More mortgage unintended consequences & complications

dave_donhoffJuly 1, 2010

More mortgage unintended consequences & complications

Here's how it goes;

A) WaMu's retail loan agents are busted by NY's AG for 'coercing' appraisers to over-value NY properties so that the loan amounts that the NY borrowers applied for can get approved within the loan-to-value guideline restrictions (which are designed to protect the lender and their investors.)

B) NY's AG creates the Home Valuation Code of Conduct (HVCC) which exempts retail loan agents entirely (brilliant.) Instead it targets wholesale originators and prohibits them from having direct selection discretion and direct communication access to any appraiser. Although this is strictly a NY law, Fannie & Freddie choose not to try to manage compliance diferently among the states, and adopt it as a standard nationally.

C) "Appraisal Management Companies" (AMCs) are born (middlemen, appraisal brokers,) to solve the "contact & selection" problem. Virtually all of the AMCs are created by, and owned, by the major retail mortgage banks themselves (fox, meet henhouse.)

D) Because no business can survive without profitable revenues, the AMCs add an additional layer of fees to appraisals, raising the consumer's appraisal costs anywhere from 20-50% (depending on the regional markets.)

E) Because all businesses seek to drive their marginal costs as low as possible, the AMCs systematically select their appraiser independent contractors via lowest-bid (not quality of work product, experience, speed of performance, nor any other metric.)

F) Due to "lowest bid" standards, the quality of appraisals plummet as the appraisers willing to remain despite the drubbing are forced to do less research (to save time, to fit in more appraisals, since they are making less per appraisal, and the AMC is taking half of the already lowered fees.) They are forced to travel further... far outside their well-known pre-researched neighborhoods, in order to accumulate ENOUGH appraisal work to earn a living.

G) Due to the quality destruction, consumers are simultaneously paying MORE for their appraisals, and (consistently) getting work product with the wrong comparables, wrong measurements, wrong addresses, outdated comparables, insufficient photos, and more (or less, depending how you frame it.) Because of this, underwriting is denying or discounting refinances (for otherwise perfectly qualified borrowers.)

Who's getting the brunt of this "protection"? The consumer (of course.)

Who's making out like bandits? The middleman racket (the major banks) installed by NY's AG.

Who were the original perpetrators? WaMu retail, along with their retail major brethren (naturally!)

And where does this take us today?

NEW FINANCIAL PRODUCT: Bad Appraisal Insurance!!!

Isn't it amazing what more regulation (especially when blind to the original causes) can do for us?

What fun!

Dave Donhoff

Leverage Planner

Here is a link that might be useful: NEW FINANCIAL PRODUCT: Bad Appraisal Insurance!!!

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Thanks Dave for bringing this ripping off the conumer again to our attention.

    Bookmark   July 1, 2010 at 8:20PM
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So darned typical!
Thanks for the clear explanation --

    Bookmark   July 2, 2010 at 10:56AM
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