs would need to be followed.

The purpose (owner occupied) of the loan is a significant factor in the structure of the loan.

Think in current terms. Borrower has a locked in rate of 3.5% for 30 years.

Current interest rates are 8%. I, the lender, have my money locked up for 20 or more years at a lower rate.

I am losing the potential income/profits of that money based upon what I could loan it for, currently.

I am not willing to take that risk long-term. I want to sell that long term loan and reloan that money again (and again).

That's exactly what brought down the savings-and-loan industry. Holding their own loans.

 

[TerryRohrer]

A couple of issues as I see it, a floating loan or one that is a balloon after X years is a commercial loan. An owner occupied loan is to follow consumer lending laws. This means all the consumer regs would need to be followed.

The purpose (owner occupied) of the loan is a significant factor in the structure of the loan.

Think in current terms. Borrower has a locked in rate of 3.5% for 30 years.

Current interest rates are 8%. I, the lender, have my money locked up for 20 or more years at a lower rate.

I am losing the potential income/profits of that money based upon what I could loan it for, currently.

I am not willing to take that risk long-term. I want to sell that long term loan and reloan that money again (and again).

Liquidity is one thing. Complete absolvement of risk is another all together. Also, if we are going to nationalize the losses, then we should just cut the crap and nationalize the profits, as well.

 

[Mark K]

That's exactly what brought down the savings-and-loan industry. Holding their own CRAPPY loans.

Small edit.

That was one small part of it. Loosening lending standards, allowing S&L's to make more commercial loans, eliminating LTV ratios, paying high interest rates on CD's (I had a 15%, 5 yr. CD back in those days) to attract more cash, extensive lending and appraisal fraud, etc. all played a part in that debacle.

When things calmed down, I certainly got a lot of calls from the local S&L wanting me to convert the 5 yr., 15% CD into something like a 10% for 10 years. LOL!

 

[Mike Ault]

Small edit.

That was one small part of it. Loosening lending standards, allowing S&L's to make more commercial loans, eliminating LTV ratios, paying high interest rates on CD's (I had a 15%, 5 yr. CD back in those days) to attract more cash, extensive lending and appraisal fraud, etc. all played a part in that debacle.

When things calmed down, I certainly got a lot of calls from the local S&L wanting me to convert the 5 yr., 15% CD into something like a 10% for 10 years. LOL!

True, but if you have all your money lent out at 5% and inflation along with interest rates go to 10% then you are immediately broke, no matter how good those loans were. People are going to start moving their savings to institutions that offer higher returns.

 

[Fernando]

Imagine Fern trying to inspect a chicken farm or worse, a hog farm or cattle feed lot. It'd be worth the price of a ticket.

One time driving through countryside of Honolulu, I saw these "shacks" (cheap quality housing to me) and surrounded by wet vegetation, I couldn't... didn't want to measure those homes.
Thinking about stepping on wet ground and measuring gave me shivers. Dirtying my shoes and clothes.

 

[Fernando]

Don't you have back up shoes with you at all times? I call them my dog poo shoes. That happes in all weather.

No. Season here is rain or no rain. It's been 3 days and I assumed ground has dried.
And speaking of dog poo, brings back terrible memories. Can't believe dog owners let their dogs poo like animals infested with poo in the yard.