Stop Blaming Until You Know!

From a recent introffice memo:

When you do a conventional loan, odds are great that a review of the appraisal has to be done. More often than not, the value gets cut, due to that review.

Many question as to "why" this is, when you hear of the recovery of the housing market, or the "stability" of your particular geographic area. The short answer is held within "supply and demand" [equation]. There is a rather large supply that is not counted in the "official" inventories that are spewed forth by the media. That is why distressed sales are counted, and emphasized, as market sales. The distressed market inventory is huge, and the only reason that we are not currently watching a free fall in prices is due to the fact that this supply is being manipulated by the firms that hold them. (A recent Fox News report put that figure at 11 million 04/01/2010).

So, please stop blaming the underwriter, or the review appraiser. It is not their "fault". It is a fact of our lives in these times.

Read below:

Housing – ‘Shadow Inventory’ & Defaults Provide Endless Supply ‘Why do values keep falling when sales have picked up and there is less inventory?’ I get asked that question constantly. Part of the answer is ‘shadow inventory’, which real estate associations, banks and FDIC don’t count.

Shadow inventory is REO [Real Estate Owned by banks and lenders] on the shelves of banks and servicers not listed with a real estate broker. Because the ‘months supply’ figures are given out by the real estate associations based upon listed homes and most REO is not listed, the supply figures have been incorrect for over a year. To accurately estimate supply you must track the foreclosure market and add back in foreclosures as supply, listed or not.

The real estate associations do not do not add back REO inventory into the supply. As a matter of fact they take the present month sales, multiply by 12 then divide by the amount of known listed inventory. They then throw on some magic ‘seasonal adjustments’ to make everything ‘alright’. This leads to press releases like the CA Assoc of Realtors put out this week citing 545k annual home sales and 5.6 months supply in CA. This is as far from reality as any report I have ever seen on housing.


So, what is the answer? FHA and VA, as well as USDA (for those areas that are eligible). Those appraisals are NOT subject to outside review.