Realism might be thought to be an essential property of the Real Estate market, given the similarity in the word roots. However Marketing people often believe their own hype so starry-eyed optimism is often more prevalent than hard-nosed realism. .. except in an economy like that we are seeing now. Hopefully we all learn lessons that stick from the current tragedies all around us.
That certainly is why Washington policy makers are now Taming inflated home appraisals.
When home prices are soaring, appraisers, often pressured by loan officers and mortgage brokers, keep hyping home values. Homebuyers wind up paying more, and the exotic mortgage products needed to finance their purchases subsequently implode setting off the kind of financial and economic turmoil the nation is facing today.
Now, the Federal Housing Finance Agency (FHFA), the government agency created to oversee Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), has announced a plan to curb the influence that loan originators exert on appraisers to overvalue homes. A new Home Valuation Code of Conduct, which will take effect this May, is an attempt to improve the reliability of appraisals for mortgages sold to the two companies. The guidelines prohibit lenders from coercing, extorting, colluding with, intimidating or bribing appraisers into making inaccurate appraisals.
Bringing back realism is long over-due. It applies not only in the real estate market but in every other aspect of budgeting and financial planning. Out with the starry eyes, in with the hard noses. It couldn’t be a better time.
Footnote: If you are interested in books on Real Estate, then why not visit the Real Estate section of the Money Bookstore.
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