Most people think that an appraisal; any type of appraisal, is some kind of value for your home. In a perfect world it is, but there are many factors here. For those not use to or understanding of the finance market. look at it this way, you go to a bank, the banker is working for.......... himself. the more he closes the more he makes. The banker wants to get you into a loan like a car salesmen wants to get you into a car. once you drive off the lot they do not give an iota if you make the payments or not. The bankers hire appraisers to value your home, the more they value the home for vs the loan amount the easier it is to push through a loan.
Now the appraiser if he/she keeps pushing values that are low, the banker does not hire this so called independent person. The appraiser knows where his bread is buttered and since everyone wants to make money the appraisers gives the banker what they want.
Now in a hot market you may get a good appraisal, but in the current market you get an appraisal that doesn't even match your mortgage cost no less matching the value the banker's appraisers gave you.
What one needs to do to get a true appraisal prior to agreeing to any loan amount, is to hire their own not linked to a loan department appraiser. Then bankers will do what is called an 80/20 loan, the standard 80% loan and then tack on a 20% home equity loan to have a 100% loan on a home. This is just one of the areas that are putting people in the foreclosure line.
Another one of the problems is that in the early 2000's the bank rate was extremely low, which caused bankers to become very generous with their guidelines, which sold lots of homes. As the industry grew, mortgage bankers were hired by the tens of thousands and there training was to fill out a mortgage application and nothing more.
When prices were rising 5-10 percent a year, the 0 down loans, ARM/home equity financing, etc... real estate became a growth industry. Some of those in the game early were able to buy a home and then get a bigger home within a few years. However, most did not have any equity built up and were buying with 95-100% financing. Today we are paying for that practice.
Let's say one has an $125,000 mortgage and a $90,000 house, then they are upside down in equity. Their choices are not good, foreclosure will give one a bad credit score for several years, a "Short Sale"; where the bank agrees to let you sell for less than the mortgage price, is an option and the last is to call you lender and try to get them to renegotiated the rate. Sometimes they are willing to compromise because the last thing a bank wants to do is own another home.
Sadly quite a few borrowers didn't know that they had the power to determine how high they wanted their loan amounts to be, whether they took a fixed or adjustable interest rate. I highly doubt 3 different appraisers would today come up with the same value for the same property. Remember in 2005-2006, AVM (automated valuation model) was done which is not really a realistic appraisal, and loan amounts bankers wanted closed on were based on AVM's. Remember the higher the appraisal the better chance the banker can get the loan closed on and the more money the banker pockets.
This was just one way home costs were inflated, which also is contributing to the economically crisis. Another way homes' values were inflated were large assignment fees paid to third parties. In 2007, FBI started investigations of dozens of Pinellas County homes sold at inflated prices for just the reasons, and then you always have speculation.
If you are looking at who to place blame on, there isn't just one culprit, it starts all the way from the top of government (pushing for first time home owners)to the banks and ending at home owners. This isn't just black and white, there is much gray area is the why's and who's of the housing crisis. Although we need to know the reasons how this happen to take measures to make sure it doesn't happen again, we now need to focus on a solution and I believe transparency of loans is part of a solution.
Just my thoughts.
Dreama
FHA Mortgage Guide
FBI Investigations
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