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The
GSE Report, a watchdog of the housing angencies, keeps a close eye
on these government-subsidized agencies that are fueling the housing bubble
by packaging mortgages into "riskless" assets with the implicity
promise of a government guarantee.
Fannie purchases
mortgage-backed securities that are packaged by banks, then underwrites them
and resells or holds them. According to this this story, Fannie intends to
hold the banks responsible for exaggerated appraisals. The irony of this is
that stories abound of collusion between the lender and the appraisor and the
buyer. Everyone involved participated with a "nudge, nudge, wink,
wink" to generate whatever appraised value the home owner wanted in
order to get their cash out. For Fannie to suggest that they haven't been
aware of this all along is difficult to believe.
Fannie gets tough on
inflated mortgage appraisals
In this period of cash-out refinancings, some of the cash borrowers took out
of theirhomes may be, in fact, a fantasy as the booming market led appraisers
in the rush for business to overstate home values. Exaggerated appraisals
values have raised concerns at Fannie Mae, which has set off a scramble to
reappraise property values that could leave banks on the hook for
inadequately backed loans sold to Fannie Mae.
"In the past, we have seen a trend toward inflated appraisals on
cash-out financings," said Alfred King, director of communications at
Fannie Mae. "That has resulted in Fannie Mae now requiring lenders to
review loans for excessive valuation." He added, "clearly, we do
have options up to and including requiring repurchases of loans we find,
through quality control processes, don’t meet our
standards."
Lenders that are forced to buy back mortgages sold to Fannie Mae may have to
take a charge because they may have already booked the sale. What’s more, in the case
of banks, they will also have to hold more reserves than expected to cover
possible losses on those mortgages.
Bill Rose, an appraiser who works in California’s San Diego County , believes the
problem of overly optimistic appraisals has had a widespread impact on the
housing market. "Six months ago, only 20% of the population could afford
a home here." He added, " Now it’s 16%,"
referring to the $5000,000 median home price in the area. "I am
convinced that inflated appraisals during the refi boom are the major
ingredient."
Quoted in The GSE Report, from Dow
Jones Newswires, Christine Richard and Julie Haviv, 01/13/04
Robert Blumen
Robert Blumen is an independent
software developer based in San Francisco, California
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