Monday, July 12, 2010

Breaking The Bank-Appraiser Cabal

I got a call the other day from the bank that holds the mortgage on my house. They wanted me to come in and talk with them about refinancing. They thought I could get a better rate. So on Saturday, I went in and spoke with a lady in the refi department. I could have gotten a real sweet rate – if I didn’t have my home equity line of credit. I got the HELOC near the peak of the housing bubble, so the combined value of my HELOC and my mortgage is well over what my house is worth today. That meant I had to go into a different loan program with a higher rate and I wouldn’t be saving very much.

But while I was talking to the woman, I found out an interesting fact. Now, back when I was rehabbing and renting properties, I did refis and loans all the time. I’ve probably been through the mortgage process as a borrower 15 times or more. I’ve got a fair idea of how the game is played. Or, I thought I did. I haven’t gone through the process since the housing bubble collapsed. Turns out a couple of things have changed. The biggest change is that the bank no longer can have any contact with the appraiser. The bank just orders an appraisal and the order goes to the appraisal company, who then doles it out to one of their employees. The appraiser contacts the borrow or home owner to schedule a time to look at the property. I think this is a positive step. I remember thinking how convenient it was that the appraisal would always come back right at or slightly above the sales price of the house. There seemed to be an obvious game going on where the bank would hint to the appraiser what figure they were hoping to get. And since the bank paid the appraiser, there was a strong incentive for the appraiser to meet that number. I’m sure this was a big factor in the housing bubble.

Of course, the new prohibition does not fully stop this practice. The appraiser still must talk to the borrower (assuming this is a refi and the borrower is living in the property), so the borrower can still tell his target value to the appraiser. I don’t think there will ever be a way around this. But I have heard from appraisers that they are also limited in the adjustments they can make. They have strict limitations on what improvements they can include. I had one appraiser tell a friend of mine that short sales and foreclosures now really hurt property values because appraisers are pretty much stuck using their sales price as comps and are very limited in the adjustments they can make. I would imagine one foreclosure or short sale in a neighborhood wouldn’t be too bad, but a neighborhood with several could see the property values really plummet.

In other news, it looks like the former owners and occupants in the hard money #15 property are being jerks. If you recall, he originally wanted $6,000 and one and a half months to move out. My partner offered $1,500 and four weeks. Now he is asking for $3,000. In the words of my partner, “fat chance.” The occupant has threatened to take the windows if he is not paid that much. Our lawyer advises to call the police if he does. (And yes, we do have insurance on the property.) Looks like this will be going to court to get the people out. And there are lots of people – 8 adults, 2 kids, and 3 dogs. Yeah, there will probably be a bit of remodeling that needs to be done when they leave. Such is a life of a foreclosure investor.

My others loans are doing well and paying on time.


Another Investor said...

Good luck evicting with Alameda County courts. You will find it to be MUCH cheaper and faster to pay the $3,000.

Appraisals cost more and appraisers make less because of the appraisal management companies. A lot of the long time veteran appraisers are closing their businesses because they can no longer make a decent living. Often the assigned appraiser is inexperienced and from someplace 20 or 30 miles away from the property. They may not understand neighborhoods and school districts. The values are often way off, unless the property is in a tract and there are a lot of comparable sales.

plasterer bristol said...

Do you think the same sort of points and hinters you real estaters from america, could be used in the same way over here in the uk?....Don't think we call it real estate, but it's the same sort of thing.....


Shaun said...

Yes, I think the general concepts would transfer to the UK. The details would obviously be different. I'm sure the contracts for buying and selling property are different, as are landlord laws. But the general concepts of investing and dealing with tenants and contractors should be applicable.

Real Estate Investing Secrets said...

I agree with Shawn. UK and US are generally the same when it comes to investing issues, except for some legal terms which person who are into this dealings should know.

© 2006 Shaun | Site Feed | Back to top