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.