Page 2 of 2 Cheating still beats real work
By Julian Delasantellis
coincidence: the vast majority of the time, the appraisal came in sufficient to
unlock the bank vault.
The new method is to greatly expand the role of a previously little used
industry called an "appraisal management company" (AMC). These are nationwide
enterprises designed to maintain arms-length, professional-distance
relationships with all parties in the process. Bankers and brokers would not be
able to pick and choose their AMC favorites; a call to a national toll-free
telephone number would result in a different AMC being assigned to each
individual appraisal, and the HVCC code of conduct pledges would assure that no
hanky-panky behind the scenes payments between the parties and AMCs would
develop, either.
It has now been two months since impropriety and immorality
have been banished from the US real estate appraisal process, to be replaced
what must have become the happy comity of brothers in truth and morals, right?
Surely, at least in terms of the US real estate industry, these must be joyous
times indeed - John of Gaunt's words when he spoke of "This happy breed of men,
this little world, This precious stone set in the silver sea," in Shakespeare's Richard
II must certainly describe US real estate, right?
Not exactly. Maybe there is now truth in the process, but, like an old familiar
eatery, the patrons of the business seem to more desire the old house special -
lies and mendacity - over the nouvelle cuisine of reality.
Last week, equal time was given to the anti-truth, pro-lies side of the
argument. Lawrence Yun, chief economist of the National Association of Realtors
(NAR), standing up for his profession's most-hallowed traditions of fabrication
and duplicity, fired the first volley.
Poor appraisals are stalling
transactions. Pending home sales indicated much stronger activity, but some
contracts are falling through from faulty valuations that keep buyers from
getting a loan. Lenders are using appraisers who may not be familiar with a
neighborhood, or who compare traditional homes with distressed and discounted
sales.
A core strategy of the appraisal process is to compare
the house being appraised with recent sales prices of comparable homes, called
"comps", in the immediate vicinity. That's all well and good, Mr Yun seems to
be saying, but if you use prices gained from foreclosure or distressed property
sales, as up to half of sales are in many of the hardest hit communities,
you'll drive appraisals, and our incomes down, and we can't have that.
Joe Robson, president of the National Association of Home Builders, has similar
advice. America respects nothing more than a man who works with his hands and
lies through his lobbyist.
In the midst of the prime home buying
season, builders report that a number of factors are limiting new-home sales.
These include consumer concerns about job security, potential buyers' inability
to sell their existing homes, and problems with appraisals coming in too low.
The latter issue is directly related to the use of distressed properties
(foreclosures and short sales) as comps, which disproportionately impacts
assessed values of nearby homes.
Just like that other group
threatened by over-moralistic zealotry, the Iranian student protesters, the
anti-truth campaign has taken to cyberspace. From the anti-HVCC web page,
"We've had enough!":
Well, it's been a long time coming. But on June
19th NAR officially spoke out against HVCC. Apparently they've finally realized
what we've known all along; HVCC is pronounced 'Havoc'. Hopefully this will
help push along a moratorium on HVCC. ... We are still in the midst of battle,
but I personally feel as though the tides are finally turning. Media across the
country is speaking out, and it finally seems that people "get it". Many of us
in the indsutry (sic) have been screaming at the top of our lungs for over a
year know, perhaps with the unfolding of recent events we can say that it may
not have been in vain.
With real-estate speculation marbled
into American life like fat on a chucksteak, you had to know that these guys
would be playing the media like a Stradivarius. CNBC, aka Bubble TV, has gone
full tilt anti-HVCC. In the Seattle Times, reporter Aubrey Cohen wrote that
"Faulty appraisals may be adding to real estate woes", using the standard
template of news-you-can-use breathlessness that shapes American media coverage
of local news from the city council to alleged improper weed spraying at the
off-leash dog park.
Where is the battle going? Where else, but to the US Congress, America's
glorious 24-hour all-the-morality-and-integrity-you-can-sell buffet. NAR seems
to have dropped a quantity of Gucci-shod arm-twisters into Washington in an
airborne action not seen in this size since allied paratroopers blanketed
Normandy on D-Day. Their goal is an 18-month moratorium on further
implementation of HVCC; that will give them time to kill it once and for all.
From NAR's warplan:
"NAR is taking the following actions: 1. NAR is scheduling meetings with the Director of Federal Housing
Finance Agency, Jim Lockhart to raise concerns about implementation of the HVCC
and problems with AMCs and ask for an immediate 18 month moratorium. Director
Lockhart is the conservator over Fannie and Freddie who entered the consent
order with the NY Attorney General. (June 22, 23, 24, or 25th)
2. Government Affairs will conduct a fly in the week of June 22. Two
members from each Association (State AE/State President or FPC as appropriate)
to meet with members/staff of the House and Senate Banking/Financial Services
Committee. The ask will be to cosponsor the bill (item 3) and to support an 18
month moratorium. 3. Our legislative team will work on getting a bill introduced in
Congress asking for a 18 month moratorium. (week of June 22) 4. We will ask the Chair and Ranking Members of the House and Senate
Banking [ Reps Frank and Bachus/ Senators Dodd and Shelby] Committees to write
Director Lockhart asking him to grant a 18 month moratorium (week of June 22) 5. We will try and get an 18 month moratorium attached to an immediate
pending appropriation bill or other similar fast track bill. (June) 6. Staff
will talk to the American Bankers Association who heretofore is fine with the
AMC system to see if we can negotiate support.(June 19)
NAR will engage a coalition of Appraisal Institute, MBA, Home Builders and
other appropriate trade groups. 7. NAR Research is conducting a survey
so we have concrete data information to bring to the regulators and the NY
Attorney General's office . The survey will also be run through the State
Association. EHS will be released next week and the appraisal issue will be
mentioned front and center in NAR's release. Survey release June 22 8. NAR is scheduling a meeting with NYS Attorney General Andrew Cuomo
and representatives of NYSAR. (June 29. 30) 9. NAR will conduct a Call
For Action if we do not get a moratorium in the next week to 10 days
NAR is aware of multiple petitions calling for an end to the HVCC. NAR is
taking a more tempered and thoughtful approach of asking for a moratorium
during this trouble housing economy.
States with Members of Congress and/or United States Senators on the House
Financial Services Committee or Senate Banking Committee: AL, CA, CO, CT, DE,
FL, GA, HI, ID, IL, IN, KS, KY, LA, MA, MI, MN, MO, MS, MT, NC, NE, NH, NJ, NY,
OH, OK,OR, PA, RI, SC, SD, TN,TX, UT, VA, WI, WV."
Wow. "So dark the con of man", Dan Brown writes of the lies of Opus Dei in The
DaVinci Code. Just imagine how much NAR and its acolytes could
accomplish if they just settled on telling the truth.
For, at its heart, lies and the truth and being able to tell the difference
between the two is what the entire appraisal controversy is all about. There is
much talk about the government's dire budget outlook that stresses how
"entitlements" must be cut, but here you see the existence of what may be the
greatest entitlement of all - the expectation that nothing will ever be put in
the way of constantly rising real-estate prices.
Don't get me wrong. I like a healthy rallying real-estate investment trust, or
REIT, as much as the next coupon clipper. But with liquidity disappearing all
over the world, with massive oversupply hanging over the housing market like a
Damoclean sword, and with half-a-million Americans losing their job every
month, to expect constantly rising real-estate prices and be enablers of the
specious and spurious should prices not rise to your liking is like thinking
you're being treated unfairly if your application to have your home featured in
"House Beautiful" is rejected just because it's situated on a dungheap.
That is why regulatory measures such as HVCC, along with strict prudential
oversight of banks making mortgages, is so critical in the American context.
Like a fine meal that tickles all of the palate, real-estate speculation
satisfies two critical American appetites - the desire to get rich quick, and
to not have to acquire much of any education or do any hard work to do it.
When the process is running smoothly, today's heavy metal stoner dropout can
with just a few well-timed, split-level flips become tomorrow's respected
member of the business community, generously feting the local congressman while
also pleasing the stoner's family, friends and bankers ... until the whole
edifice collapses, as it has now.
German Chancellor Angela Merkel has lately been making a reputation for herself
as quite the scold at international conferences by claiming that her country's
reputation as the world's highest value-added manufacturer will pull it out of
the crisis; "Mr Blair, we still build things", she sniffed down to former
British prime minister Tony Blair.
But in America, that just won't do. First, you'd have to de-populate America's
business schools of the legions of the carnivorous and comatose who fill them,
who study not how to grow the pie but to take away the middle-class and poor's
slices for new slices for the rich. The business school refugees would then
have to be put in freight cars to be discharged at their own personal work
camps, colleges of science, mathematics, and engineering.
"EWW! How awful! Ever seen how hard those guys study, all the math in the
textbooks? And they'll expect us to learn it all too? When will be able to do
Facebook or MySpace dude, when will we have time to Tweet? There must be some
other way to make money, isn't there?"
Oh, do you want to know the results of the student court? My colleague says the
case is being continued without prejudice, which probably means that, with the
department not wanting to get sued, he should be able to cheat his way to law
school, and probably beyond.
Well, if Aristotle said that the law is reason free from emotion, then pre-law
now is education free from learning, and real estate is riches free from real
wealth.
In Henryk Ibsen's 1882 stage play An Enemy of the People, a scientist,
Dr Stockmann, finds out that his small Norwegian community's chief tourist
attraction, its public baths, are dangerously polluted.
"The source is poisoned, man! Are you mad? We are making our living by
retailing filth and corruption! The whole of our flourishing municipal life
derives its sustenance from a lie! ... The whole bath establishment is a
whited, poisoned sepulchre, I tell you - the gravest possible danger to the
public health! ... all that stinking filth."
But the mob turned against Stockmann, much as the real-estate industry has
turned against Andrew Cuomo. Too bad. There's more than just the moldy Chinese
drywall that's now rotten and filth sodden in US real estate.
Julian Delasantellis is a management consultant, private investor and
educator in international business in the US state of Washington. He can be
reached at juliandelasantellis@yahoo.com.
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