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[Blackmail & Hot Potato] Appraiser Edition

Here’s a great story on the plight of appraisers that aired yesterday on the CBS Evening News with Katie Couric [1]. I have rarely watched this program because I am never home at that hour but I happened to be watching yesterday….karma???

I have followed with great interest the legal tactics applied by eAppraisIT (ironically, the appraisal management company being sued by NY Attorney General Cuomo) last summer after she posted information about them [2] on her site Mortgage Fraud Watch List [3]. I am sorry that Pamela Crowley lost her appraisal business as a result of the pressure she was placed under. She sounds like another one of the good people forced out of the business. It’s crazy.

What is most amazing to me, is the fact that there are still lenders, mortgage brokers and appraisers out there STILL practicing as they were in the past, in Florida of all places, one of the weakest real estate markets in the country. The appraiser in the pick up truck must have nearly had a heart attack. If he knew he was being honest, he would have stayed to do the appraisal (correction: fill out a form). Incredible.

Reporter Sharyl Attkisson’s blog post “Houses Of Cards And Hot Potatoes” [4] on Couric & Co. lays it out pretty clearly.

Why did the lenders go along – even solicit the inflated appraisals – if they were going to get left holding the bag at the end of the day? Because there’s such a lucrative market in selling the mortgages. A lender that makes a risky loan with a bad appraisal and simply sells the mortgage (along with the undisclosed risk) on the secondary market before anyone figures it out. Who’s to know? It’s sort of like the old game of Hot Potato: If you can make your money and then get rid of the loan (by selling it to another bank) before it goes belly up, you’re in the clear. But a lot of the loans are all going belly up at the same time now, and the financial institutions holding the mortgage are the ones getting burned by the Hot Potato.

It all looks so obvious right now, but appraisers have been complaining about this for the past five years and no one seemed concerned and no one listened.

Attorney General Cuomo primed the pump to create awareness of the problem and now a growing number of news outlets seem to be catching on. Here’s a few of mine on the topic (Fox Business [5], CNN [6]).

The recognition of the problem with the appraisal independence as it fits within the mortgage lending process is only a first step, but it is an essential first step. The solution has to insure independence so there will some faith restored in the investor community that buy mortgage paper. Because right now, its pretty much non-existent.