The trouble with tribbles was an old Star Trek TV episode where something so kind and cuddly got out of hand. Everyone loved them at first and was happy to have one until there were so many of them that everywhere you went or looked there they were. In the end they ate all the grain and caused much hardship for the space station as one or two people were selling them without knowledge of what consequences the future might hold.
I look at home loans like Tribbles, at first there were just a few then everyone wanted one. They were easy to get and pretty soon everyone was just giving them away. There were new houses, new subdivisions and new loans popping out everywhere. Then it happened, the new tribbles ate up all the grain (equity) in the market. As people piled more and more debt into their new Tribble they did not see the far reaching effects this would have as money, investments and large governmental agency’s would find themselves holding lots of Tribbles and no equity. This has happened to a point where people have just lost the ability to pay for their new pets. What something cost and what something is worth really are two different concepts.
So what can we do with all these Tribbles? First thing is to really find out what your Tribble is worth in today’s market. Homes just like anything dealing with real estate have both booms and bust times. Real estate is considered a stable stock because over the course of time if maintained that "stock" goes up based upon the alternative of new home cost, material cost and labor cost. So what should a home owner do to insulate themselves from Tribbles?
First, find a home, commercial, vacant land or other real estate equity production stock. Next find out how much it is worth. How do you do that? Find an appraiser who has the experience and training that will be able to provide you with the best opinion of value within the market. Find a local appraiser who knows the market, find an educated appraiser who has been in business longer than a day, week or year. This market is complex and lower licensed appraisers may not have the training to understand the dynamics of the current tribble over population. Finally know that all appraisers are not created equal and that you need a per-buy appraisal done by someone not selected by a mortgage broker, a bank or third party to ensure your value is real and supportable.
A real estate agent may be working for the seller, the mortgage broker is working for himself and all of them are working on a commission. The higher the sale the larger their commission the deeper the loss of your equity in the transaction leaving you holding a tribble. The real property Certified appraiser is paid a fee. This fee can vary due to complexity of the subject property but that is all the appraiser gets. Their fee is not based upon a higher value or a lower value it is based upon the job. Once you step out of the system that $300 or more dollars you spend can save you thousands in upfront cost and more than that in down the road equity eaters. Many people find that after buying their home they are upside down in value. One might think that is insane with banks requiring equities of 5% to 20% for loans. You best protection is a Certified appraiser outside the process who knows the market, can ensure you do not pay thousands of dollars over the real market price to pad someone commission and allows you to make a purchase that will ensure your equity is not eaten by Tribbles.
Certified General Real Property Appraiser.
Taken from georgiaappraiser.com:
"Treasury Secretary Henry Paulson said Thursday that stronger regulatory oversight of mortgage lenders is needed to avert the kind of credit crisis now dragging down the economy.
Treasury Secretary, Henry Paulson
In a new Bush administration initiative that Paulson said is not about "finding excuses and scapegoats," a presidential working group set up in the wake of the 1987 stock market crash is calling for a series of actions designed to avert the kind of chilling housing and credit crunches that are threatening to throw the nation into recession--if it isn't there already.
"The objective here is to get the balance right--regulation needs to catch up with innovation and help restore investors confidence but not go so far as to create new problems, make our markets less efficient or cut off credit to those who need it," said Paulson, who heads the working group.
One recommendation calls for federal and state regulators to strengthen oversight of mortgage lenders and another urges state financial regulators to implement strong nationwide licensing standards for mortgage brokers, Paulson said.
He also said there is a call for improvements by credit rating agencies that have been criticized for not accurately assessing risk on complex mortgage investments. These kinds of business transactions eventually soured, driving markets into chaos. Paulson also said that the working group is calling for better disclosures and assessments of risks.
The recommendations come as the meltdown in the housing and credit markets has unhinged Wall Street, catapulted home foreclosures to record highs and forced financial companies to rack up multibillion losses on bad investments in mortgage backed securities.
The mess threatens to plunge the country into its first recession since 2001.
The president's working group on financial markets was formed after the 1987 stock market crash to monitor markets. It includes Federal Reserve Chairman Ben Bernanke and the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission.
More recently, the group has been looking into the causes of the current credit crisis and searching for ways to prevent a recurrence.
In a speech to the National Press Club, Paulson said: "This effort is not about finding excuses and scapegoats. Those who committed fraud or wrongdoing have contributed to the current problems; authorities need to, and are prosecuting them. But poor judgment and poor market practices led to mistakes by all participants," he added.
The next step, Paulson said, is to push for implementation of the recommendations. He said the working group will continue to assess the situation and consider whether further steps are needed. "
My take, this would be a great first step and would have far reaching results. It would allow complaints to be filed within a state or even at federal levels for brokers who do not follow the regulations. It would make appraisal pressure less the normal course of business and such tactics as withholding work or payments would stop. Banks would have to regulate their staff with additional levels of education and experience qualifications. Consumers would have options when dealing with people who are not qualified and or ethical. With this in place brokers would not act on inpulse and pick more qualified appraisers who give realistic reports. The act of trolling for values with multi-faxes to see who is the first one to meet your number would become reportable to and at the federal level.
My take, appraisers, real estate agents, plumbers and electrictions are required to have a license. Home Inspectors are looking at licenses. Closing Attorneys are required to have a license why not mortgage brokers?
This would be a good move.