Years ago, I approved loans and was taught to evaluate the three C’s:

Character: Ddemonstrated by your credit history - your willingness to pay

Capacity: Demonstrated by your income – your ability to pay

Collateral:  Equity and the marketability of the collateral. When I was an underwriter (loan approver) it was my responsibility to order a field review of any appraisal I felt warranted one. I evaluated the property and reviewed the appraisal: was the home an over improvement, was the property backing to commercial, etc?  If we were to take this home back in foreclosure, how marketable would it be?
 
The reason that we are in this credit /sub-prime crisis is quite simply that banks made bad loans: 

1) loans to risky borrowers
2) loans with pretend payments which recast; and due to the negative amortization the borrower soon owed more than their original loan balance. Both their monthly payment and their outstanding balance increased.



Banks made loans which were credit risks, but sold the loans to Wall Street and apparently didn’t care… until it became a problem. This crisis was not caused by pressure on appraisers.   An appraisal is an indication of what a buyer might likely pay for a home.  Once the banks increased the buyer pool, prices escalated. The appraisers based their opinion of value on this overheated market.

The Washington Post has an interesting article on the HVCC Home Valuation Code will impact consumers: How about this scenario the next time you refinance or apply for a new mortgage: The real estate appraisal that used to cost you $325 now costs $450, even though the appraiser doing the work is getting only $175 or $200……Worse yet, the person conducting your appraisal may be new to the field -- willing to work for a cut rate -- and may not be as familiar with local value trends and pricing adjustments as an appraiser with more experience. If your mortgage application is denied by one lender, you could be forced to pay for a second full appraisal because the new lender may not accept the first one.


There is a petition to reconsider the HVCC Home Valuation Code of Contact.   If you agree that they are barking up the wrong tree, sign it here: