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Monday, August 13, 2007

Part of the problem

In thinking about why mortgage lending is in trouble these days, don't overlook this phenomenon.

Comments (5)

The games people play to keep their income stream coming.

Pressuring the appraisers (or bribing) them is one thing. I also hear that some builders are providing much more than just $3K at closing as incentives. Somebody told me he thought that a house once worth about $450K at the peak but now worth in the lower $300K, had sold where the builder provided an almost $100K backend kickback to the buyer. That way the builder could still show a comparable sale in his development that was high, so as to not offend his original buyers, and to be able to continue the charade.

Not sure if it was true, but if so, you'd think that was almost fraud-like. But then again, I am no lawyer.

The whole thing reeks from different directions:
Appraisers to get repeat business have to be "optimistic" on valuation

Mortgage brokers leave their conscience at the door when they put people who barely qualify into nothing down mortgages. Once they click up and the people have no equity, then they have to throw the keys back if they can't make payments.

Banks building portfolios of this junk paper without any compense for risk mgmt, just like the hedge funds set them selves up also.

Try asking the county tax assessor to disregard the sale prices, for tax assessment purposes, for owner occupied contingent deals where easy money has radically distorted the price. I had to quit all activity related to Oregon Association of Realtor supported hype, buttressed by the hype of the big O, and the tax man.

See Volokh Conspiracy: "Don't Shoot Me, I'm Only the Piano Player" . . . in this brothel.

The benefit of seller provided financing through land sale contracts seems better at keeping the seller locked in to some real value in the property and they have a strong interest in screening the creditworthiness of a buyer. But it would have to be one of the dominant forms of lending (not displaced by the secondary market for federally related mortgages) to have a dampening influence on the infectious exuberance that accompanies gambling with other people's money. A land sale contract might not be so evil after all, if it leads to more affordability and a more stable community.

Looks as renaming Real Estate Agents as Real Estate Brokers hasn't helped any more than calling Problems, Issues!

From the article: Many problems come from ignorance. Some brokers genuinely may not realize that they're not supposed to ask appraisers for a predetermined home value.

I doubt this is true, but if it is, it's pathetic.

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