Appraiser's Lawsuit Is Just the Beginning

The seedier side of the Mortgage Mess

Its become clear that one of the reasons so many of these loans ewent through was because of collusion between the lenders and the appraisers that valued houses with an eye to the laon passing muster.
How many weak loans approved through this collusion is unknown, but surely many lenders were pressuring appraisers to fudge their valuations.

New York state has just sued a professional appraisal law firm for giving into pressure from a major bank. Others are suing because they were told to comply with evaluations that made the loan go through or they would be frozen out of any new work.

According to Gary T. Crabtree, via Washington Post, principal appraiser for Affiliated Appraisers in Bakersfield, Calif., said in an interview that pressure to inflate values "has been endemic, industry-wide" and is a "significant contributing factor" in many mortgage fraud cases and foreclosures.

Every inflated appraisal during the boom years, said Crabtree, "became a comp [comparable sale] used in other appraisals" -- and the layers of over valuations spiraled out of control in some market areas.

The Washington Post article goes on say quote Susan M. Wachter, a professor at the Wharton School of the University of Pennsylvania, has estimated that appraisers helped inflate mortgage values by $135 billion in 2006, according to Valuation Review, an industry publication.

This is the kind of excess that always get washed out with great pain in the aftermath of a bubble. Its seems to me that the lenders have to help mitigate the problem they helped create, sometimes fraudulently. Let them take it on the chin along with the home owner by re- negotiating loans or accepting a lower payment and creating a lien on the house for the difference. This would allow the owner to stay in the home and the property to stay off the market. The lien could be recouped during better times

Thanks for Reading
Howard Bell


Only the Lenders Can Save Your Home

Its clear that the Government programs will save only a small percentage of the homes facing payment difficulties. The Fed is expected to lower rates again this month, probably another 1/2 point. Even before this move Freddie Mac reports 30 year rates averaged 5.69 the lowest level in 2 1/2 years.

The immediate conclusion is that this will help the homeowner in trouble because now that owner can refinance into a lower payment and stay in the home. Not necessarily so, according to the Mortgage Bankers Association, although refi applications have surged but many will be rejected due to higher lending standards. Owners with a low credit score or little equity in the property are finding that lenders are not refinancing at their lowest rates.

How Can the Lender Help

The lender can help keep homes off the market by not forcing the foreclosure. Its of no benefit to the lender to sell at fire sale prices or to take back the property and manage it. According to Bob Caruso, Bank of America Corp.'s national servicing executive via the Wall Street Journal: "More often now than ever before we are writing off the loan" when borrowers fall behind on home-equity payments. "The customer still owes the money, but it is no longer an asset on our books." That doesn't let the borrower off the hook: The lender keeps the lien in place, however, in the hopes that it will receive some money when the property is sold.

The other method is too simply change the terms of the mortgage. Lenders say they worked on loan modification and repayment plans for more than 235,000 borrowers that quarter alone, reports the Mortgage Bankers Association.

We think these are grand strategies because:

  1. It allows an owner to stay in the home
  2. Keeping property off the markets avoiding a glut that can only deepen the correction
  3. Takes a non performing asset off the lenders books, likely strengthening the companies asset base
  4. Allowing lenders to wait out the crises and hope to be repaid at a later date.
  5. Keeps cash flowing into the company, even if its at a reduced rate.

We hope that more lenders see the value of these approaches, accept their role in the crises and take it on the chin along with the homeowner. This would go a long way towards defusing out the problem and spreading the pain in a manner consistent with our system. Lets not count on the bail out.

Thanks for Reading

Howard Bell

Predatory Lending: Some Amazing numbers

Predatory Lending

Sub prime Loans were intended to allow borrowers with weak credit records the benefits of owning a home. However, you always have to look out for predatory business practices. They exist in every industry and bloom in boom times. A typical predatory mortgage is a refinance of an existing loan that is packed with excessive or unnecessary fees and provides no tangible benefit to the borrower. Unfortunately, many of these loans are perfectly legal.

Many of the loans entered into required no documentation of income or accepted very low incomes with teaser rates that ballooned down the road. The selling point was that the new owner could re-fi later at a lower interest rate and in that way get in, even though not qualified.

Here are some astounding numbers

  • Proportion of sub prime mortgages made from 2004 to 2006 that come with "exploding" adjustable interest rates: 89-93%
  • Proportion approved without fully documented income: 43-50%
  • Proportion with no escrow for taxes and insurance: 75%
  • Percentage increase of interest rate on an "exploding" ARM resetting to 12% from 7%:70%
  • Typical increase in monthly payment (3rd yr): 30% to 50%
  • Number of sub prime mortgages set for an interest-rate reset in 2007 and 2008: 1.8 million
  • Valued at: $450 billion
  • Year-over-year increase in foreclosure filings on sub prime loans with adjustable rates (2nd quarter 2006 to 2007):90%
  • Increase in foreclosure files on prime fixed-rate loans during the same period: 23%

How we will all pay in the form of higher rates and tighter credit requirements, job growth in the industry and taxes loss to our cities and states. You have to ask yourself, where were the watchdogs?

Thanks for Reading

Howard bell


Home Sales Tactics You Need to Know

model for selling homes, has completed an interesting study based on their own stats and some well known studies.

1. Price - Its important to realize that the market has changed and price it to sell. Homes priced too high at the initial listing experienced a sales price 88% less than the listing price, whereas homes that didnt have price reductions sold for 97% of the listing price.
The take-away: A home priced too high and then reduced seems to give buyers the idea that more reductions are possible and the low bal biiding begins in earnest.

2. Use the Web: The share of Internet buyers has grown from 28 percent in 2000 to 72 percent in 2007 and 72% of all California buyers use the web to shop a property. According Redfin;'s numbers, most people shop are using $25,000 - $50,000 search increments. Your property should be priced to show up in that search parameter. A home priced at $655,000 would miss the search of all homes between $500,000 and $650,000.
The take-away: Become more computer savvy and use the net to create slide shows and maps. There are quite a few companies that produce templates and will list on all the major sites. Use a company that produces a complete template design and will also list on all the major search sites like craigs list, google base, hot pads and more.

3. Fridays The Day: Its folklore in the real estate industry to list on Thursday. Not so, according to Redfins website stats. It seems that Friday is the choice of home buyers looking to schedule a weekend of window shopping.
The Take away: The beauty of the net for advertisers and marketers is the number of statistics that can be pulled. All movement can be recorded, number of clicks, number of inquireys and more. It becomes easy to see what is working and what is not.

4. Sellers who are in their homes feel less pressure to reduce the sale and this is a fact obvious to buyers.
The Take away:They tended to low ball a property less often if the owner was in the property. We make an assumption that if the person is far away they are somehow in greater need to sell or are less attached and will accept a lower price.

5. If your area is experiencing a lot of foreclosures, Redfin advises you hold off until they have been cleared from the marketplace.
The take away: Its logical that informed buyers would use the high foreclosure rate in your area as a lever to lower offers. I imagine that too many for sale signs in a neighborhood would attract more buyers looking for distress sales.

6. Be Active: According to Redfin, agents respond to sellers who are more engaged in the active sale of their home.
The take away: Enthusiasm is contagious. Agents give more service to those who you perceive to share an active and enthusiastic interest. Agents like to feel that active cooperation will help generate a sale at a better price and sooner rather than later.

If you have never been to the redfin site, it is worth the trip.

Thanks for Reading
Howard Bell