Matrix Blog

I spilled my coffee this morning when we received the following request to bid on an appraisal assignment by a national retail bank. The request included the comment:

occupied by violent squators, will require police escort

I think this is a statement of the way national retail banks view appraisers. After all, they are using appraisal management companies – we are basically seen as sheep.

In the era of drive-bys and AVM’s, how could someone knowingly put someone’s life in danger even if the alternative methods of valuation for the property are vastly inferior?

A few years ago while working on an appraisal, I walked around with the property owner who eventually blew himself up as well as the building we walked through, but my client (or anyone else for that matter) didn’t know that in advance.

…we declined to bid on today’s request. In this economy, the low bidder wins so lets be sure and wish them safe passage.

Good grief.

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My coffee machine broke this morning but I’ll still consider this an [Over Coffee] post. Without that cup, I felt compelled to use my own quote because someone in SeekingAlpha cited my handiwork.

As Jonathan Miller explains, the irony of the NY Times’ cover story on the disarray in the real-estate appraisal market is that the same appraisers who were the source of overvaluation during boom times are now undervaluing because they think that’s what the lenders want (they probably do). “Remember that in either the high or low scenario, it’s all about making their clients happy.”

And this irony really ticks me off. They will profit on the both the cause and the effect side of the credit crunch.

How about a little neutrality in mortgage lending?

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I was writing about the new SEC rules on rating agencies and found a good ditty from the past.

In the most famous instance of rating agency self-reproach, documented in a Securities and Exchange Commission report issued in July 2008, a worker in S&P’s structured products division bemoaned the firm’s standards in an instant message exchange with another employee.

“We rate every deal. It could be structured by cows and we would rate it,” the employee wrote.

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I was listening to the US Senate Banking Committee Hearing on the Bernard Madoff investigation last Thursday and was thoroughly entertained by the dry delivery of Harry Markopolis, a financial investigator who pulls no punches – he warned the SEC about Madoff in 1999. I don’t know whether he is the real deal or not but he cuts to the chase which is refreshing after listening to endless govspeak by the SEC Enforcement Division Director and SEC Compliance Acting Director.

At about the 02:14:00 mark, it starts to get entertaining and a reminder of how slow government can be in responding to a much faster moving private sector. Remember this is one of the agencies that provided oversight to financial institutions that created complex financial instruments for the mortgage market that preceeded the credit crunch last year. Markopolis said the best tool the SEC has to prevent this from happening again is the “Pink Slip” and fire half the SEC staff. While I don’t know the details well enough to comment whether this is reasonable, I find his directness refreshing.

Markopolis chirped out one of many homespun homilies at the hearing including (02:17:09):

It’s Hard To Soar Like An Eagle
When You Are Surrounded By Turkeys.

He said this at the table with the SEC! …in front of the US Senate Banking Committee! Wow!

Incidentally, Benjamin Franklin sort of suggested the Wild Turkey be the national bird instead of the Bald Eagle.

Who said CSPAN had to be dull?

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I wrote about the Madoff Montauk, Long Island home in my previous post, but something else was said that is worthy of a new post.

The phrase understated elegance is common real estate brokerspeak used by some real estate agents…not US Marshals.

“Every room is situated so that you have a left to right, 180 degree angle of the Atlantic Ocean,” said Roland Ubaldo, supervisory deputy US Marshal, who conducted a video tour of the property for the press last week. “It’s a panoramic view. You’re talking about guest bedrooms, master bedrooms, foyer, you name it, [all of them] have a view of the Atlantic Ocean; it really is breathtaking.”

And for the closing pitch…

“There’s an understated elegance, I believe, in this whole residence,” said Marshal Ubaldo. “It’s simple, stylish, but it is understated.”

Could you ever imagine a US Marshal uttering those words while showing a house (carrying a weapon, I assume)? My temples pulsate every time I think of it.

But it is clear that they mean business – and intend to sell for market value so the defrauded investors get back as much as they can (admittedly nominal).

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Here’s a recent situation with a national lender we rarely work with. One of my staff got the following request:

I got an addendum request from [bank] today. The borrower says they have better views then the comps used. Borrower says they don’t have to look at the “less desirable” neighbors, a housing project.

If I agree could I please make the appropriate adjustment.

Good grief.

Has this banker ever heard of Fair Housing? You can’t make this stuff up.

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Nothing has changed on the appraiser pressure front. with or without HVCC.

Appraisers are subject to the same sales force pressure as before. Here is a [redacted] email conversation with a loan consultant yesterday at a large national bank when the value was not high enough to their liking on a refi. We initially assumed this person from the bank was an underwriter, although in retrospect, it was obvious from the beginning he was not.

Bank (loan consultant): I really hope this is a joke he paid xx and put in xx milllion in work.

Appraiser: …if you have [new] data we can always take a second look.

Bank (loan consultant): please have [appraiser] call the client [actually it was the borrower!] to discuss asap the client [borrower] is furious

Appraiser: …have the head of your appraisal department call us. I didn’t realize you are the loan officer. It’s a violation of ethics law for you to be contacting us.

Bank (loan consultant): [Another bank] allows us to contact the appraiser.

Seriously.

Isn’t this an amazing conversation?

This practice continues to happen and we continue to be just as flabbergasted each time it does. The loan officer wants the appraiser to answer to the borrower [News flash: the appraisal was done for the bank].

Don’t lenders want the collateral assessed accurately? Are they even aware that this sort of thing remains fairly common?

The mortgage lending process continues to remain broken, a joke.

Tags: HVCC

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From an economic recap article in the New York Times this morning U.S. Economic Contraction Slowed in Quarter:

“The most severe part of the decline is behind us,” said Joshua Shapiro, chief United States economist at MFR, an economic consulting firm. “But it’s hard to say how sustainable whatever bounce we might see will be. It depends largely on whether the consumer has the genuine ability to spend, or if it’s all just government cheese being handed out.”

I am always wondering: who moves my cheese?

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From Caroline Baum’s excellent column: Conan’s Couch, ‘Daily Show’ Ready for Bernanke:

Alan Greenspan prided himself on being opaque. The former Federal Reserve chairman used to joke that if the audience thought he was being clear, they probably misunderstood what he was saying.

Bernanke believes in transparency. With everyone hanging on every word of every report, every pundit, every TV show, every government official release etc., I’m not quite sure this doesn’t create a lot of more volatility. But if we could have the Fed Chairman on the Daily Show?

My life would be complete.

Aside: The IRS is more popular than the Fed.

Tags: Alan Greenspan, Ben Bernanke

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From a borrower to a mortgage broker, who didn’t realize the appraisal firm was cc’d in their email regarding a complex residential assignment.

$800 is not going to happen, find another appraiser , [there] are hundreds dying to make $400

Apparently the environment for appraiser pressure is alive and well.

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There was a front page above the fold story in the New York Times this morning talking about the Sacramento, California housing market and how it seemed to be stabilizing. California is the poster child for subprime lending and was the subject of a sobering 60 Minutes special with James Grant last year.

Prices there are down by more than 50% from peak but sales activity is rising.

Could this mean that the housing market is stabilizing?

The idea pushed in the story is FIFO (first in first out). Markets first to experience weakness may be the first to improve. I don’t see this is a viable explanation on what to anticipate in other markets. The reasons the south and west fell first is from rampant speculation, largely absent in the midwest and northeast.

Perhaps in that specific location. California has been experiencing heavy sales volume as prices come into alignment with the market.

So I wouldn’t hold your breath after the spring market ends. Seasonality means demand is higher now, buoyed by record low mortgage rates and a slew of foreclosures pressing prices to lower levels – making affordability within sight of many.

In addition, there may be a new wave of mortgages in the near future as a result of the Senate’s politicalization of the housing issue with bankruptcy actions.

Still we can all use some glimmer in our lives. I prefer it over green shoots.

Tags: Sub-Prime, Seasonal Adjustment

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One of the market indicators that people like to get their arms around is the negotiability of housing prices a la the listing discount metric. In other words, what is the spread between asking and sales price? The inference in this metric is that in a weak market (most markets in the US), sellers are more negotiable than they were a few years ago. Of course and this metric’s orientation tends to be toward the seller. If the property is overpriced, the seller has “farther to travel” to meet the buyer for a “meeting of the minds” to occur (a sale).

Trulia now has a “Search by price reduction” tool which I think is pretty neat and I’m not aware of this available elsewhere.

Trulia’s new price reduction tool enbles home searchers to see new reductions in their neighborhood.  So whether the properties have been reduced by 4% or 14%, buyers know exactly what they’re getting.

More price slashing infers that sellers are more negotiable when the discount is higher. Trulia’s tool allows sellers to see the percentage of listings that have been reduced, the dollar amount and the percentage of reduction off the original list price. While it doesn’t connect the relationship between contract price and list price, it does help consumers understand the asking price trend.

I’d like to take the inference it provides one step further.

Rather than look at this metric as a test for how much or quickly a market is falling or how desperate a seller is, I tend to see it as an indicator of what degree sellers are “behind” the market and perhaps this is related to how quickly the situation has changed in that given market. In other words, if listing prices are declining rapidly, it is more likely for the sellers to be further behind the market when pricing their property because they tend to overprice more at the onset – and have to travel further to meet the buyer on price. It also means that real estate agents are having a more difficult time with more sellers in denial about current market conditions.

In fact, that is how I have always seen the listing discount metric. Less about negotiability or falling prices, and more about how disconnected the sellers are.

At a rate of 39% of listing, NYC is number 1 on the list so everyone else is looking at our disconnect with the market (translation: our behind) caused by our market being the last to join the housing weakness party and the suddenness (never used this word before) of the decline.

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