Billy Ray Cyrus, for perpetrating Achy Breaky Heart. In the interest of full disclosure, I also felt that way BEFORE the financial crisis.
The bank didn’t seem to think so. That’s likely why they sent a pet appraiser back to jack up the appraised value.
Whomever came up with the idea of “the bad bank” and of the absorptions which some of the worst banks in Spain were allowed to do.
“The bad bank” was created specifically so those banks which had suddenly found themselves holding a ton of real estate they did not want could unload it to the “bad” bank. Thanks to that unloading, those banks’ bottom lines suddenly looked a lot better; the “bad” bank is expected to look like shit for years (although from what I read, it’s doing even worse than projections indicated).
As for the absorptions and despite many of those banks being actual banks, it was saving banks (most of which were owned by different governments) which got painted as the stupid villain which had given loans for 120% of appraised value; like I say, never mind who was actually doing it, or that some savings banks were in fine shape while some banks were so far into the red they needed an extra color.
First some savings banks started merging “to assist each other”, the resulting savings bank still had to be a non-for-profit but it was supposed to sort of average out: by matching savings banks with good numbers and others with bad ones, the resulting bundle was reportedly workable. Since the constituing banks were strong in very different locations between which there was relatively little overlap, job losses expected were relatively few.
Then a bank which had just offloaded the majority of its real estate, uh, valiantly stepped in and accepted its mantle as the rescuer of that bundle of savings banks. Superbank is country wide, this purchase is already having a noticeable dent in the amount of ATMs per capita. It is also a well-known pasture for politicians from several parties.
Meanwhile the savings bank which was in worst shape (also a well-know pasture) was declared officially back in good shape as of last week; it was not part of the bundle.
The things I’d like to do to the people responsible for the redesign of our banking landscape would require a teacher of anatomy to describe properly.
That sound sketchy as heck. Do you have a link that describes that process in detail?
The whole thing no, much less in English.
The buying saving bank I refer to is La Caixa; the bundled-up savings bank were called banca cívica; the one that’s just been declared “healed, sort of” is bankia (previously cajamadrid). “Bad bank” is a literal translation, it’s official name is Sareb.
What’s the purpose of the appraisal? From the bank’s perspective it’s largely to ensure that if the loanee defaults the bank can realistically sell the house to cover the costs. There are also some general legal requirements for banks to keep track of assets and debits.
So what is the worth of a house? The only true answer is “whatever someone will pay for it”. The appraiser came up with a number slightly different from the loan. The bank sent the appraiser back out to verify that the house really was worth the loan price and to make sure that yellowjacketcoder’s offer was made in good faith. Once that is done, guess what? The house is worth exactly what yellowjacketcoder offered for the house because that is the definition of the house’s worth.
I buy a house for 1 dollar from a crazy person. The house is worth one dollar?
I sell a house to a crazy person. He pays a billion dollars. The house is worth a billion dollars?
Is that what you’re saying? What if they’re the same house?
That’s the part about the offer being made in good faith. There are certainly situations where offers are not made in good faith and part of the job of the appraiser is to look into that.
However, if you can come up with a sane reason that a house might change in price from $1 to $1b in a short period of time then, yes, that’s the value of the house. How else would you determine it?
Can we at least agree a hell of a lot of people should’ve been fired rather than receive larger bonuses? Legal, illegal, I don’t care, I’m a tax payer and what happened is bullshit, if they want my money heads must roll and if the cost of that is a slightly more depressed economy in the near future so be it.
It would have been nice to have the Realtor monopoly broken up or greatly reduced. A lot of fraud and hype was perpetrated by Realtors and while various new technologies were touted as the end of the Realtors, they are still there, as important (because of the monopoly) as ever.
In general, things are worth what someone else will pay for them. The literal material cost has very little to do with the worth of a manufactured good. Nikes, for example, are relatively inexpensive to manufacture. If you can’t get someone to offer you more than one dollar for a given home, then it’s worth a buck. If an eccentric billionaire comes by tomorrow and offers to buy it for a billion dollars cash, then it’s worth a billion dollars to him.
Anyway, extreme examples aside, there are a lot of intangibles that affect a home’s worth. A great portion of a home’s value is dependent on its location. This includes proximity to good schools, public transportation, highways, and local businesses. It also includes things like neighborhood quality and neighbor income. It’s reasonable to say that if you pick up a small, frugal home and drop it into an elite neighborhood, it will be expensive–regardless of its material cost. Similarly, a large, well-apportioned mansion in Flint, Michigan would not be worth much.
I’m not trying to put down anyone’s profession, and I’ll admit that I’m arguing from ignorance, but here’s how I see the situation:
I make an offer of $500k on a house. The bank is trying to loan me money and hires an appraiser to make sure that it can get $500k back at a sale if I fail to pay my loan back. The purpose of the appraisal is to see what the house will get on an open market if it tries to make that sale.
My offer is what is being judged for its reasonableness and to include it in the calculation to determine whether it is reasonable seems to be the very definition of overfitting a statistic model to get a desired outcome. You have the “X” on both sides of the equation cancelling each other out.
The example upthread cements this point. The poster said that the original appraiser valued the house at $7k less than what he offered. That estimate was made according to whatever formula is used to judge the reasonableness of the poster’s offer. Then the appraiser returns and uses the poster’s offer to revise his estimate upwards by $7k. So which was the reasonable offer, X or X-$7k? You stated that such an action made sense.
If the bank wanted to say that $7k was close enough for them, I could understand that, but to do so under the pretense of some kind of scientific analysis makes no sense.
IOW, if the appraiser was tasked with assessing the overall picture of the market value of the house, he should consider all offers. If he is assessing the reasonableness of the purchaser’s decision (and subsequently the bank’s decision in loaning the money) then the purchaser’s offer should be discarded and given no effect for that assessment. Otherwise the model collapses because it seems that the offer will always meet the appraisal and make these appraisals useless.
The Appraiser’s job is simply to ascertain that the house in question has no damage, hidden issues, illegal upgrades or other problems that could hinder selling it later, as well as providing evidence of “Comps”, which are other sales of similar homes that occurred recently within a certain geographic area of the object house. The Comps are researched and provided as evidence of the current market values.
If a buyer offers a reasonable but elevated amount for a house, the appraiser realistically should consider that offer, since it becomes part of the formula that establishes value. Ridiculous prices like $I or $1-Billion would not affect the value of homes in a neighborhood (since they are clearly way off the norm and wouldn’t have involved bank loans) and unless the folks offering up these examples can provide cites for similar bizarre home sales at extreme prices, these examples have no useful place in this discussion.
I don’t think appraisals were the problem … I think inadequate documentation of the income and credit history of home buyers might have been part of the problem.
Appraisals were not the only problem, but they certainly were part of it:
That’s more of an indictment against lenders than a swipe at appraisers, since coercion was involved. The lenders seem to be the villains here. I’m duly noting that some of the appraisers cooperated with the lenders, but as I said, the appraisers were coerced … if they didn’t come up with the right figure, they were blacklisted.
Really interesting article. When will the Government press charges against those lenders?
This story is exactly the problem with having our entire economy dependent on huge financial institutions.
Behold the tale of HSBC:
Drug dealers would literally–yes, literally–come into HSBC branches and “deposit hundreds of thousands of dollars in cash, in a single day, into a single account, using boxes designed to fit the precise dimensions of the teller windows.” The Senate even investigates the depositors, some of whom were Saudis and Bangladeshis with known terrorist ties. There is no disputing it; HSBC was systematically serving several criminal and terrorist enterprises.
But that’s not the most outrageous part. Check out the rationale for the government settlement (emphasis mine):
You’ll laugh outloud at how some of the penalties are imposed. Needless to say, no one is going to jail, but some of the fine is being paid in “partially deferred bonus compensation” for executives. So basically, the criminals who hatched this scheme will suffer by having to wait a few extra years for their million-dollar payouts.
These guys should have all of their assets seized–their bank accounts, their houses, everything. Because that’s exactly how the government treats low-level drug dealers who undergo immediate asset forfeiture.
The crime of course is not directly related to the financial crisis, but it’s a big neon sign pointing out the problems with jailing the criminals who caused it. If wealth causes the government to pass on really going after obvious criminals–guys who functionally did nothing different than Johnny Weed moving the cash for a few kilos of marijuana across state lines in his beater car–if the fear of toppling the financial system outweighs this hypocrisy of justice, then no matter who we feel “deserves” punishment as a result of this crisis, I’m pretty sure that punishment will never be delivered.
I don’t know the names, but clearly there are some executives and former executives at Bank of America who should be charged with fraud. Possibly outright theft as well, given that they took people’s homes on the basis of perjured foreclosure notices. Merrill Lynch, which bought Bank of America and did nothing to stop the theft and fraud, indeed, seem to have encouraged it, has some executives who ought to be tried, either for fraud or conspiracy to commit fraud.
Executives and traders at Goldman Sachs should at LEAST be put on trial forfraud in the matter of their CDOs. There are quite a few others who should be tried as well. Naming names is the job of prosecuting attorneys. But damn, it’s OBVIOUS that fraud was committed … just no damn interest in even CHARGING the fraudsters on the part of our so-called justice system. You know why? their bosses won’t let em. Money has changed hands. Now that bribery is legal through SuperPacs, government won’t touch you if you’ve got enough money.
Ain’t gonna happen. The fix is in.
Erm… BoA bought Merrill. Not the other way around. The BoA acquisition of ML occurred on the same September weekend that Lehman Brother’s went bankrupt.
BoA also bought Countrywide Home Loans the same year (2008), a decision it regretted almost immediately, this regret only to become deeper as time passed.
To be honest, being bought by a TBTF bank is the best thing that could have happened to people with a claim against the original Countrywide, which is where most of the charges against BoA stem from.
I started a thread a while ago claiming that Real Estate Appraisals are mostly Bullshit that covered some of these same arguments.
If the purpose of an appraisal is to validate the agreed-upon-price as a good-faith market price, then the appraiser has to go in blind, not knowing what that price is. If he knows what the agreed price is, then you get the current system, which is a combination of overfitting comp data and rubber stamping.
Probably, the best way to do an appraisal would be for the appraiser to give a confidence interval to the bank, and the bank can say either that the house appraised within the interval or the price is too high. You could even use this system to back test how good appraisal models are. After 10 years, you’re going to have some defaults and resales, and you can see if the model actually works.
Or we could stick with the stupid fraud-prone system we have. It’s kind of astonishing how little the people who’s job it is to make decisions about money appear to know about math.
When I bought my house, the appraiser asked what price had we agreed upon. The seller and I answered, in stereo, “no, we’ve set an approximate price but won’t call it firm until you give us an appraisal, we want to have a price that doesn’t rob either one of us”. He laughed and said “oh my, it’s such a rare pleasure to work for honest people!” Since we were, indeed, honest and had done our homework*, the price we’d pre-agreed turned out to be smack in the middle of the range he gave us, hooray.
The notary and the guy from the bank(s) were equally surprised that we knew which taxes and fees each of us had to pay and were willing to do so, and that we didn’t suddenly start bickering about it (or about the price) in the notary’s office.
We reached the conclussion that the number of morons out there must be about as big as the number of dishonest gits, and both way too big.
- Either that or he was damn good at cold reading, but the price we’d agreed upon was based on similar houses, which is what appraisals are supposed to be based on, and the pros and cons he listed were the same ones we had.