Mortgage Modification is Really Job Stimulus:

There is much serious commentary about my column in the WSJ yesterday, but this is an amusing one I received:

Thank you for your excellent & long overdue editorial in today's WSJ. However, as a real estate appraiser who specializes exclusively in litigation, Conyer's bill would enable me to equate the bankruptcy court with an annuity.

So as I replied to him--the way to think about bankruptcy mortgage modification is really as part of the job stimulus plan by creating jobs for appraisers!

Having worked as an appraiser (business, not RE, but the principle holds), that's a bad thing. Valuation ethics, IMO, put the cliche view of lawyers to shame. The answer to the question "what is it worth?" is generally "what would you like it to be worth?"

That being said, FASB has already passed several full employment acts for appraisers, without even the need for congressional approval. See FAS 141, FAS 142, and apparently FAS 157.
2.14.2009 11:18am
Appraisers are perhaps more responsible for the crisis in the housing market than anyone else. If there's anyone who deserves to lose it all, it's appraisers.
2.14.2009 12:06pm
Josh644 (mail):
What good is Randy Barnett if he's just going to troll the blog with libertarian strawmen all the time?
2.14.2009 12:18pm
DiverDan (mail):
By the same token, then, the Lilly Ledbetter Fair Pay Act is job stimulus in that it will lead to higher employment for labor lawyers.
2.14.2009 1:58pm
I don't think the appraisers really did anything wrong. For a period of time there were a lot of people willing to invite a bank to speculate in housing with a high valuation, and the appraisers represented that fact accuratley. When that changed, appraisers were there to drop that valuation in half.

If the goal of modification is to make it worthwhile for occupants not to move then they'll be busy until the government buys the effectivley foreclosed properties &other mortages, or the total cost of ownership in effected areas becomes comprable to the rest of the nation. However, this may not be too far off.
2.14.2009 3:00pm
Math_Mage (mail) (www):
To me, the real estate market is a confusing beast. If one person defaults on a mortgage, and the bank sells it off cheaply in the interest of not having assets on their books, the valuation of all the other houses in the area drops even though nothing's changed about any of the houses except the ownership. It's set up to be a domino game--why?

Note: this is my understanding of what happens, as explained by another with some experience in the market, so I could be very wrong.
2.15.2009 1:19am
John Ballard (mail) (www):
Kidding aside there is one group that stands to benefit: loan servicers. They are the ones who do the tedious job of threading thousands of needles necessary for any "workout" (as opposed to foreclosure or selling a mortgage to another party).

Loan defaults are the toxins in "securitized assets." Like heavy metals or hormones in the food chain, they will not evaporate. Sooner or later they must be removed. Sooner is better than later.

Seems like I heard Obama mention loan servicers once but I can't recall when. Normally they run relatively small operations for whom foreclosures and transfers are little more than an administrative task. But workouts will require more man-hours than they have, which means new jobs.
2.15.2009 10:31am
John Ballard (mail) (www):
If one person defaults on a mortgage, and the bank sells it off cheaply in the interest of not having assets on their books...

Perfect illustration. A loan in default is not the same as a loan in foreclosure. Between those two options lies a "workout" which avoids a liability (write-off/foreclosure) by protecting an asset (expected future return).

The current rash of foreclosures is creating a whiplash in the real estate market allowing those with resources to snap up real estate at prices way below what should be a fair market value.

If one of my neighbors can work out a deal to avoid foreclosure on a house nearby, my property value benefits indirectly. However if he is forced into foreclosure his house will likely go vacant or be converted to rental property.

Real estate foreclosures are becoming an economic death spiral. We can blame buyers, lenders, brokers or womever til the cows come home, but now that it has started something has to apply the brakes.
2.15.2009 10:53am

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