Tired of Sub Prime news yet? Well, it's a story that's three years in the making. Hope you're not bored by it yet! We’ve discussed the Sub Prime Crisis several times since August. We’ll continue that theme as it seems appropriate.
Today we have two actual case examples . . Best and Worst Case scenarios.
THE BEST CASE
Michael Gordon a Florida Appraiser provided this example of a Florida ARM set to increase payments by 37% for a borrower who had also experienced a business reversal related to the real estate crunch. The borrowers contacted the lender, explained the situation, and a few days later received a Fed Ex delivered letter informing them the ARM portion of the loan contract was rescinded, and converted to a fixed rate at the original rate. Crisis resolved.
The homeowners contacted Countrywide per my suggestion. As far as the situation with Countrywide, they were very excited to get the great news that Countrywide was going to drop their interest rate back down to 6.5% which is what it was at the origination of the loan. They had unfortunately chosen an adjustable rate that went up after 2 years.
In June 2007 (the 2 year anniversary of the loan) their rate jumped up to 8.5%. Their mortgage jumped from approximately $1,750.00 up to $2,400.00 (these figures include escrow numbers as well). That was really hard on them because the homeowner just had a situation happen with a Painting Contractor he had been subbing work that did not pay on $30,000 in work and he lost that business as a source of income as well.
Several months later, they fell behind on the mortgage. The homeowners called Countrywide and asked for help. They forwarded the call to the Relief and Recovery Department of Countrywide. The representative told the homeowners that they would have to gather paperwork (bank info and debt info) to prove their situation before Countrywide could help them.
Before the homeowners had time to gather all the paperwork, they got a letter from Countrywide via Fed Ex and it basically said they were going to drop their interest rate back down to 6.55 percent and they didn't have to do one single thing to make that happen. They said the new mortgage rate and payment would go into effect Jan 1, 2008.
In this situation both the borrower and the lender are better off. Exactly what Runt Rants suggested in the Thought Experiment. There are many, many circumstances where this solution could be adopted for the benefit of the borrower, the lender, the community, the economy. Well done Countrywide!
THE WORST CASE
A Phoenix appraiser and a Tucson appraiser in Arizona collaborated to provide this example of a scam which you may see popping up in your market. These situations can’t be accomplished without the witting or unwitting assistance from an appraiser. Don’t be the unwitting assistant!
We just ran into a different scam. A property had been listed in Tucson MLS for a month for what the sellers had paid for the property a year and a half ago. That listing was withdrawn about six weeks ago.
The other day I was asked to appraise it. Client was an asset management company. The contact person was located in Phoenix, 100 miles away. I called the contact person. She referred me immediately to her partner.
The partner arranged to meet me at the property for the appraisal. There was a real estate sign out front but it didn’t say For Sale, it just had the agency name and the two contact people.
The person who met me was the first person listed on the sign. He appeared to be a listing agent since his name is on the sign out front, but he proceeded to introduce me to the buyer who followed the agent around like a puppy. The agent pointed out this is a short sale, handed me a list of "repairs" that are "needed," and pointed out every flaw in the house.
Repairs? This was a 10 year old house that needed a good cleaning and could use some fresh carpet, but there wasn’t a darned thing wrong with the house that needed "repair."
It turned out my contact person/listing agent bills himself as a short sale "specialist."
He didn’t bother to list the property in Tucson, where it might have gotten some reasonable market exposure. (The month it had been on the Tucson market wasn’t enough exposure in the current conditions.)
This guy listed the property in Phoenix, 100 miles away. Then he found a "buyer" who was putting down a $100 PROMISSORY NOTE for an earnest money deposit. The "contract" was signed by the seller at least two weeks before the listing hit the Phoenix MLS. The "contract" copy I got was signed by the buyer but the buyer hadn’t dated it. And the "contract" price was a jaw-dropping lowball price.
The apparent listing agent sat with the buyer in my presence and told the buyer how much money he could make on the deal by basically painting and carpeting and flipping the property. He talked that way the whole time I was in the house.
Despite the fact that this guy is named as the listing agent in the Phoenix MLS (with my original contact person showing as co-listing agent), and despite the fact that he was the first name on the sign in front of the subject, the contract states he’s the buyer’s agent and his co-listing agent is the seller’s agent.
The concerns in this case include
- the fiduciary responsibility of the broker to the client...presumably the lender/investor,
- the relationship between the lender/investor employee who authorized this out of market broker to represent the lender/investor
- the original borrower who will be left with the shortfall on his credit record the responsibility of the appraiser to investigate the history of the property and report it along with the proper market value.
Thanks to Michael Gordon, and the Arizona team for bringing these cases to our attention.
Be aware and be responsible folks! These times are an excellent opportunity for the Appraisal Profession to once again demonstrate its importance to the lending industry. We are the eyes and ears of the only independent party involved in these transactions. All sides depend on us to perform our duties responsibly!
I have the right to remain silent. Anything I say will be misquoted and used against me