Appraisers Reverse — Now Going Low


“We can account for small to reasonable increases in values,” Mr. McKinnon said. “We cannot account for $20,000 jumps in a month.”

Editor’s Comment: An amazing quote from someone who obviously is NOW stressing the fundamental elements of an appraisal, especially where there is a loan involved. During the meltdown $20,000 price jumps were taken seriously by appraisers to justify the ever-increasing values they put on property. In some cases you can see jumps much higher than $20,000 within a few months or perhaps a year after the last financing on the same property.

No lender would lend more than the property is worth if they were doing a legitimate loan. In fact, in most cases they require 10%-20% down payment so that their loan to value ratio (LTV) builds in a buffer if the market goes down. So the big question for the sages of appraisal standards, is “where were you and what standards did you apply during the mortgage meltdown?”

And no lender would accept an appraisal report based upon price jumps that were out of character and recent in time. Like before the mortgage meltdown, the lender is responsible for the value used in the deal for a loan — not the borrower.

Any appraiser who had similar views when the securitization scam from Wall Street was in full swing was squashed. Everyone was just making too much money to confront the banks’ demands for higher appraisals — including jumps in prices that were as little as one month ago.

Now appraisers are showing us the way it would have been if the loan originator was actually at risk. Most originators are still not at risk but the threat of litigation from the managed funds that supply the cash for these deals is keeping most players within the normal rules of the game. By keeping appraisals within the realm of reason, they are protecting both the borrower and the investors putting up money for the deal.

When the market was going up, realtors were cheering the appraisers on so that the market would look like it was going up higher and higher and would continue forever. “Better buy now or you miss the boat and you’ll never be able to buy a home the way prices are going.” (Remember that?). Now the realtors are complaining that appraisals are too low and that those low appraisals are killing their deals.

When litigating Appraisal Fraud, it is not only the appraiser that is sued, it is everyone who participated in the securitization “chain” to nowhere. The very comments that appraisers are using to justify their behavior now can be used as the standard by which to judge them (and the banks that hired the appraisers) and their past behavior. I wouldn’t be too surprised if the same appraiser could be put on the stand to justify his current low appraisal reports using industry standards and to show how those standards were ignored in the mortgage meltdown period.

Meanwhile, banks in Spain are finally relenting and lowering the stated value of their real estate assets, which is causing an uptick in the market activity. That can’t happen here until the mega banks finally admit that the “assets” they are holding and reporting on their balance sheet are either fictitious or incredibly over-valued.

But the real jolt that will take us back to economic recovery is only going to be achieved when the millions of people who participated in tens of millions of real estate transactions are given relief in the form of restitution for appraisal fraud and other bad behavior on the part of the banks.

Scrutiny for Home Appraisers as the Market Struggles


When Justin Olson put his Southwestern-style ranch house outside Phoenix on the market, he got what he was expecting: an immediate batch of offers, virtually all above his asking price, which was set intentionally low, at $197,500, to attract interest. He chose an offer of $210,000.

But then came an unpleasant surprise. An appraiser for the buyer’s bank said the house was worth only $195,000. That limited the amount that the bank would lend, forcing the buyer to come up with more cash or negotiate a lower price.

“There was just no way I was selling that house for less than $200,000,” Mr. Olson said. His broker, Brett Barry of Homesmart, advised him that there was little chance of changing the appraiser’s mind. Mr. Olson said, “The part that blows me away — the appraisal can be such an arbitrary, personal decision and there is no appeals process.”

Adding to his indignation, a similar house two doors away was appraised at and sold for $225,000.

Appraisals are generally ordered by banks so they can verify the value of collateral before granting a mortgage. Before the housing crash, when home values seemed only to rise, appraisals were almost an afterthought. But now, with banks far more cautious about lending, a low appraisal can torpedo a deal.

The problem is so widespread that this week the National Association of Realtors blamed faulty appraisals for holding back the housing recovery, saying its members had reported that more than a third of all deals were canceled, delayed or renegotiated to a lower price because of a low appraisal. Several real estate agents said they were starting to include appraisal contingencies in their contracts, spelling out how much a buyer would be willing to pay in cash if the appraisal fell short.

Appraisers use previous sales of comparable houses to help value a home. If prices are just starting to climb, and sales take two or three months to close, there can be a lag before the change in prices is observed.

The Realtors report said appraisers were improperly using foreclosures and neglected properties as comparable homes, failing to account for market conditions like scarce inventory and bidding wars, and working in areas where they lack local expertise. The report faulted banks for using inexperienced appraisers, and for creating unrealistic requirements, like six comparable sales instead of three, at a time of few sales.

“It’s holding sellers off the market,” said Jed Smith, the managing director of quantitative research for the Realtors group. “Sales volume could probably be an additional 10 to 15 percent higher if we had normal lending practices and if we had normal appraisal practices.” That in turn, he said, would create more jobs.

Appraisers and real estate brokers agreed that a ban, imposed since the housing crash, on loan originators’ handpicking appraisers had led to the use of appraisal management companies that take a healthy cut of the consumer’s fee and hire inexperienced, low-cost appraisers.

But appraisers took issue with the complaints and pointed out that unlike real estate agents, they have no bias or incentive to help complete a deal.

“Appraisers don’t set the market, they reflect what’s happening in the market,” said Ken Chitester, a spokesman for the Appraisal Institute, a professional association. “So don’t shoot the messenger. Blaming the appraiser for a bad housing market is like blaming the weatherman because you don’t like the weather.”

Mr. Olson and his buyer compromised on a price of $205,000, less than initially offered and therefore, some might say, less than the house was worth.

But any transaction involving a mortgage is limited by the appraisal — an assessment that is part science and part art and is based on a variety of factors like location and square footage.

Though Mr. Olson’s house was in good condition, the house nearby that sold for more had at least $30,000 worth of upgrades, said Craig Young, the broker who represented the seller. But Mr. Young said appraisals could still be unpredictable, pointing out that a home across the street sold for even more, $239,000.

Some appraisers said agents misunderstand the way homes were valued. For example, although bank-owned homes generally sell at a discount, that is not true in every neighborhood, said Dan McKinnon, who runs an appraisal company with his wife in Phoenix. Appraisers, therefore, do not automatically make adjustments if they are using such sales for comparison. Some bank-owned homes are in good condition, and in some neighborhoods bank-owned sales dominate the market, and thus determine prices.

“If that property is in similar condition to your subject, it is direct competition,” Mr. McKinnon said.

R. James Girardot, an appraiser in Seattle, said appraisers could protect buyers — particularly those from out of town who might think a home sounds like a great deal because prices are much higher where they live.

He said he recently did an appraisal in a desirable subdivision where the contract price was head and shoulders above other recent sales.

“I was told by all the agents I talked to that there’s a real shortage out here, and this house is the sharpest house that has ever come on the market,” Mr. Girardot said. Then he found six other houses in the area for sale, and not one was close in price to the house in question.

Still, in some areas the light sales activity can cause legitimate worries. This week Shannon Moore, a real estate agent on Florida’s west coast, said she had written a contract for more than $1 million for a house on a barrier island. There had been no recent sales on the island, but one was set to close soon, meaning that a single price could affect her deal. “Everybody holds their breath until the appraisal comes in,” she said.

In some cases, agents use appraisals to convince sellers that their expectations are too high and that they should accept a lower offer. But in other cases, sellers know that traditional buyers are competing with cash investors who will pay more.

Afra Mendes Newell, a Florida agent, said one of her clients recently bid $150,000 on a home that was appraised for $135,000. The deal fell through, but another buyer stepped in with $150,000 cash. The good news, she said, was that the next appraisal in the neighborhood would take that price into account.

Agents can try to head off low valuations by arming the appraiser with relevant comparable sales and information about renovations or upgrades that are not readily visible, like insulation. Buyers who disagree with an appraisal can ask the bank to review it, ask for a second appraisal, pay for their own appraisal, or file a complaint with the state, though agents said the chances of salvaging a sale were slim.

Appraisers see some irony in the accusation that, so soon after a housing bubble, they are being accused of holding prices down. They said buyers should not be too eager to make a purchase that is far above recent sales in a neighborhood.

“We can account for small to reasonable increases in values,” Mr. McKinnon said. “We cannot account for $20,000 jumps in a month.”

26 Responses

  1. Very Nice Kareem. .. Thank You for Sharing!

  2. An excerpt of my documentation of appraisal fraud and forgery as fully backed by “Office of Real Estate Appraisers” in this web-page:
    “Office of Real Estate Appraisers (OREA), while revoking license of only street-level forger, conceals felony forgery by deceptive wording, and allows reapplication! : Alpha Group Manouchehr M Shadab – 30100 Town Center Drive, North 403 Laguna Niguel, CA 92677
    O. C. Courts give free rides to felony forgers:”–

  3. Mandelman has once again a pretty good take on things. Very long article worth reading:

    “Servicers Extinguishing Liens DOES Help Homeowners, NOT Erasing Debt That Isn’t there

    A little over a week ago, I saw a headline that I’m sure most everyone interested in the foreclosure crisis did as well. It ran in the New York Times, and it read, “How to Erase a Debt That Isn’t There.” It was written by Gretchen Morgenson, one of my favorite columnists on the planet.

    The story was about JPMorgan Chase and Bank of America, and it had to do with the National Mortgage Settlement, a topic on which I’d spent a good portion of my time lately, what with the deadline for servicer compliance with the settlement agreement’s new servicing standards having recently come and gone.

    Because it was Gretchen writing the article, the story was very quickly picked up by numerous other prominent bloggers including Mish Shedlock, who ran the story under the headline, “JPMorgan, Bank of America Forgive Debts that No Longer Exist; Wonderful News! But For Whom?”

    Max Kaiser’s “Kaiser Report” kicked off this week’s RT News broadcast with his own version, “Debt Erasers.” For the record, Max won the funniest phrase competition, describing the nine scariest words in the English language as being, “I’m from JPMorgan and I’m here to help.”

    Read the rest here:

  4. Come to think of it… it now makes perfect sense that homosexuality be legalized. To better screw you, my child. To better screw you!

  5. October 16, 2012, 9:18 AM

    Vikram Pandit Resigns: His Memo to Staff

    By WSJ Staff


    Citigroup’s C +0.74% CEO Vikram Pandit has quit, effective immediately, a surprise move for one of the nation’s top banks. Here’s the memo he sent to Citi staffers this abrupt morning:

    After five extraordinary years, I have decided to step down as CEO of Citi. It has been a privilege and an honor to serve Citi since December 7, 2007. – Only you can understand the effort and hard work that was put in to get our company where it is today.

    There is nothing better than our third quarter earnings announcement to demonstrate definitively that we have turned this company around. Yesterday’s results show this clearly.

    More importantly, I couldn’t be more optimistic about the bank’s future. Our formula has served the company well for 200 years. By going back to the basics of banking to serve the real economy, putting clients at the center of everything we do, and embracing the principles of Responsible Finance, we have put Citi in a great position for continued success. [Read the last sentence again: “…putting clients at the center of everything we do, and embracing the principles of Responsible Finance…”. Ain’t that beautiful? What a nice bank! If it’s what it feels like when they put us “first”, I wonder when they’ll start really screwing us! Because the way i see it, they’ve been pulling an AHMSI all along… as in “we do more than just stand behind you!” Bend over, buddy. Bend over!]

    I am proud of each and every one of you and I have the utmost confidence in your future success.

    – Vikram

  6. Someone’s mentioned it but I’m posting the latest on it. I want a job like that where I can screw everyone, run a conglomerate bank/Insurance giant down by 88% and still make out like a… Pandit?

    Citigroup’s CEO and President Announce Simultaneous Resignations

    By Matthew Yglesias

    Posted Tuesday, Oct. 16, 2012, at 8:48 AM ET

    Citigroup’s CEO Vikram Pandit pauses on the floor of the New York Stock Exchange on June 18, 2012 in New York City

    Photograph by Spencer Platt/Getty Images.

    Big news in the banking world today as Citigroup announces that Vikram Pandit is stepping down as CEO. He’ll be succeeded by Michael Corbat who runs the European and Middle Eastern operations for the banking giant. Pandit’s key lieutenant, and Citigroup President John Havens is also stepping down.

    Citigroup’s not the biggest bank in America anymore, but it’s a byword for the rise of megabanking since it was the merger between Citibank and the Traveler’s Group insurance company that provided the nail in the coffin for the old Glass-Steagall rules against universal banking. The fact that Clinton administration Treasury Secretary Robert Rubin later found himself perched atop a financial bohemoth whose very existence was predicated on Clinton-era regulatory changes is emlematic of the nexus between Wall Street and Washington that’s been such a marked element of U.S. political economy. That the resulting company more-or-less blundered into one of the more desperate needs for government rescue during the financial crisis is really just the icing on the cake.

    Here, for example, is the performance of Citigroup’s stock since Pandit became CEO:

    Not so good! I dare say that presiding over the destruction of 88 percent of the value of an enterprise is a job many of us could probably pull off. And yet Pandit managed to earn tens of millions of dollars for his trouble, so obviously he’s a much sharper businessman than the average person.

  7. Still looking for a win. I have seen nothing. Not even in BK courts.

  8. Good, good, good. Everyone here has a cause of action for libor manipulation. Gotta get in touch with my attorney and see how i can jump on the bandwagon…

    I’m posting only a portion of the article. Click on the l;ink for the rest.

    Libor scandal

    Banks accused of defrauding homeowners by rigging Libor
    By James O’Toole @CNNMoney October 16, 2012: 6:08 AM ET

    The London headquarters of Barclays Bank, which has been fined for manipulating the Libor inter-bank lending rate.

    NEW YORK (CNNMoney) — Add one more to the list of alleged victims of Libor manipulation: homeowners.

    A class action complaint filed earlier this month in New York federal court claims borrowers with adjustable-rate mortgages based on the London Interbank Offered Rate, or Libor, paid more than they rightfully should have due to the rate’s manipulation by the global banks involved in setting it.

    The complaint follows other class action suits filed by groups ranging from local governments to community banks to individual investors, all of whom say they lost out due to Libor-rigging.

    Libor burst into the public consciousness this summer when British banking giant Barclays (BCS) admitted to manipulating it, reaching a $453 million settlement with U.S. and U.K. regulators. Other banks involved in setting Libor, including JPMorgan (JPM, Fortune 500), UBS (UBS), Citigroup (C, Fortune 500) and HSBC (HBC), have revealed that they too are cooperating with investigations on the issue, and additional settlements are expected.

    The London Interbank Offered Rate is actually a collection of rates generated for 10 currencies across 15 different time periods, ranging from one day to one year. It’s designed to measure the cost of borrowing between the world’s largest banks, generating rates that are used as benchmarks for roughly $10 trillion in loans and some $350 trillion in derivatives. For example, an adjustable-rate mortgage might require you to pay interest based on a given Libor rate plus 2%.

    Libor rates are set each business day through a process overseen by the British Bankers’ Association. Groups of banks are asked what interest rate they would have to pay to borrow money for a certain period of time and in a certain currency. The responses are collected by Thomson Reuters, which removes a certain percentage of the highest and lowest figures before calculating the averages and creating the Libor quotes.

    The homeowners’ lawsuit alleges that the banks that set the six-month, U.S.-dollar version of Libor consistently pushed it upward on the first business day of each month between 2000 and 2009. Those are the days on which adjustable-rate mortgages “reset,” generating a new value for the variable rate borrowers pay based on the current Libor value.

    With Libor rates pushed higher on these dates, the suit says, homeowners ended up paying more than they should have.

  9. My entire neighborhood is a foreclosure. But yet they want me to pay for their crime. I am nearly $ 200,000 upside down and $ 100 k out of pocket. No has gone to jail . If I walk they call me a dead beat. If I stay they continue to steal my money. Obama is a thief supporting the crime. Mitt Romney is no better. Neither get my vote. Both a joke who support criminals. Further several Senators belong in jail who supported Phil Graham and the removal of Glass Stegal. Not a single bastard apologized for the financial molesting of the masses. . This includes 3 presidents. The government can not be trust with your future ! Go Green clean up congress !

  10. When the ARM loans adjusted … it was to late for the homeowners. They were underwater and couldnt refi or sell, they didnt have the income to support the increased payments. They went without meds and food, the raided what was left of their savings etc til it was all gone. Entrapment … definatly!

  11. Its pretty sad they gave pensioners living on fixed incomes ARM loans. With the Libor rate …. they raised their mortgage payments higher than their pension payments … (reasonable foresight?) While at the same time stealing from their pensions and reducing their payments. Reasonable Foresight? Fidicary Duty? I hope the couple in the artice Carie … Takes a Bite out of Crime!


    If these people can sue over LIBOR why the hell can’t some lawyer get it together enough to sue over the fact that people are being kicked out of their homes over junk debt, etc…?

  13. @BSE… I believe that by the Fed reduceing rates, and allowing underwater homeowner to refi without an appraisal ( ???) is their way of saying your recouping your losses thru intrest savings and they are hoping market prices will recover. This reasoning does not work … because folks who have properties to sell cant … and apparently folks are being told they have to defaut to qualify for a short sale. Makes no sense …. But if the invester losses and the ins proceeds are applied to principal reduction as Neil suggests …. it would definatly be making a move in the right direction.

  14. @BSE

    Unfortunately, it’s not “over and done with”…the home theft continues…

    You are not talking about a REAL “upside down mortgage”.

    You are talking about reducing the amount of junk debt that you owe to a fraudster…and they will NEVER reduce it because then the fraud will REALLY be revealed.

    Call it like it is—pure bullshit.

  15. I agree BSE. When my husband and I bought our retirement home, I insisted using a trusted apprasier whom I had a Legal Right to Choose. Her appraisal was $2,000 less than sale price ( $28,000 below asking price). I know .. hard to believe. But my husband and I agreed to pay the additional $2,000 at closing out of our own pockets. It was our choice. Thankfully our home still holds its value in todays market. Unfortunatly there are many hard hit retirement areas and cities whose values have plumeted, …. Your paying a 200,000 mortgage and the house next door sells for 59,000 and is now a rental. All these homes needs to be reduced by the amount the invester has agreed to take a loss on in these settlements. i.e … If I settled for 50 cents on the doller, homeowners should get the principal reduced. The invester settlement suits against the banks are not for the benifit of the Bank. Neil is right … they need passed down to the homeowners.

  16. Enough of the sub prime. it is over and done with. We need to deal with upside down mortgages. How do we get these back to market value ?

  17. “…accusing Morgan Stanley of fueling the production of risky, expensive loans that targeted African-American borrowers…”

    “…If the subprime were actually backed by valid mortgages — the interest rate charged borrowers would not be higher — it would be the SAME. The reason the interest rate was higher on subprime is because these borrowers could not get a valid mortgage. Subprime was nothing more than JUNK DEBT…”

    The American people were set up and bet on to fail.

  18. They always withheld facts about these so-called reverse mortgages to the elderly. They were to be counceled long before closing. It was all a Lie … they told these folks these were fixed rate loans and they were not. Everytime only one spouse was on the closing docs … I always asked if they were counceled and if they understood the implications if one died …. they never did! You could say my closing rate on Reverse Mortgages was very low .. almost zero! Hahaha … The brokers wanted the Notaries to do the property inspection at closing. Did you know if a Notary Signing Agent didnt close a Loan.. they didnt get paid and got threatened to lose work (black listed)? Sounds alot like the strong arming they did with the appraisers and they are still doing it to both! For Heavens sake Land America and a Few Others filed BK on me. Yeah they filed BK on me …. Imagine That? Ironic when I was one who was yanking their chains ….

  19. A.C.L.U. Sues Morgan Stanley Over Mortgage Loans
    Published: October 15, 2012

    The American Civil Liberties Union is accusing Morgan Stanley of fueling the production of risky, expensive loans that targeted African-American borrowers.

    In the lawsuit, filed on Monday, the A.C.L.U. claims that Morgan Stanley is culpable for predatory loans made through the New Century Financial Corporation because the investment bank lent billions of dollars to New Century, a now-defunct subprime lender, and pressured it to make troublesome loans to African-American borrowers who could not afford them.

    Morgan Stanley packaged the loans made by New Century and sold them to pension funds and other large investors. But, the lawsuit claims, the bank went beyond the traditional role of an investment bank by requiring that the mortgage company churn out the wildly profitable loans that came with “dangerous” characteristics.

    For example, the lawsuit says, many of the loans ultimately sold to investors were “stated income” loans, in which borrowers could estimate their incomes without having to provide supporting documentation.

    The action against Morgan Stanley follows a series of lawsuits brought by investors and federal and state officials against some of the nation’s largest banks. The A.C.L.U. suit, which is to be filed in federal court in New York and will seek class-action certification, claims that Morgan Stanley violated the Fair Housing Act and the Equal Credit Opportunity Act.

    Click on the link for the entire article. As someone here said, it will have to be played in court, case by case.

  20. One of my biggest pet peeves: the way this country treats its elderly and its children. Just on that basis, this country is done. And what those responsible don’t seem to get is that what they did to the elderly will be done to them. It’s only a question of time until they too become elderly. They won’t get any more mercy than they showed.

    A Risky Lifeline for the Elderly Is Costing Some Their Homes
    Jenn Ackerman for The New York Times

    Published: October 14, 2012 393 Comments

    The very loans that are supposed to help seniors stay in their homes are in many cases pushing them out.

    Reverse mortgages, which allow homeowners 62 and older to borrow money against the value of their homes and not pay it back until they move out or die, have long been fraught with problems. But federal and state regulators are documenting new instances of abuse as smaller mortgage brokers, including former subprime lenders, flood the market after the recent exit of big banks and as defaults on the loans hit record rates.

    Some lenders are aggressively pitching loans to seniors who cannot afford the fees associated with them, not to mention the property taxes and maintenance. Others are wooing seniors with promises that the loans are free money that can be used to finance long-coveted cruises, without clearly explaining the risks. Some widows are facing eviction after they say they were pressured to keep their name off the deed without being told that they could be left facing foreclosure after their husbands died.

  21. Better buy now or you miss the boat and you’ll never be able to buy a home the way prices are going.” (Remember that?)….YES I DO

    And now today, its prices are at a low and rates are at an all time low…its never been a better time to buy


  22. NEIL—WHY DON’T YOU CUT TO THE CHASE and call it what it really is—JUNK DEBT…with mounds of fake docs created to cover it all up…?

    IT’S VERY SIMPLE, NEIL—and we know you know the truth…:

    Ivent said:

    “…They were 10 year bonds sold as conventional mortgages….They sold us junk……period….end of story. Subprime is a fictional story. We weren’t sold mortgages, we were sold junk bonds…”

    my friend’s response:

    “…Yes — the person who wrote this is correct. Subprime is a fictional story. The bonds that were sold were not backed (collateral) by ACTUAL MORTGAGES. They were backed by JUNK — collection rights to already (falsely) charged off debt, which paid a higher rate of return than the bonds that were actually backed by valid mortgages.

    SO SIMPLE, I do not know why some do not get it. If the subprime were actually backed by valid mortgages — the interest rate charged borrowers would not be higher — it would be the SAME. The reason the interest rate was higher on subprime is because these borrowers could not get a valid mortgage. Subprime was nothing more than JUNK DEBT…”


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