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Today's Wall Street Journal

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Steve Owen

Thread Starter
Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
A front page article on 9/27 in WSJ is sub-headed Bad Guesses and Titled: Firms' Bets Based on 'Risk Models'. It's all about how unusual stock market patterns have messed up strategic planning for some firms including, EDS, Cigna, Fannie Mae, and others. To get the jist of the story, this quote:

Sophisticated computer models used by big companies are supposed to help them plan for their predictions. Until lately, these mostly worked well.

Now what has all this got to do with appraising? (You might ask.) Well, this quote (in the article) from Mike Thompson, market strategist at RiskMetrics Group might help explain:

If this economy persists, more and more companies' weaknesses are going to be exposed.

Do you think that might eventually influence the values of real estate in your market? I won't bother taking a poll, I suspect I already know the answer.

Risk models have been especially poor at predicting events in the credit market.

Yeah, I know that what this article is talking about is a seemingly unrelated to the appraisal industry. But.... The parallels with using AVM's to value real estate are unmistakable. Also, included in the article is information about how the re-fi boom has hurt Fannie's stock price; basically, they are loaning out money for less than the price they borrowed it. Does this sound familiar to any of you who can remember the S&L crises?

I especially like this quote from Paul Volcker, former Fed Chairman:

A lot of the value-at-risk stuff was invented by mathematicians who don't know anything about the markets.

Again, the parallels to AVM’s are hard to ignore.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Seems the media is just starting to tentatively address this. I really do have a very strong feeling that the AVMs and BPOs will explode upon themselves. Just like buying a car sight unseen. Do I want to do that? NO! Loaning money on something that a D3P (Disinterested Third Party) has not inspected is just simply CRAZY.

The taxpayers and appraisers are both being set up to take the fall. We all will pay.... appraisers will be blamed when it's really the lenders that set it up. Symptoms of a sick society.
 
Joined
Jan 15, 2002
Professional Status
Certified Residential Appraiser
State
Florida
Steve,

I, too, thought it was interesting article. It takes some work get those quotes correct and write a thoughtful piece about the subject, as you did, so, thanks. I agree, Greenspan's comment was on the mark.

Yes, there is some similarity, or parallel, between those risk models and
the AVM's, but to say there is a strong parallel flatters the AVM's. They cannot match the sophistication and reliabilty of the risk models, flawed as even they are.

My real concern is with Fannie Mae.


Thomas N. Morgan
Ocala, FL
 

Karl

Elite Member
Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Arizona
Foreclosures are up here in AZ. I am Interested in other parts of the country.
Anybody else running into COD orders & when U call the home owner they tell U they don't have any money to pay had 5 this week. U can bet there is NO STREACH in any of these that might come up later IF the Homeowner can find the money. Have one the Loan Officer is paying personnally he likes the people.
 

Residential Appraisal Ser

Sophomore Member
Joined
Jan 26, 2002
Tom: Our concern is with Fannie also. The Guild along with the principle investment people have been meeting with Fannie to address just that. Our concern is our pension funds that are invested with Fannie to the tune of 3/4 trillion.
We are addresing this with Fannie and making some progress in calling their attention to some glaring flaws in their system.

For those interested and are in the NY, PA, NJ, Del, Md and DC area, we are having a Conference with 7.5 hours of credit at Trump Marina on Oct 24th 2002. Featured Speaker will be Mark Simpson the Director of Single Family Mortgage Business for Fannie Mae. (He is the Guy who runs the Show.) Henry Harrison will also speak of the State of the Appraisal Profession. Board members from the States will also be there to answer any questions that attendies may have. Al Cerrone will lecture on how to protect yourself if sued on your appraisal. (a must for all of us in todays market.)
$125.00 for non Guild members and $90.00 for Guild members. Includes lunch and Continental Breakfast. Any questions contact Marion at our office by fax 856-779-0151 Phone 856-779-2549
My E. Mail is [email protected]

William Sentner
President
American Guild of Appraisers OPEIU AFL-CIO
[email protected] 856-779-9634
 
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