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Archive for November, 2011

Appraiser Loft, Strategic Defaults & Other Turkeys

November 22nd, 2011

What Do The "Experts" Report?

On November 18th in a presentation at the Central Bank of Chile, John C. Williams, President and CEO Federal Reserve Bank of San Francisco, discussed the importance of housing to any economic recovery in the U.S.  He noted that the housing crash directly reduced household wealth by $6.5 trillion along with indirect reductions in household worth due to declines in stock value related to the financial crisis.  Mr. Williams went on to say:
“But the wealth effect is only the beginning of the story. The decline in housing wealth also wiped out the home equity of millions of mortgage borrowers. Indeed, it’s estimated that nearly 30 percent of mortgages—about 16½ million in total—are currently “underwater,” meaning that borrowers owe more than their homes are worth. Millions more are “above water,” but have less than the 20 percent equity typically needed to refinance. This evaporation of home equity has had severe repercussions for the economy.  Widespread negative equity has contributed to a dramatic rise in mortgage delinquencies and foreclosures.”

Mr. Williams discussed the tightened credit for residential, commercial and industrial loans and the fact that many small business owners were in a similar position of negative equity and in no position to borrow or even refinance existing loans.  He went on to discuss the lack of private residential loan securitization along with characterizing securitization of commercial real estate as “dormant” due to risk related concerns.  Mr. Williams called for fiscal policy actions that would work along with monetary policy in a way which would “stimulate the economy” such as the “…recently announced U.S. government initiative to make it easier for underwater homeowners to take advantage of very low rates and refinance their mortgages. This will trim monthly payments for some households and could reduce foreclosure rates.”

A link to Mr. Williams graphically illustrated presentation is found here: Federal Reserve Bank of San Francisco; President’s Speech: The Economic Outlook and Monetary Policy

In a graphic illustration of the state of the housing market, Paul Toscano of recently posted a slideshow of “The 10 Emptiest U.S. Cities” based on Census Department data (#1-Tucson, Arizona) and a link to this is found here: The 10 Emptiest US Cities – CNBC

On November 16th, posted a “glass half full” slideshow of “Home Values: 5 Best Markets” based on data from the National Association of Realtors (#1: Grand Rapids, Michigan) and a link to this is found here: Home Values: 5 Best Markets –

O.K., we can’t resist posting one more slideshow, this one titled “Homes on Top of the World” from CNBC and Homes on Top of the World – CNBC 

On November 16th, CNBC’s Diana Olick reported how the housing crash has “trapped” millions of Americans with just 4.7% of Americans moving in the past year, according to Census data.  Also that day, Bloomberg’s John Gittelsohn discussed how this lack of mobility in conjunction with more Americans living with extended families was reflected in homebuilders targeting “multigenerational” families with second master bedrooms, kitchenettes and separate entrances.  Mr. Gittelsohn noted Census Bureau data which reported that in 2010 there were 5.1 million households comprised of three generations, up from 3.9 million one decade earlier.  He also cited an October report by the Pew Research Center which showed that approximately 51 million Americans (16.7% of the population) lived in homes with at least two generations, up from 42 million in 2000. A link to the Bloomberg report is found here: Homebuilders Target In-Laws, Dogs as Extended Families Grow

In an interview with Bloomberg’s Tom Keene on November 14th, Scott Simon, the head of PIMCO’s (Pacific Investment Management Co.) mortgage division stated that home prices may drop another 6% to 8% before reaching a bottom.  PIMCO reportedly runs the world’s largest bond fund.  In the interview, Mr. Simon  discussed the “dire situation” presented by even greater drops in home value which could leave approximately ½ of Americans with mortgages underwater, up from approximately 1/3 now.

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What Our Readers Have to Say About Our Recent Newsletters and the Appraisal Profession

Here are some of recent emails that we have received:

Florida real estate appraiser Joe Johnson writes: “Now we have managers of large banking institutions who made millions betting shorts against the bad paper they were selling telling us that mortgage forgiveness is the only way to right the housing industry.  Long and short is none of these institutions can afford the write down, so it will be left to the tax payers.  These are the very people that wrote the worst paper and stand to lose the most , writing the rules.

The only cure for the housing industry is the restoration of the middle class.  Read history, go back as far as the late seventeen hundreds and see that with no middle class society in general is in for a rough ride.

 As appraisers we have a great responsibility and liability for millions of dollars in loans, yet we are at the bottom of the pay scale in all of these transactions. 

 Something wrong with this deal.”

 California appraiser Clay Martinek writes: “You guys are honest and awesome. You tell the truth!!! I think the appraising profession is becoming not a profession. We are now paper pushers without faces and reputations. I think that it is part of a larger plot that gave all the power to the lenders. Look around it is happening in every industry.”

Another California appraiser, Robert Eklund, writes: “Regarding Joe Nocera’s Nov. 4 statement about ‘principal reduction being our only hope out of the housing crisis’, I would like to say that we likely have no hope of ending the ‘crisis’, for what person or company or corporation is going to willingly absolve the debt of hundreds or thousands of its borrowers? Maybe Jesus, but…….And can one imagine legislators somewhow passing a bill in this regard? Just think about that!”

Colorado real estate appraiser Kim Herzfeldt writes: “The world of appraisal has been moved by Appraiserloft’s theft of appraisal fees.

It is the belief of many that, in the end, the lender who hired the loft can be held responsible for the fees. 

Illinois Department of Financial and Professional Regulations states the" AMC is an agent of the lender and that the lender is responsible for the action or lack of action of the agent and is liable to the appraiser for payment should the assigned agent default". When I have the full quote with posting info I’ll send it.

I am a past Chairman of the Colorado Board of Appraisers. I have been hurt by the Loft and my long time client for over $10,000.  We have also identified a partial list of appraisers owed over $70,000 in fees owned though this one lender with the total expected to be close to the $250,000 range.  The story is a good one as the lender was notified the loft was a bad player throughout the 70 or so days they used the lofts service. Can you say possible class action or consumer fraud issue at the AG’s office?

…As a profession we need to rally around this issue as we can clearly define what lenders must do and give appraisers a chance to practice with a more limited exposure to bad players. We have no power as individual appraisers but as a group we can influence governing agencies, regulations and controls.  If the lender is held responsible much of this issue goes away.  

Please research this issue as the web posts are viral and the public is being hurt. We need to contact our state and federal elected officials as well at the state boards that govern finance and appraisal..  Make the calls… the light of day makes the roaches run for cover.”

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Congratulations to Award-Winning Appraiser and Author, James Manning!

On November 1st, announced that California appraiser James Manning was the award winner in the “Business: Real Estate” category for his book Public Trust Betrayed: The Truth Behind the Real Estate Appraisal Industry.

Further information can be found by going to USA Book News – Covering Whats Hot, New and Noteworthy in the World of Books!

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Going Viral: Please Don’t Tell Anyone How Sick the Housing Market is, or…

On November 16th, the MBA put out a press release titled “Award Winning Study Examines Impact of Social Networks on Homeowners Decision to Strategically Default”.  It discussed a study by Michael J. Seiler, Andrew Collins and Nina H. Fefferman  which was sponsored by the MBA.  Amongst the findings of the study:

“Strategic default is a result of a borrower’s unwillingness to pay, even if able. It can be very difficult to determine whether a borrower is unable or unwilling to pay.”

“Ideas are transmitted through the population in ways similar to those in which diseases are transmitted. Thus, they can be modeled in a similar manner. Certain corrective factors may lead some borrowers to be resistant to the temptation to strategically default, including the ability of lenders to pursue deficiency judgments, provisions of the tax code and bankruptcy laws.”

“The model shows that real estate experts can influence market dynamics, but not in all cases. Markets are strong or weak due to fundamentals, however, markets in between can be pulled down or lifted up depending upon individual and expert behavior.”

The MBA sponsored study distinguished between economic or hardship defaults and strategic defaults and noted how ideas about strategic defaults are transmitted through social networks and that the end result is lower home prices “an epidemic of strategic defaults” and “the collapse of a housing market.”

Mr. Seiler is quoted as saying that: "Housing pundits share their expert opinion with a large audience on a frequent basis through the media. These social networks create the potential for much faster disease spread/cure than in the past. They can greatly impact mortgage markets…”

"Whether by choice or necessity, as foreclosures increase, they have an increasingly negative impact on the price of the healthy homes around them.  One default does little to negatively impact the price of surrounding homes. However, as more and more mortgages in the neighborhood go into default, the negative impact is felt at an increasing rate. Much the same way as a disease spreads throughout a population, so, too, do decisions to ‘strategically’ default."

Michael Fratantoni, the MBA’s Vice President of Research and Economics highlighted the consequences of strategic defaults on housing markets and said that “…opinion and information (or disinformation) can move markets.  More specifically, that policymakers and Mavens have the ability to stabilize or de-stabilize markets."

The tone of the MBA press release is unsettling.  The housing crisis is real and has the potential to become much worse due to lack of acknowledging the magnitude of the situation and lack of positive actions which address the problems.  Comparing the free and easy movement of ideas in our democracy with the spread of diseases carries with it the implication that some ideas should be suppressed, a notion that is anathema to what our country stands for.

Why are we not recognizing the disastrous path we are on and taking corrective actions to change this?

A link to the MBA press release, including their link to the study, is found here: Award Winning Study Examines Impact of Social Networks on Homeowners Decision to Strategically Default

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Rates & Dates

Mortgage interest rates were essentially unchanged in the most recent weekly reports issued by Freddie Mac and the Mortgage Bankers Association (MBA).

Freddie Mac reported that rates for 30-year fixed-rate mortgages rose from 3.99% to 4.00% for the week ending November 17th.   

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending November 11th, reported that 30 year rates with conforming loan balances ($417,500 or less) increased to 4.23% from 4.22% during the previous week.   The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,500) decreased to 4.56 percent from 4.57 percent.

In their press release of November 17th, the MBA also reported a 10% decline in mortgage applications during this most recent week with refinance activity accounting for 77.3% of applications. 

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

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Ask Angie

We would like to congratulate our two most recent winners, Don Hendrickson, a Certified Residential Appraiser with Hendrickson Appraisals in Mesa Arizona, and Robin Newton, a Certified Residential Appraiser with Appraisal Residential Services in Vero Beach, Florida. Don and Robin were the first to answer correctly that Andy Rooney was the person who said all of the following: "Anyone who watches golf on television would enjoy watching the grass grow on the greens," "Taxes are important. President Bush’s tax proposals leave no rich person behind. Voters approve of President Bush helping the kind of people they wish they were one of," and "I didn’t get old on purpose, it just happened. If you’re lucky, it could happen to you."

Today’s questions:

1. Who Said: "A thankful heart is not only the greatest virtue, but the parent of all other virtues."

a) Cicero
b) Plato
c) Aristotle
d) Socrates
e) None of the above

2. Who said: "If the only prayer you said in your whole life was, ‘thank you,’ that would suffice."

a) Heidegger
b) Meister Eckhart
c) St. Augustine
d) Pope John XXII
e) None of the above

3. Who said: "I celebrated Thanksgiving in an old-fashioned way. I invited everyone in my neighborhood to my house, we had an enormous feast, and then I killed them and took their land."

a) George Carlin
b) Johnny Carson
c) Jon Stewart
d) Rick Perry
e) None of the above

The first person to respond with the correct answers wins a choice of one of the following:

One Free Regular Listing on

A Free Copy of the Directory of Appraisal Management Companies (Available Now to Members of and FREE!)

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at


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