You’d think that by now the media would be done with the National Association of Realtors, a discredited organization that caused the press so much embarrassment during the housing bubble.
But here’s Bloomberg writing a story that could be an NAR press release, warning that “There may be another culprit scuttling a U.S. housing recovery: low home appraisals.”
To which Yves Smith of Naked Capitalism provides a welcome dose of “yeah, right.”
As Smith points out:
The fact that this story appears to have come from industry-cheerleading NAR’s lips to Bloomberg screens is a red flag.
Just because the NAR says something doesn’t mean it’s a story—or such a story at least ought to be accompanied by a heaping helping of skepticism given the source.
The sliver of “to be sure” Bloomberg dutifully slides into the story doesn’t come until too far down, as Smith points out:
When home values come in below the sales price, that’s not the appraiser’s fault, it’s a reflection of the market, the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers, said in a statement yesterday.
“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” the group said. “That mentality helped cause the mortgage meltdown to begin with.”
Smith notes that “the story immediately undercuts that and returns to the “low appraisals” mantra.”
And indeed it does. But I have a more pressing consideration here. Hey, Yves: Leave some media criticism for me! This is too good. But seriously, it’s an excellent piece of media criticism.
The whole Bloomberg story is obviously part of a lobbying pushback by the NAR against new restrictions on appraisals intended to curb the corruption that goosed the housing bubble. Barry Ritholtz points to a passage from his new book Bailout Nation that succinctly describes said corruption:
Historically, there was no incentive to inflate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inflating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed significantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.
Ritholtz adds:
So the very people who were enormous contributors to the credit bubble (mortgage brokers), and their colleagues who helped feed the housing boom and bust via friendly (i.e., corrupt) appraisals (RE Brokers, appraisers), are now mobilizing to make sure that honest appraisal reform is thwarted.
The new restrictions are hardly draconian. They require lenders to get a second appraisal for just one in ten loans they sell to Fannie and Freddie and they have to take the lower of the two numbers.
The problem for the housing market, according to Bloomberg and the NAR, is that the few homebuyers out there are fewer than they would be because some haven’t been able to get loans after their appraisals come in lower than the purchase price.
Now you might say that if somebody agrees to pay a price for a house, that’s the new market price and who’s an appraiser to say it’s not worth what the market says it is? The problem is that some people (seems to me half) are going to overpay, but the appraiser works for the lender to make sure the collateral (the house) is worth more than the loan and that the borrower has some skin (equity) in the game.
Bloomberg certainly doesn’t make the case that this is a real problem—that appraisals are really lower than they should be. Seems to me these folks have to consider the trajectory of prices, which has been down, down, down. Your house may be worth $200,000 today and $190,000 next month in some hard-hit areas.
The Berg needs to be more careful when reporting stories based on lobbyists’ arguments—especially ones as discredited as the NAR.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.