Thursday, September 25, 2008


I can see it now.

The scene opens on Senate members embroiled in hashing out terms of the "bail out" in a smoke filled room (of course there's no smoking allowed - it is "green" smoke - biodegradable and non-toxic,) having made absolutely no progress, loudly bickering amongst themselves, when in rushes SUPER JOHN MCCAIN, decked out in his red cape and tights , to the rescue! (Trumpets sound heroically) "Bom pa, da, da!"

SJ: "All right men - and (smiling and winking deferentially) you pretty little ladies - gather round. I'm here to save the day! I'VE GOT THE PLAN!

Now, I don't pretend to understand much about the economy, but me and my boys - uh, you've all met my boys, haven't you? (motioning toward the doorway where four or five tuffs in dark suits, white ties and fedora hats stand menacing - feet wide apart, the Senators silently nodding, slack jawed in fear and awe) - yeah, me and my boys got this bail out thing all figured out."

Random Youngish Senator: (Enthusiastically) "What are ya gonna do SJ? Set up a strict regulatory commission with veto powers and oversight to insure transparency?"

SJ: "What? Regulatory commission? Hell no. What we're gonna do is bomb Fannie Mac and that Freddie Mae, and then - bingo - we're gonna do the same to Wall Street. That's the kinda straight talk I'm talkin' about, by god!" (The four or five tuffs nod and chime in saying: "Dat's right boss." or "You said it, SJ.")

Another Random Senator: "Of course! That's the ticket! Brilliant! That'll show those elite New England, Ivy League bastards. (Smiling broadly, conspiratially) Hey, maybe that would be a good day to arrange to have The Honorable Senator Obama ring the closing bell at the stock exchange, no?"

SJ: (Suddenly slumping over in a chair) "Ooooooooooooo."

Back to the First Random Senator: "Omigod! SJ! What's happening? What's wrong? Are you all right?" (Kneeling down, taking SJ's hand in his, surreptitiously kissing McCain's palm.)

SJ: (Now barely audible) "I can't hide it any longer. I'm finished. I have terminal hemorrhoids. I'm bleeding out."

Senator Kay Bailey Hutchison: "Eeeew"

SJ: (Briefly rallying) "Never fear though, Sister Sarah has a firm hold on the reigns of power. She'll lead you on into the 21st century steadfastly, keeping the witches at bay, not to mention that she'll share some really great moose stew recipes." (Dies)

Still Yet Another Random Senator: "He's dead! The Great Maverick is dead! God save the Great Maverick! (Gnashes teeth as the scene fades.)

Announcer: (On camera) "Stay tuned for scenes from next week's all new episode of D.C. Looney Bin." (Whonk! - Announcer gets hit with a rubber chicken.) Muted trumpets play a descending scale - Wa, wa, wa waaaah. (Fade.)

(Insert Cialis Commercial)


Wednesday, September 24, 2008

The Appraisal: One source of our economic woes.

Out of all the cacophony caused by the current meltdown of this country's financial industry, one of the sources in the grass roots mechanics of how all this housing mess came about has been largely ignored: The appraisal.

In the past, until a few years ago, FHA maintained a list of approved appraisers who were given assignments by FHA, not the lender. While there is no sure thing, this system made it more likely that the appraiser would be impartial, that she or he would be an advocate for the property - not the lender, the buyer or seller, or even the realtor, if one was a participant. This system allowed the appraiser to maintain an arm's length relationship with others involved in the transaction.

Under pressure from the banking/lending industry, plus the efforts in Washington to downsize government, FHA abandoned that system in favor of allowing each lender to choose its own appraiser. While HUD still requires that those performing appraisals for FHA-insured mortgage loans be approved via application and testing, the arm's length situation that formerly prevailed is no more.

Also, until a few years ago many banks and other mortgage lenders employed one or more staff appraisers, who valued properties being secured by that institution for conventional or insured conventional loans. A few lenders still maintain appraisers on staff, but the obvious appearance of a possible conflict of interest finally made the maintenance of them untenable for most lenders. On the surface, this seemed to be a good thing - not for staff appraisers of course, but for the lending industry as a whole - in that it would promulgate that arm's length relationship.
That, however, has not been the case. Pretty much across the board, lenders maintain a list of approved appraisers who are not employees, but who are, in effect, fee paid contractors. The same pressures remain; in order to remain on that approved list, each appraiser must play ball, as it were.

Of course, it has become more complicated than that. Three major factors have developed over the past 15 to 20 years:

First, the advent of so called "mortgage brokers." By and large, over time, these people became the real bottom feeders. Most of their clientele were people who could not obtain approval from any of the more mainstream lenders. If purchasing a home, many of these wannabe mortgagors came into the game often with little cash, questionable income, spotty employment records and weak credit scores. If refinancing existing loans, many brought to the table some or all of the above, plus the added problem of attempting to borrow against a property having little or no equity. More often than not, these were the people on behalf of whom mortgage brokers were attempting to obtain approval. Note that a mortgage broker makes nothing unless the loan is closed.

Herein lay the problem for the appraiser. Especially with refinances and home equity type loans, the pressure came loud and clear from brokers that a certain figure must be met in the appraisal for the deal to work. Failure to comply meant that the broker would simply make a phone call or two until he or she found an appraiser who would get the value up where it needed to be.

Second: The advent of computer generated Automated Valuation Models, or AVMs.
AVMs are created via large data bases maintained by companies which gather real estate sales data, much like locally maintained multiple listing services (MLS), but on a regional or national level. These AVMs use this accumulated data to determine the value of individual properties via computer generated models. Many lenders have adopted their use in lieu of standard appraisals. In some instances, an AVM valuation may be backed up by a so called "desk top" or "drive by" appraisal performed by either appraisers or real estate brokers. Neither the desk top nor the drive by report involves an actual "feet on the ground" inspection of the property.

AVMs tend to work best when there is an ample amount of data - say for a 1200 square foot, three bedroom, two bath, brick veneer ranch home built on a crawl with a 2 car attached garage located in a subdivision of hundreds of other 1200 square foot, three bedroom, 2 bath, brick ranches having large numbers of recent sales. However, their dependability wanes dramatically in areas where there is less homogeneity. Also, the data compiled by these AVMs is often spotty at best; and at times, wholly inaccurate - far less complete and accurate than data typically found in traditional MLS data systems.

The appraisal has long been considered by lenders, realtors, and even sellers and buyers, as a fly in the ointment. An appraisal that fails to meet the sales price or whatever the minimum value estimate necessary to attain the prescribed loan-to-value ratio is, will kill the deal. Lenders have done everything possible to remove the appraisal - and consequently the appraiser - from the equation. The excuse usually raised is the cost factor. This argument is bogus in that the cost of the average appraisal in today's market is somewhere between $275 and $350, or so. (Fees vary from region to region and the cost for larger, more complex properties may be higher, but such properties are generally outside the norm.) That cost pales when measured against the average total costs of closing a mortgage loan. The real reason is control. The lender generally has less control over an independent appraiser. An appraisal which comes in with a low value estimate, as noted, will either kill a deal outright, or at best, cause a delay while another appraisal is sought, in the hope that the second appraiser, perhaps with a little nudging, will "see the light."

The marriage between computer geeks and the lending industry has brought about the development and use of AVMs in the effort to obviate the need for on-the-ground appraisals. However, as noted, these models are often based on inaccurate data. It is also much easier for anyone generating these reports to selectively piece together data which supports whatever value the lender is seeking, owing to less oversight. It is not clear as to what standards the AVM providers must adhere. Keep in mind that in these instances, no one ever so much as lays eyes on the property in question. By comparison, a full blown Fannie Mae appraisal is a fairly detailed and painstakingly developed report, often consisting of 20 to 30 pages or more, which must meet a number of specific guidelines set forth by Fannie or Freddie and/or HUD and/or the VA, plus possible additional requirements of the individual lenders. Detailed explanations must be included in the event any aspect of the report does not follow the aforementioned guidelines.

Third: The emergence of appraisal management companies (AMCs). These are generally regional or national companies which act as a sort of clearing house or middle man for lenders to obtain appraisals and in some instances various aspects of loan processing, including credit checks, verification of borrower information, title work/insurance and even closings. In their middleman capacity, AMCs take requests for these services and then assign them to appraisers, title companies, etc., who have applied to and been approved by the AMCs.

As little as most appraisers like it - because this necessitates fee sharing - this arrangement does once again create an arm's length situation between the lender and the appraiser. At this juncture, I am not sure just what percentage of current residential mortgage appraisals are being handled through AMCs, but the number has been steadily rising over the past two decades or so.

As with the S&L debacle in the early 90s, there are certainly some appraisers who have been culpable in creating the current financial mess by succumbing to pressures and inflating values. On paper a skilled appraiser can make pretty much any property appear to be worth whatever figure a lender or broker stipulates.

In defense of appraisers though, it is a tough, competitive industry for them, just like most everything else. An appraiser's livelihood usually depends wholly on the favor of loan originators or loan processors, AMCs and, yes, mortgage brokers. Their loyalty to appraisers only goes as deep as the success of recent loans. "What have you done for us lately?" Happily, most appraisers operate above those pressures, but it is precarious at best. Appraisers have to eat like everybody else.

While I certainly don't contend that what is happening in Washington even as I type, is solely or even primarily due to bad appraisals, bad appraisers, or even to the evil mortgage brokers and AVMs, nevertheless, they are and have been players in all this. A return to more traditional lending and valuation procedures could go a long way toward a more equitable and transparent lending process.


Saturday, September 13, 2008

Rupture is Back! Rupture is Back! Rupture is Back!

Hey! Rupture Is Back!
After being badgered by literally hundreds of my avid readers (well, one or two - maybe,) I finally gave in and decided to resurrect Rupture the Rapture ( Now, any articles I write involving religion and/or agnosticism/atheism will be posted on Rupture. All other stuff will remain here in the hallowed halls of Indy Boomer.

I know. The excitement is palbable. The press is, as I write, gathering in my front yard, having been pulled off of the campaign trail and coverage of Hurricane Ike. I will have a press conference with more details along with an announcement of a special "Rupture" giveaway including a top prize of the "End Times" package for two at the Armageddon Hilton.


Sunday, September 7, 2008

A Further Look at Sarah Palin

Senator John McCain's selection of Alaska Governor Sarah Palin as his running mate was smart, perhaps brilliant, from the standpoint that it was totally unexpected and has obviously shaken things up in both parties, perhaps even more so in the media.

The announcement and its timing took the air out of Barack Obama's acceptance speech and the culmination of the Democratic National Convention (DNC), effectively reducing any 'bounce' in the polls that the Dems might have otherwise enjoyed. There was a reported bounce in most polls, but it was a couple of points less than the norm for candidates coming out of their conventions, and McCain's pick, announced last Friday just hours after the close of the DNC, had a lot to do with that.

Palin's selection was a master stroke from a "Madison Avenue" perspective. She is very appealing in both her look and her story. There certainly are any number of others, including several women within the Republican Party who are far better qualified, but that obviously wasn't what the McCain camp was after.

Regardless of what anyone thinks of Obama's credentials, or how one compares them to Palin's, the fact is that the prospect of her taking the seat behind the Oval Office desk is not a particularly comforting one. Of course, the fact that the White House has been run by a totally inept idiot for the better part of the last eight years should actually give us heart. While overall, the Bush Administration has been an unending cluster fuck, which many Republicans still inexplicably embrace with pride, we can periodically wipe the flop sweat from our collective brow in the knowledge that we haven't all been blown into a pink mist - yet. So, I suppose, in the presumption that Ms. Palin would be "handled" by McCain's surrogates in much the same manner as Mr. Bush, in the event of her ascending to the top spot after, say, another unfortunate 'pretzel' incident that in this (hypothetical) case ends badly, would help ease our angst - and, presumably, hers.

Another element to consider in McCain's VP selection is that now we have two - count 'em, two - Republican nominees who must be handled with kid gloves. The Reps must be mindful of treading lightly over racial matters, but now the Dems must walk on egg shells over both McCain and Palin. The Dems must not besmirch McCain owing to his POW status. Every time a democrat sets out to criticize McCain, their attacks are always prefaced with recognition of McCain's ordeal and praise for his heroism which is proper, but has the effect of taking the edge off of anything they say afterwards.

Now they can't go after Palin regarding, well, about much of anything. Obama and, especially, Biden must be very careful in how they attack her. They can't refer to her being a member of the fairer sex except in praise. They can't touch her family situation. They must be very careful in challenging her evangelical proclivities which are, by the way, significant. And they cannot diminish her "executive" experience as the president of the PTA. They can't even bring up her lack of experience and knowledge regarding international affairs because, as has been aptly pointed out, Russia is so close to Alaska. Palin and McCain can stand up and challenge Obama and Biden to "Bring it on. Give us your best shot," but do so in the full knowledge that any perception the voting public may have that Dems are piling on, or hitting below the belt will have negative repercussions for them (the Dems.)

I can tell you that being the mayor of a town the size of Wasilla is hardly a full time job. My brother is a friend and former associate of Stan Hooley, the executive director of the Iditarod which has its home base in Wasilla. In that capacity, Mr. Hooley is the second most well known resident of the town next to Her (former) Honor, the Mayor, Ms. Palin. During her mayoral tenure, he met with her on a number of occasions. While she had an office, she did much of her work at home while tending the kids, cooking supper, cleaning her guns, etc., which is fine, even admirable, but that does indicate that the mayor's job in Wasilla was not so demanding that she had to be present in her office everyday.

Joe Wright, the current mayor of Beech Grove, Indiana, a town of around 10000 residents spends more hours in the day tending to his laundromat business than he does on the business of Beech Grove. My brother in-law ran for (and lost) the BG mayor's job to Wright last fall in the knowledge that it would take little time away from his business and that the job offers great health insurance benefits.

The current mayor of Southport, Indiana, a smaller community of around 3500 residents, puts in about 12 to 15 hours a week in that capacity. The gist of this is, let's not make too much out of one's having been the mayor of a small town. In most cases, it's just not that big a whup.
Palin's quick rise to the Alaska governorship is impressive, and her actions and approval rating are, likewise, not to be sniffed at. I would suggest however, that taking on the power structure in Alaska is not quite the same thing as bringing about significant change inside the Beltway. She, along with fellow "maverick" John McCain might shake things up in D.C., but I wouldn't hold my breath. Even if they succeed to some extent in that regard, one must consider whether that is necessarily a good thing. After all, what things do they intend to shake up, and just how do they intend to shake them? What will be the end result? Will any changes they manage to make result in a more efficient, more responsive federal government? Or will it simply create more entanglements, more red tape and more political wrangling?

It has been repeatedly noted that Palin flip-flopped on the 'bridge to nowhere' ("She was for it before she was against it,") but not much notice has been paid to the fact that as mayor of Wasilla, largely through the efforts of paid lobbyists, she managed to obtain over 25 million dollars in federal "earmarks" for the town; just the kind of thing that is supposedly anathema to McCain.

Also as governor, she championed a deal which now brings in a payment of $3200 for each and every citizen of Alaska from the oil companies' profits. This arrangement was originally set up in 1982, but Palin formed a coalition with Democrats and some apparently reluctant Republicans in the Alaska legislature to up the ante to the oil companies.

Alaskans pay no state income tax largely due to the revenue the state gets from big oil. Hmmm. How is that fundamentally different from Obama's campaign promise to tax the oil companies' "windfall" profits? It's okay for Alaska, but not the rest of us? Am I reading that correctly, comrade?

I would venture to guess that had Palin been the Democratic VP choice, the Republicans would have jumped on her just as hard or harder than the Democrats have done. They would have picked over her thin resume in much the same way as is now being done, and it's likely that one or more self-righteous, Bible wielding, evangelical preachers would have risen up in condemnation of her daughter's licentious behavior.

Today, politicians are looked upon in much the same light as celebrities by most people and especially, the media. What did the McCain people expect? It has been no less vicious with Obama. His life has been scoured, picked and prodded up, down and sideways, with all manner of distortions, half truths and outright lies bandied about since he announced his candidacy. Now, that is all topped off with Jerome Corsi's disgusting book, The Obama Nation which has taken all the above noted crap, added more, and condensed it under one convenient cover. This book sits near the top of the New York Times best seller list.

The political arena is not a place for the faint of heart. The scrutiny of Palin is still in its first phases. Many more will follow. It ain't gonna get any easier. All of you folks who claim such indignation at how Palin has been treated are a bit much. Again, what the hell did you expect?