Classic bubble. Classic players.
Appraisers on the take, rewarded with future work by consistently delivering over-inflated appraisals, are just like the analysts in 2000 who were pumping stocks for their brokerage house when they knew the stocks were dogs.
This article from bubble-home San Diego looks at the corruption in the appraisal industry. This will be a great topic of course at the 2008 Senate hearings on the bubble. This "you rub my back I'll rub yours" flaw in the system was crucial for our current bubble to inflate to the point it did. With truly unbiased, independent and honest appraisers in the field, bubble buyers would never have been able to secure the financing they did. Here's some highlights (aka the low-lights):
As the San Diego real estate market cools off and home prices start to fall, local real estate appraisers say they are coming under intensifying pressure from mortgage brokers to provide inflated property valuations. It's an environment that has sparked an influx of proposed legislation both nationally and statewide.
And this paper from earlier in 2005 documented flaws in the system:
Serious conflicts of interest pervade the mortgage industry. Lenders, brokers, and real estate agents often have an incentive to inflate the value of residential properties. The process of appraising a property - among the most important steps in either the purchase or refinancing of a home - is sometimes done dishonestly as appraisers go along with requests to overstate the value of a home
Appraisal fraud can lead homeowners to borrow more money than their homes are worth, putting themselves at risk of being "upside down" in a home - e.g., not being able to sell for a high enough price to pay off their mortgage - even if there is no downturn in the real estate market.
And here's some classic emails from Henry Blodgett, the corrupt Merrill Lynch internet analyst. Substitute "stock" for "house" and you can just picture some conversations between home appraiser and mortgage banker today
January 03, 2006
2000: Corrupt analysts over-inflate stock values for brokers. 2005: Corrupt appraisers over-inflate home values for brokers
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7 comments:
In the corrupt environment we're in, if one appraiser isn't willing to inflate the value there are many others who will just to get the $$.
I agree this will be a big part of the Congressional hearings when they are trying to figure out what went wrong and how to prevent it from happening again.
Woo Hoo!!!
U.S. stocks kicked off 2006 with a rally Tuesday, with the Nasdaq posting its largest one-day gain since last summer after the minutes of the Federal Open Market Committee's latest meeting showed a majority of members believe the central bank need implement only a few more rate hikes.
The Dow closed at 10,847.41, racking up its largest gain since Dec. 1.
Let him be happy Tom. He doesn't seem to remember the dow being 10,950 on March 3, 2005, so getting to 10,876 a whole 10 months later is really a slap in the face to the economy. Good to start the year off with a rally though.
damn straight!
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