The Housing Market Wields The Double Edged Sword Once Again as The Papers Reach Out for Scapegoats.
March 29th, 2009
I am referencing the Saturday Washington Post article titled, “What Might be Hurting Home Values” on page one of the Real Estate Section.
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/26/AR2009032604074.html
After an alert call from a realtor today asking if I was aware of the article and its ramifications to the market I was forced to find it and read it. I always find humor in what the press reports. The article pin points BPO’s or otherwise referred to as Broker Price Opinions as an alleged cause for declining home values. The humor for me comes from the last paragraph where it states that the use of BPO’s by lenders are costing the Real Estate Appraisers lost revenue and that National Appraisal Groups, including the Appraisal Institute, are “UP IN ARMS”.
Ok, let’s have some fun and learn from an insider as we go so we can stamp out the misinformation that is rampant in the press. I would first like to note that the reporter never defines what a BPO actually is and why they even exist. I am going to do that for you so nobody sheds any unnecessary tears on behalf of the poor humble appraisers.
What is a BPO or Brokers Price Opinion? This is simply a report that provides property valuation support for lenders based on the 3-6 most recent relative comparable sales and listing trends in the general proximity to the property. Some reports are more detailed than others. Many will even provide guidance on 30 day, 60 day, or 90 day pricing suggestions for a given property. The BPO is also a quick way to assess value on a property whereby the lender is considering issuing a loan or for an existing property in REO inventory.
Why do we have BPO’s and how did there prevalence really come about? BPO’s are used by lenders in many instances prior to funding loans because frankly the lenders do not trust the paper the appraisal reports are written on. The lenders need an independent third party method of validation so they know the appraisal report has validity. This is part of a qualified quality control plan that lenders may choose to utilize. BPO’s are also conversely used in Bank REO properties to assess the collateral on the books. The lenders don’t want to hear more lies form the appraisers. They want value quickly that can be supported with credible market data and this can be achieved efficiently & accurately for a very low cost with a BPO.
The appraisers with their lobby and licensing are now crying that they are “UP IN ARMS”. They are losing revenue and suffering as we all are in the greatest housing crisis since 1932. Should we feel sorry for them and make BPO’s illegal? Hold that thought. What did the lenders normally do when their underwriting department discovered a fraudulent appraisal or an over zealous appraiser that clearly had their own agenda when it came to assessing value for the purpose of a loan? This is a key question before we render the decision to pass laws to protect the appraisers or justly force them to feel the double edged sword of the housing crisis. The answer is that underwriting departments simply took that appraiser off the eligibility list and refused to accept appraisal reports from that person in the future. There was no accountability. The states and the licensing department rarely did anything to appraisers. It was the lender and the loan underwriting department’s job to verify the integrity of the appraisers work as a supporting vendor. I think the fact that appraisers have to have a license is laughable. Without enforcement of guidelines and ethics we can chalk all those allegations of fault up to appraiser discretion. Everybody knows appraisers have 8-10% discretion when spoofing, I mean assigning, a value.
Now that that game has run its course the appraisers as yelping because the housing crisis, where we all share blame, is unleashing pain from the back side of the sword. The front side was very devastating as the speculative spiral up in values eventually devastated Wall Street market makers and effectively our entire banking system. Appraisers played a roll as did realtors, lenders, homeowners, etc. Everybody is to blame and we are in the wash out period where we all must repent and pay for the excesses. I say let the appraisers bleed. If they are worth their salt they will rise to the top and earn business or reinvent themselves. If not they will die a failed capitalist.
Heavy stuff, I know. I have personally witnessed a lot of garbage and deceit from appraisers on properties across forty states that I have no compassion for them. Appraisers share their portion of the blame game for the housing crisis. I have seen hundreds of inflated and flat out bogus appraisals that came from licensed so called reputable appraisers through my wholesale division. The lenders must have a fast and efficient means of valuing their collateral and providing for 3rd party integrity checks as needed with BPO’s. The allegation that BPO’s are depressing values is nonsense and unsupported. The primary driver of the gap down in property values and the continued declines is related to demand and the evisceration of available credit. There is an abundance of housing inventory and the demand for this inventory has been restricted by the type and availability of credit. Anyone that took an Econ 101 course in college knows that this means lower prices until demand and supply finds an equilibrium point.
If you find yourself at wits end with your lender turn to “The Negotiated Solution” and investigate a Real Estate Short Sale.
Blogging from the front lines of the housing crisis.
GHunter.
