I saw the light about 12 years ago and have only done one FNMA appraisal in the last 12 years. The entire purpose of appraising and Loan to Value Ratios is to keep the lenders safe and keep supply and demand in balance. When you remove or raise the loan to value ratio to 95 to 100%, credit qualifications, and regulators like FNMA write policy to thwart sound appraisal principles, you are essentially thwarting the whole process.
Case in point from local history. Back in the 1970’s, the Farmers Home Administration completely screwed up the local development land and building market to the point that it has never recovered. I was building houses in 1973, and I could buy lots, 100 x 250 feet average, all day for $1,000. That was the going price. Houses could be built for $14 per square foot. The typical 1,000 sf rancher with full basement and carport bricked ran around $20,000. Then the Farmers Home Administration US Department of Agriculture decided that the poor and oppressed needed affordable housing. Within three years the price of lots went to $5,000. We had a bad recession in 1974, and you couldn’t give a lot away, but Farmers Home Administration was still paying $5,000 for lots. Why? Because they decided lots were worth $5,000. These people lived in the houses for about 20 years and literally used them up. You had to see it to believe it. When the roof goes bad, the well pump breaks, or the hot water heater goes out, these people don’t have it fixed; they just pack up and move out.
At the same time on in the 70’s, I was in the Auction business selling land and farm machinery. Life was good. I would have a farm machinery sale and the Farmers Home Administration would tell the borrower that he could purchase $10,000 in farm machinery. They would come to the auction sale and pay $5,000 for a tractor worth $2,500. Heck, they even screwed up the farmland they purchased I kid you not.
True case in point: A man and his family lived in an old shack on a farm that he worked on and the Farmers Home Administration decided to make him an entrepreneur. They sold him the sixty acres he lived on; built him a new brick rancher home will full basement and hard wood floors and the necessary farm machinery. Twenty years later it is sold at a trustee sale. I go out to appraise it. You would not believe what they did to that house, land, and machinery. Totally destroyed. All doors kicked in, cabinet’s torn off the walls, floors looked like cows had been living in the house, and nothing touched since the day they moved in. The machinery was a pile of junk scattered around in fields. The land was eroded and washed out. Guess where the man lived? Back in the same shack he moved out of 20 years ago with a cost to the taxpayer directly of about $75,000.
They didn’t all turn out this way, but the down side of that is that they ran the cost of land and housing out the roof and now without more government intervention the present generation of poor and oppressed don’t have a chance. I work in a town of about 50,000 people. In the last 30 years there has not been a new subdivision developed for middle and lower income houses. Why? The cost of development is so high that the minimum price house to justify the development expense is $150,000 and up. Most present building activity is $300,000 and up in urban subdivisions. About the same in the county. Why? Federal Government trying to help the people. You have to be a lawyer to keep up with all of the development regulations. Then to make matters worse, the local county one-month ago changed the subdivision ordinance that again changed the entire economics of land in the area. Now county development land prices will shoot and to solve that problem will require more Federal Programs for the poor and oppressed. It is a vicious cycle.
Local papers are loaded with HUD housing abandoned.
