Appraisers' role in the meltdown

August 18, 2008
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Some of the people most familiar with the mortgage foreclosure explosion in the Indianapolis area in recent years have privately pointed fingers at appraisers.

Appraisers too often were in cahoots with lenders to illegally inflate prices of houses, the insiders complained, usually off the record.

Most appraisers are honest, ethical people, of course. But now� an Associated Press investigation says� the system failed miserably.

What do you think? Have you seen evidence of appraisersâ?? inflating prices?
  • I don't know about illegally conspiring to raise the price of homes, but I always thought it was weird that the appraised price always seemed to come in exactly at the purchase price of the house.
  • The problem exists when Mortgage Brokers, not Mortgage Lenders, would tell appraisers that “if you want my business you will appraise the homes for the value I need to make my loan work”. The appraisers in many cases (not the legitimate ones) did what the brokers wanted. Lenders do not do this type of action typically as they are lending their money and have a lot of “skin in the game” unlike a Mortgage Broker who gets their commission and is done. If you look at the front page of the main daily newspaper in this area and seek all articles on Mortgage Fraud they always had to have the conspiracy of an appraiser involved. One large national mortgage broker based here in Indianapolis was cited for these actions by that paper and the appraisers were specifically named. I personally know that the police had undercover officers in this mortgage company for quite some time working as loan officers and have the evidence to proove the fraud was rampant. Kind of funny (NOT!) that the founders have new homes and cars all titled in Florida where if they file Bankruptcy they canot be touched. Yes Appraisers are a problem as the scheme’s do not work without an appraiser involved in the fraud. The real problem is that bad Mortgage Brokers hide behind the appraisal they had the value “pushed” on. The Broker loans 100% of this inflated value of the home while charging exhorbitant fees and paying off a few credit cards just to lower the clients payment for what benefit? So they can take 30 years to pay off the credit cards and their fees? And then if the client has to move due to relocation, family growth, etc. they now owe more than the value of the home and the only option is foreclosure? That is where the problems lie. Purchases are not the major problem, refinancing has caused far more problems. I must also say there are many Mortgage Brokers that are legitimate and do not follow these trends. It is just I find very few of them anymore.
  • There's another form of inflation being practiced by local property tax assessors. For example, my house was appraised at a price that far exceeds the actual value. The quotes are intentional. Had an appraiser physically examined my house, he/she would have seen that the appraisal was inaccurate. I wote the Lawrence Town Assessor and detailed numerous areas in serious disrepair due to aging, lack of funds to repair, etc. No response. Instead, the next property tax bill I received was $3,000 higher than the preceding bill. Assessors are allowed to trend their assessments...a paper drill completed at their desks. They are not required to physically assess properties. Folks, it just is not working. Assessors need to get off their big duffs and do what they're supposed to do...physically examine property to ensure that when they claim it's worth a certain figure, that it is in fact worth that figure. Also, someone needs to tell assessors that when a property owner corresponds with an assessor by mail, it's a simple courtesy to at least acknowledge receipt.
  • Mr. La Bonne, I am not sure that you actually know what trending is. In Indiana property values are officially reassessed every 10 years. Trending incrementally increases the value of your property over the period between general reassessments so that when the new property assessment comes after a 10 year reassessment it won't shock the owner. The shock you experienced was that of a general reassessment and not trending.
  • Appraisers are just a part of the problem. Requirements to become a residential appraiser have become more stringent(starting 2008). If the banking industry continues to allow mortgage brokers to shop their deals to find appraisers that will support predetermined value problems will continue. The relationship between mortgage brokers and appraisers has to change.
  • Indylndie: My point is still the same. Assessors automatically assume that after so many years -- 10 in this case -- property rises in value. Without actually visiting homes to verify their condition, how can they possibly make this assumption? My home deteriorated drastically over the past decade-plus because of too many reasons to list here. Even after I notified them that my home had deteriorated, and outlined everything that was wrong, the assessors still raised the value $3,000, without acknowledging my letter and without sending someone out to verify my claims.
  • The reason Mr. LaBonne is that to visit every single property every year to physical evaluation in order to assess the properties value is not manageable or feasible. The cost and manpower of such an undertaking is completely prohibitive. Also, trending doesn't only raise property values but also lowers them if that is the trend.

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  1. By Mr. Lee's own admission, he basically ran pro-bono ads on the billboard. Paying advertisers didn't want ads on a controversial, ugly billboard that turned off customers. At least one of Mr. Lee's free advertisers dropped out early because they found that Mr. Lee's advertising was having negative impact. So Mr. Lee is disingenous to say the city now owes him for lost revenue. Mr. Lee quickly realized his monstrosity had a dim future and is trying to get the city to bail him out. And that's why the billboard came down so quickly.

  2. Merchants Square is back. The small strip center to the south of 116th is 100% leased, McAlister’s is doing well in the outlot building. The former O’Charleys is leased but is going through permitting with the State and the town of Carmel. Mac Grill is closing all of their Indy locations (not just Merchants) and this will allow for a new restaurant concept to backfill both of their locations. As for the north side of 116th a new dinner movie theater and brewery is under construction to fill most of the vacancy left by Hobby Lobby and Old Navy.

  3. Yes it does have an ethics commission which enforce the law which prohibits 12 specific items. google it

  4. Thanks for reading and replying. If you want to see the differentiation for research, speaking and consulting, check out the spreadsheet I linked to at the bottom of the post; it is broken out exactly that way. I can only include so much detail in a blog post before it becomes something other than a blog post.

  5. 1. There is no allegation of corruption, Marty, to imply otherwise if false. 2. Is the "State Rule" a law? I suspect not. 3. Is Mr. Woodruff obligated via an employment agreement (contractual obligation) to not work with the engineering firm? 4. In many states a right to earn a living will trump non-competes and other contractual obligations, does Mr. Woodruff's personal right to earn a living trump any contractual obligations that might or might not be out there. 5. Lawyers in state government routinely go work for law firms they were formally working with in their regulatory actions. You can see a steady stream to firms like B&D from state government. It would be interesting for IBJ to do a review of current lawyers and find out how their past decisions affected the law firms clients. Since there is a buffer between regulated company and the regulator working for a law firm technically is not in violation of ethics but you have to wonder if decisions were made in favor of certain firms and quid pro quo jobs resulted. Start with the DOI in this review. Very interesting.