In his letter Jay Delich explains why he supports the National Community Reinvestment Coalition.
Throughout my career as a real estate appraiser I have devoted much of my energy in support of the objective of the American dream of home ownership. It is an act of faith that owning one's home is a worthy goal for everyone. Today, there are disturbing trends that compromise what is a literal foundation of our national prosperity and sense of well-being and compel me to share my thoughts.
Several assumptions supported the lending world of the past. Real estate will increase year by year over a long period of time. The lender held an asset to match a balance sheet liability. A good illustration of this is that lenders used to exact prepayment penalties to those who paid the loan off too soon -- an indirect assertion of confidence in ever-upward trends.
The property was usually local to the lender, and the banker knew the property or neighborhood, the customer and the local economic climate. It was all part of a simple process to help people buy a home that they were eager to pay off as soon as possible. The business model was based on loyalty and demanding an honest opinion of value to protect the consumer and the lender.
Today, of course, there is more mobility, and homes are bought and sold much more often. Rather than pay down a loan, borrowers rush to further encumber the property to extract cash for other purposes. Second mortgages are not new, but they were originally only given to improve the home -- a sort of self-securing increase in asset value.
Today borrowers are using creative lending products that they have no intention of paying off! ARM production accounts for over 50 percent of all the loans funded in the industry in the first quarter of 2005 and there are hundreds of lending options that range from the local mortgage broker to on-line lenders who garner several rate quotes for borrowers all waiting to sign people up for mortgages they might not really be able to afford.
More and more, unlawful pressure to inflate appraisals by lenders, brokers, and real estate firms, has compromised the housing and lending markets. While the impact of low rates, new lending products and demand for homes drove prices up for many years, the impact of this pressure has compromised the integrity of our housing market. The current pressure on appraisers to make value is unprecedented.
While there may be no national bursting of the bubble, local markets surely are already being affected. Where it hits, it will hurt, and the shock will be greatest on those borrowers that can least afford it.
I believe it is time for action by the private sector. We still support the American dream of home ownership, but voluntary action by appraisers, lenders and realtors to take action in serving the housing industry will have the most immediate positive impact.
I have read the report that the National Community Reinvestment Coalition released entitled, “Predatory Appraisals; Stealing the American Dream”, and I have had discussions with members of the NCRC. I applaud their desire to create a solution that is industry inclusive, allowing for all industry participants to adopt a Code of Conduct which, when followed and enforced, will interject a market solution.
Most importantly for appraisers, the NCRC solution provides a means of redress for unlawful retaliation against appraisers who have refused to submit to improper influence. It, as well, gives lenders similar redress against brokers or real estate firms who improperly influence valuations or retaliate against failure to give in to such influence.
Once established, the entire lending community should recognize those appraisers, lenders and management firms who agree to adhere to this code of conduct. We need positive solutions as proposed by NCRC to help prevent the overvaluation of homes that could compromise the American dream. I encourage all appraisers and industry participants to embrace the NCRC initiative and adhere to the NCRC Code of Conduct.
Jay K. Delich, SRA, SCRP, IFA
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