Matrix Blog

Posts Tagged ‘WAMU’

[WAMU Irregularity] Placing Turf Wars Ahead of Common Sense

April 12, 2010 | 3:39 pm | |

Sewell Chan writes an excellent article in today’s NYT: “U.S. Faults Regulators Over a Bank” which illustrates the regulatory disfunction and conflict of interest that lead to the financial meltdown.

In fact, in our firm’s experience as an appraiser doing work for Washington Mutual during their run-up, you’d have to be blind not to see the conflicts and the loss of a sense of risk. The appraisal departments were the last bastion of neutrality in the organization to protect appraisers from pressure by loan officers and they were eventually closed as “cost centers.” Nearly two years to the day that WAMU closed their in house appraisal departments and went with Appraisal Management Companies, they became insolvent.

The two agencies that oversaw Washington Mutual, the investigation found, feuded so much that they could not even agree to deem the company “unsafe and unsound” until Sept. 18, 2008.

And one had an operational incentive:

With more than $300 billion in assets, WaMu was the largest institution regulated by the Office of Thrift Supervision and accounted for as much as 15 percent of its total revenue from assessments, the report found.

In 2004, while property values were rising at double-digit rates, I remember thinking that my firm would be “out of business” in 3 years if we continued to keep our majority of client base with large retail banks because most were pursuing high risk lending strategies. This meant high-ball appraisal values and little concern about borrowers ability to pay – firms like ours simply didn’t fit in. Frustrated with the insanity of all this, I eventually started up blogging in 2005 – the timing in this article as outlined in the treasury report framed the WAMU debacle perfectly.

The report found that Washington Mutual had failed primarily “because of management’s pursuit of a high-risk lending strategy that included liberal underwriting standards and inadequate risk controls.” The strategy accelerated in 2005 and came to a crashing end in 2007 with the drop in the housing market.

Here are a few simple takeaways that should be considered in all forms of financial regulation.

  • Regulators need clearly defined lines of authority – turf wars between all agencies were a distraction – politics not allowed.
  • Regulators can not be specifically dependent on income derived from the institutions they regulate – an amazingly large conflict.
  • Institutions can not select which agency they wish to be regulated by – wow, common sense.


Tags:


[Soapbox Cleaning] Readers Get Worked Up About AMC’s, Wamu Layoffs

July 17, 2006 | 8:29 am |

Soapbox readers provided commentary about last week’s decision to close the in-house residential appraisal department at Wamu signified the end of an era. AMC’s won because when you get right down to it, its all about short-term costs in upper management, not about long-term exposure and risk. Soapbox would like to thank today’s B-Schools for this.

Soapbox readers write:

  • I am saddened by the shift to AMC’s. It is nothing short of catastrophic that these “efficiency’ mills win because of greed and impatience. We will all pay for it in the long run.
  • Optis was there homegrown loan Origination System that they completely blew up. I believe they dumped over $1B into this system that never worked. There appraisal management system is Optis Value, not Optis. This system functions fine and actually enabled WAMU to benefit from enormous increases in processing efficiencies and staff reductions on their operations side. This fact was reiterated by WAMU executive as recently as yesterday. There is nothing wrong with there Appraisal Management System, this was purely a senior management decision to move from an in house Appraisal Department to a VMC model.
  • May its time the appraiser took a stance against the AMC’s. You know full good and well that the fees that have been paid will be cut in half or better. The AMC are acting more like an employer every day. Maybe they should be made to toe the line like an employer and the appraiser gets additional benifits. Looks like the ranch is looking better and better every day now.
  • Yes, as an independent fee appraiser I have seen most potential review assignments go to the same low price fast turn-around incompetent form fillers who write the garbage reports that are up for review. They all must have been gone the week of the 4th, because I picked up a few review assignments, with my standard fee and turn times, and I can not believe the crap some appraisers are trying to get away with now days. All three sales from another county when there are three good comparables within a few blocks of the subject; 20% to 50% price inflation instead of the 5% to 10% that we are all used to seeing; and reports without ANY comments!

We even had someone who felt AMC’s were the only way to order a USPAP compliant appraisal because it eliminates the everyday pressures applied by mortgage brokers. You gotta think the reader’s heart was in the right place.

  • AMC’S are the only entities that contract out for unbiased appraisals – in other words they are the only entities that order USPAP compliant appraisals. Our office has a swinging door for standard mortgage companies that order appraisals because they only order until the first one does not hit value, then they go somewhere else. In my review work, only about half reflects good work, the rest are just trying to keep their clients. I hate AMC’s, but it is the price I pay for being honest.
  • You make an interesting point and I think your heart is in the right place but I disagree with the intentions of AMC’s. AMC’s don’t order appraisals based on making the deal like the mortgage brokers are often accused of. However, the fees are so low, that for the most part, and no offense, but their appraisal panels are the bottom of the barrel. Does the lender get a better understanding of the collateral? No. AMC appraisers quite often rely on all their comps from the broker involved in the sale who has a vested interest in the outcome. In other words, the order AMC process may be not as biased toward the outcome, but the mechanics of the appraisal certainly are and the outcome is the same.


Tags: , , , ,


WAMU Thanks All Their Residential Appraisers For Doing Such A Great Job And Now Will Let Them Spend More Time With Their Families

July 14, 2006 | 9:50 am | | Milestones |

Well, the shockwaves have reverberated through the appraisal industry. This email was sent from management to all WAMU appraisal vendors. [Inman ran a story about the announcement as well referring to my post about the WAMU decision].

The email is polite and respectful, perfect pr speak, shows the disconnect between cost-cutting efforts of upper management in periods of declining mortgage volume and risk management by using [appraisal management companies].

This message is intended for all Fee Appraisers

July 13, 2006


Dear Valued Partner:

Washington Mutual is a dynamic, growing company focused on delivering optimum results to our customers and shareholders.

We’re contacting you today to let you know that after a thorough review of our current appraisal processes, we made the decision to outsource the management of appraisal services to national appraisal management companies.

We will begin transitioning our appraisal needs to two vendors exclusively, throughout the remainder of 2006.

With the formation of this new long-term relationship, we will be reducing the volume of new appraisal orders that we send to you during this transition. We ask that you continue to complete your current assignments following normal processes.

We thank you for your hard work and your continued support of Washington Mutual.

Please know that we have valued your work and contributions to Washington Mutual and we wish you great success in the future.

If you wish to contact LSI or First American, you may reach them at:
LSI – Rick Prosser
rprosser@lsi.fnf.com
1-800-722-0300 ext 79084

First American (eAppraiseIT)
StaffAppraiser@eAppraiseIT.com

We thank you for your hard work and your continued support of Washington Mutual.

We wish you great success in the future.

Thank you,
Michelle White
Washington Mutual Residential Appraisal, Senior Manager
Greg Hoefer
Washington Mutual National Appraisal Production Manager

Tags: , , , , , ,

Get Weekly Insights and Research

Housing Notes by Jonathan Miller

Receive Jonathan Miller's 'Housing Notes' and get regular market insights, the market report series for Douglas Elliman Real Estate as well as interviews, columns, blog posts and other content.

Follow Jonathan on Twitter

#Housing analyst, #realestate, #appraiser, podcaster/blogger, non-economist, Miller Samuel CEO, family man, maker of snow and lobster fisherman (order varies)
NYC CT Hamptons DC Miami LA Aspen
millersamuel.com/housing-notes
Joined October 2007