Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, after noshing, drinking and dancing in the conga line during the holidays with mortgage lenders, Marty observes what appears to be a series of quick fixes for looming foreclosure problems. “ …Jonathan Miller

A recent article in the Wall Street Journal described how lenders are dealing with mounting mortgage delinquencies through the latest plug-the -dike quick fix tools created to cope with the easy credit and underwriting gluttony of the past few years. This parallels the diet industry’s post-holiday marketing blitz where all of that rich holiday noshing and drinking has added inches and pounds that are conjuring images of the saftig pre-diet Kirsti Alley.

The latest “crash diets” that the lenders have come up with are:

  • Allowing some borrowers to refinance into a different loan at no closing cost
  • Alerting those holding ARM loans months before the rate is reset
  • Allowing the property to be sold at a loss and forgiving the shortfall in proceeds or remaining debt without it affecting the borrower’s credit record

Of particular interest was a story of a borrower caught in the vise of trying to sell a house in Las Vegas where the market tanked after he bought a new house following a job transfer to Dallas. The man’s dilemma stemmed from his expected sale at $475,000 and the buyer’s bank appraisal of $419,000 compared to his present loan balance of $440,000. Now I have been around this business long enough to sniff out aberrations when I smell them so here it comes.

  • I was intrigued by the appraisal of $419,000-not $420,000, not $415,000 but exactly $419,000. I would like to meet the appraiser who is so certain that he can reconcile to a residential value at that exact amount. He/she must be very good on their adjustments or else they know how to read numbers off their Excel spreadsheet, BUT-where is their professional judgement in rounding? It reminds me of putting an asking price on a house at $499,500-you want to avoid the $500K priceline but you know you will settle for something in the high end $400’s.
  • The gap between the loan balance of $440,000 and the present appraised value of $419,000 bears some scrutiny. Let us assume that the loan is relatively recent and thus that amortization of principal is minimal. Let us further assume that LTV is 80% so the $440,000 balance would equate to an original appraised value of $550,000 at the 80% ratio. That is a 23.8% decline in market value based on the assumptions above.

And so, Dr. Phil, here is my dilemma:

  • Did the easy credit people allow too much partying and noshing ?
  • Could a declining market have wiped out the borrower’s equity in such a relatively short period or did the fault lie with the original appraisal?
  • Did the appraiser on the original loan get carried away with his adjustments in an up-market and overvalue or
  • Is the appraiser of the current market value of $419,000 so sure that maybe he has undervalued?
  • Should the owner allow the lender to sell the Las Vegas house and cut his losses?
  • Should we all join Kirsti Alley in the conga line?
  • Is gluttony the first deadly sin?

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One Response to “[Fee Simplistic] Mortgage Lending Gluttony Really Is The First Deadly Sin”

  1. Todd Huttunen says:

    I reviewed an appraisal last year, prepared for assessment grievance purposes, where the appraiser’s “pin point” accuracy was even more acute than that of his Las Vegas peer. Believe it or not, the appraised value was $999,500!