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The Concept of Lender Client Coercion on the Realty Valuation Community

by Gale Bullock aka Ole Bear, Realty Reality - Global Real Estate Markets Forum. September 24, 2004

We are grateful [Merci Beaucoup!] to Communicator for allowing us to feature their editorial. One thing we would like to comment on is the fact that Mr. Greenspan has urged folks to take out ARMs [adjustable rate mortgages] so folks can save all that money on the mortgage [so they can spend it elsewhere!]. In our view this is financial suicide for the entry level buyer food chain who are maxed out anyway buying the home in many instances with social capital [foundation and government down payment give away programs in the FED policy of 100% home ownership]. In a rising interest rate environment, the chances of foreclosures increasing may even surprise Mr. Jackson and his book of business at HUD, since he cannot probably find the $59 billion that former Secretary Martinez couldn't find, either.

See these essays by Lady Catherine Austin Fitts:

Permeating the Communicator editorial is the concept of lender client co-ercion on the realty valuation community, which is really nasty stuff in our view. We believe that this essay calls a spade a spade when it alludes to the fact that there probably are a few bad apples in the realty valuation gig, but the main problem is the lender client coercion by the banking cartel on the realty valuation profession at large.

When you combine social capital fueling the housing market with the ability of the GSEs to change reporting standards and USPAP for the appraisal industry through mandated form changes -- who really runs the realty valuation industry, anyway? -- certainly not The Appraisal Foundation and professional realty valuation organizations! Who needs USPAP [Universal Standards of Professional Appraisal Practice] anyway? -- Fannie Mae [along with the FED and the rest of the banking cartel] certainly would like to throw USPAP in File 13 [trash can], just as long as they can grow their Book of Business and keep Wall Street inflated at the expense of real estate. We commented about this in a lesser degree in our 9/2/2004 4R's commenting on Sir Henry of Harrison and his Pandora's Box editorial and exposé of the new Fannie Mae URAR form. The realty valuation professional cannot be professional in these times because the banking cartel has taken the professionalism out of a once respected industry. It has been able to do this, because of the Fraud of FIRREA 1989, the preponderance of the credit score in mortgage lending, and the mechanisms in place which are used to play to Wall Street.

Many appraisers are in a quandary about the use of the AVM [alternative valuation model], and some refuse to use this technique to manipulate values from the cookie cutter and the magical mystery hat. It really doesn't matter whether realty valuation gurus in the States do these mechanical gyrated number crunchings or not... part of the game is to ship the realty valuation industry offshore to Pakistan, India, and the Good Lord only knows where... and you can be guaranteed that somebody sitting on an elephant with a laptop, turban, and an internet connection will be performing these AVMs in your home town, Pal! These are pretty modern elephants, now mind you. They even have battery backup on board these critters. Now that's what I call… a State of the Art Ivory Tower!

Here We Go Again! by The Communicator Magazine Issue 34, Summer 2004

Much of the talk at the water coolers and cocktail circuits of America these days centers around the perceived real estate inflationary bubble and the point at which it will burst. Although some States have actually seen a decline in real estate prices over the last twelve months (Montana, S.Dakota) others, notably California, have seen house prices rising over 33% in just one short year.

Many believe that the incremental increases in the adjustable rate mortgages (ARMs) will mean a rise in the number of foreclosures. In fact the latest mortgage applications survey released by the MBA reveals that ARM applications total 33.3% of all applications. Compare this to just six months ago when ARM applications totaled only 26.3% of applications. During this period fixed rate mortgages have increased by nearly half a point to 5.97%. ARMs however can still be obtained with start rates of 4.04%. Well, what does this mean? Apart from the obvious fact that it saves borrowers several hundred dollars on their monthly payments, it also brings a greater number of house buyers into the market because more of them can qualify for loans due to the lower payment. The trouble is, say some, the ARM borrower gets stuck with non-affordable payments as soon as the true rate kicks in, and that, say some experts, portends a huge rise in foreclosures in the not too distant future. Others argue that the economy is strengthening and that ARM borrowers will benefit from the improvement, thus being able to afford the anticipated higher rates. Additionally, house prices continue to appreciate for the time being, lowering the debt/equity ratio and making it less likely that the delinquent homeowners will walk away from their equity.

Predictions come from every direction, but one thing is for sure. If foreclosures do rise, guess who is going to get scape-goated! Appraisers who worked throughout the S & L debacle of the mid to late eighties are already preparing to strap bulls-eye targets onto their shoulder-blades. Only last week the Federal Housing Secretary, Alphonso Jackson, made the blunt announcement that the government plans to crack down on questionable appraisals. This was given in the form of a warning to appraisers. "Don't play games with appraisals. Don't fool with the numbers or turn a blind eye to obvious property defects. If so, prepare to face severe financial penalties". Frankly, the vast majority of appraisers will find Secretary Jackson's pronouncement both naïve and insulting. Perhaps he is unaware of USPAP. Perhaps he is unaware that appraisers are the most regulated professionals in the country and that, given the strictures and guidelines under which appraisals are prepared, pretty much only a fraudulent appraisal can be erroneous, and there are already enough statutes on the books to deal with fraud.

One good thing from Jackson's utterances is that he warned lenders that they too will be penalized if they knowingly make loans based on inflated values. (Isn't this fraud, Secretary Jackson?). Appraisers have long complained that they are frequently pressured by loan officers and mortgage brokers to inflate values so that the price on the sales contracts can be met. Loan officers want to make loans and pressuring the appraiser to boost value will enable them to close the deal. If the appraiser does not co-operate, often the lender will no longer send them assignments. No ethical appraiser will kowtow to this kind of blackmail and perhaps, if Jackson understood this, he would have set his sites full square on the lenders instead of taking the sledgehammer to the appraisal profession. Maybe it's time for appraisers to stand up for themselves. I wonder to what extent Secretary Jackson's mail would increase if appraisers wrote him every time they were invited by an unscrupulous lender to hmmm, shall we say, massage the numbers a little. The lender's name might be of interest to him as well.

Contact Information

Ole Bear AKA Gale Bullock | Editor, Realty Reality