Here’s a re-post from last June… but it’s going to be the same,

only that much worse… this June.  I’m just sayin…

A friend of mine called me this evening.  He’s a lawyer, but he used to be a real estate and mortgage broker.  He likes real estate and is living in a home with a million dollar mortgage that might appraise for a half a million.  He really wants to believe that real estate is “coming back”.  No, check that… he needs to believe that real estate is coming back.

I’ve tried to tell him that it’s not on several occasions, but it starts to feel like telling a kid Santa isn’t real, so I let it go.  What are the five stages of death again… Denial, Anger, Acceptance… I can never remember those stages for sure.  Anyway, he’ll get there in his own time, we all will.

The thing about his call this evening is that he was all excited to tell him how June housing sales data came in higher than expected.  He had been saving it for me all day, no doubt.  And he said it as if it was proof positive that I… the doom and gloomer… was wrong about real estate remaining in a free fall for the foreseeable future.

For the last year, at least, I’ve been telling him that there was no real estate market… that tax incentives and the Fed’s buying of mortgage backed securities, along with FHA, Fannie and Freddie were all propping things up artificially and that when that stimulus ended, housing prices would commence falling through the floor.  He didn’t believe me, I could tell.

Just as I said they would, housing sales fell off a cliff in May, which was the second easiest prediction in history, the first being my forecast that auto sales would fall of a cliff when the Cash-for-Clunkers silliness came to an end.  But then towards the end of the month the government announced that they would extend the tax incentive program for those that signed contracts by April 30th, but were still in the middle of a sale, until September 30th, so that there’d be time for these folks to close.

Okay, so what would you expect to happen in June?  Wow, that’s a tough one.  How about this: housing prices won’t fall through the floor yet because of the last minute tax buyers.  They’ll fall off the proverbial cliff a little more in July, and a little more in August and then a little more in September, when the tax incentive effect will be all gone.  Genius, huh?

So, he called me today because he had read the headlines and the media was saying that June housing data had come in much “better than expected”.  He drew today’s headlines like a gun.  Ha, ha… he was saying inside.  See, you were wrong… there is a housing market… recovery… whatever.

Unfortunately, my friend is often an idiot.  It’s not that he’s not smart, it’s just that he’s often an idiot too, and this was one of those times.  Let’s take a look at the headlines of today together, shall we?

Here’s how Reuters reported the latest data on housing sales:

Stocks Gain on New Home Sales Data

(Reuters) – An upbeat outlook from FedEx, coupled with encouraging home sales, lifted U.S. stocks on Monday, keeping the S&P 500 above 1,100 for a second day and suggesting the rally could last.

A surprising 23.6 percent jump in new home sales in June from May countered some disappointing data in recent weeks that had increased concerns the economy may slip back into recession.

The Dow Jones U.S. Home Construction Index gained 2.9 percent. PulteGroup Inc., up 4.7 percent at $9.07, led the home builders’ index higher.

And here’s how the Wall Street Journal reported the news about home sales:

NEW YORK (Dow Jones)–U.S. stocks got off to positive start for the week, advancing Monday on light trading after a jump in new-home sales and continued enthusiasm over second-quarter earnings.

Providing some relief from the recent stream of weak economic data, new-home sales jumped 23.6% in June from the previous month, much better than the 3.7% gain expected by forecasters.

Housing data provided a bright spot early to kick off the week, with Hugh Johnson, chief investment officer at Hugh Johnson Advisors, focusing on the 1.4% drop in inventories.

“The inventory number was very good, suggesting there is not a big overhang–and that’s good news,” he said.

And again, by the Wall Street Journal… this time contrasting housing data against sales of U.S. Treasuries:

NEW YORK (Dow Jones)–Treasury prices slipped Monday after a better-than-expected report on U.S. new home sales and as market participants began to push prices down ahead of this week’s sale of $104 billion in Treasury notes.

Prices were lower after a report that showed home buying in the U.S. surged in June after a May plunge caused by the end of a government tax credit. Sales rose 23.6% from the prior month after tumbling 36.7%. The strong increase offered investors some hope about the downtrodden U.S. housing sector, prompting them to part with some of their low-risk Treasury securities.

And here’s MarketWatch, which is also owned by the WSJ:

WASHINGTON (MarketWatch) — U.S. sales of new homes scored a better-than-expected rebound in June after having plumbed record lows a month earlier, government data showed Monday.

Sales rose 23.6% in June to a seasonally adjusted annual rate of 330,000, the Commerce Department reported.  Economists said the gain wasn’t a sign of strength but was welcome nonetheless, coming after a reading for May that turned out more dismal than first projected.

New-home sales for May plummeted a revised 36.7% to a record low 267,000 level after a federal subsidy for home buyers expired. This is a steeper drop than the 32.7% fall and 300,000 in annualized sales that the government initially estimated.

Wait just a minute here… what was that?  May sales plummeted EVEN MORE than the government first said they did?  So, the government had said they fell by 32.7%, with sales of 300,000… but now they’re saying Ooops, and it’s really 36.7% and 267,000 sales?  That’s a pretty good Oppps, don’t you think?

I kept on reading until I found this little gem buried towards the bottom of the MarketWatch article:

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common.

The standard error this month was 15.3%.

Okay, hold on… what in the Sam Hill is a “standard error?”  It’s a statistics term, used by market research geeks, mostly. First of all, it’s an estimate of the standard deviation of the sampling distribution of means, and by “means” I mean, as opposed to medians.

You can think of the mean as the average, and the median as the number in the middle of a set of numbers.  For example, there are 1o people on a bus, and each makes $50,000 a year. So the median and the mean are both $50,000.  Then the bus stops, one person gets off and Bill Gates gets on.  Now the median income on that bus is still $50,000, because that’s still the number in the middle, but the mean (think: average) goes up to… I don’t know… a zillion dollars a year, because Bill Gates makes many zillions of dollars a year.  Get it?

Oh, who cares… this is boring me to tears, I can only imagine how you’re feeling about now.  I even tried looking it up to see if I could find an easier way to explain it, but this is what I got:

“Numerically, it is equal to the square root of the quantity obtained when s squared is divided by the size of the sample.”

Oh great, now I’m getting confused.  Look, here’s all you have to know… the “standard error” is an estimate of how accurately a slice of pie represents the whole pie, how’s that?  When the slice is representative of the whole pie, the “standard error” will be a low number.

And the point is… 15.3% does not strike me as a low number in this instance, which is to say that the government statistics are just SWAGs (Scientific Wild Ass Guesses) and nothing more.  Don’t you wish they’d just say they’re guessing in the first place?  I’d be okay with them guessing, that’s what they’re doing anyway.

Okay, so you now know the difference between median and mean, and May sales were adjusted down from their original “fell-off-a-cliff” type number.  Got it.

Here’s some of what the National Association of Realtors (“NAR”) added to the picture:

Inventories of unsold homes increased 2.5% to 3.99 million in June, representing an 8.9-month supply, the highest since August 2009. In coming months, the supply is expected to rise above 10 months, putting downward pressure on prices, said Lawrence Yun, chief economist for the real estate agents’ lobbying and advocacy organization.

If inventories remain “very high” over many months, prices could fall further, Yun said. Prices have already overcorrected, so further declines should be modest, he said.

The median sales price rose 1% in the past year to $183,700 in June, the NAR said. Prices through the first six months of the year are essentially unchanged from the first six months of 2009.

Sales are expected to pause for three to four months following the tax credit, the NAR economist said. “Only when jobs are created at a sufficient pace will home sales return to sustainable healthy levels,” Yun said.

Now you see, here’s a guy who needs to be taken out back and beaten with the Yellow Pages for Brooklyn, New York.  First of all, he makes absolutely no sense whatsoever.  I read what he had to say three times and I have no idea what he’s trying to say.  I would have read it a fourth time, but during the third time through, I got dizzy, hit my head on the lamp next to my chair, fell backwards and knocked myself out.

I’m going to assume that because his name is Yun, English is his second language, and leave it at that.  I’m not saying that in a pejorative way, I just prefer that explanation to the other possibilities, which are that he’s either trying to confuse people, lying through his teeth, or a functioning moron.

Now, here are some sales numbers from the NAR, and check out how they add up:

First-time buyers bought 43% of the homes in June, down from 46% in May. All-cash buyers accounted for 24% of sales, compared with 25% in May. Investors bought 13% of homes.

Wow, so 43% + 24% + 13% = 80%!  So, 80% of all the houses sold in this country in June were either first timers, cash buyers, or investors (think: flippers)?  And that’s based on data with a “standard error” of 15.3%?

Yep, that’s some real estate market, I’ll tell you what.  Right after I’m done with this article, I’m going to go list my house, because I’m sure the cash buyers and investors are looking to pay the asking price, aren’t you?

And then this from the Federal Housing Finance Administration (“FHFA”):

National home prices were down 1.2% compared with a year earlier, FHFA said.

The expiration of the tax credit has devastated the housing market. Housing starts fell 19% combined in May and June. New-home sales plunged 33% in May.

Didn’t the NAR just say that home prices rose by 1% during the past year?  Well, no actually… they said the “median” price rose by one percent.  Perhaps the FHFA means the “mean” or average.  Or perhaps they mean something else.  Or perhaps, because the whole thing is based on government data that has a “standard error” of 15.3%, the FHFA and the NAR are both pulling their numbers out of their respective tushies.

The NAR then poses the following as their closing question:

“The big question is whether the housing sector can strengthen from here.”

Is that their “BIG” question?  I wish my life were that simple.  If that were my “BIG” question I’d be sitting pretty, don’t you think?  Unfortunately, my “BIG” questions are things like, how in the world am I going to make my mortgage payment, support my family, buy my wife a new car, send a daughter to college… stuff like that.

However, I do like to be helpful, so I’d like to volunteer to provide the NAR with an answer to their “BIG” question: No, dummy… don’t be ridiculous.  There’s no secondary mortgage market, and the banks are in worse shape than they were a year ago when they were insolvent.  Aren’t you paying attention to what’s going on in this country and around the world.  Don’t listen to Geithner, he hasn’t uttered a word of unadulterated truth since 2009 when he was forced to admit that he had lied on his tax returns… no wait… it was a mistake, that’s right.  Sorry about that… a mistake… an oversight… by the guy who runs the New York Federal Reserve Bank… I remember now… I apologize.

The FHFA ended their article with this piece of foreboding prose:

“Most economists believe the tax credit pulled forward sales that would have taken place later.”

Uh oh… that can’t be good for the “will-the-housing-market-strengthen-from-here crowd, can it?  I don’t know, I’m no Realtor, so I’ll have to ask my friend.

Fabulous economics and finance blog, Calculated Risk shows the numbers in detail.

Adjusted down to a rate of 267,000 annual sales was the worst month on record.  That “rate,” and I do love the way they report monthly numbers as an “annual sales RATE,”  means that 22,250 new homes were sold in May… assuming the number doesn’t get revised lower next month or at year end, and I’m betting they will, by the way.

And the annual sales rate for June of 330,000 is just 30,000 a month, again according to Calculated Risk.  If you’re a numbers person, CR is the best a presenting them, so do check it out.

And Seeking Alpha has a slightly different take on June housing sales data being horrible… or rather, same take some different sources.

My point (or my question) is a little different… I understand how my friend could jump on the positive headlines about housing sales in June… he wants to believe it… needs to believe it.

But how and why does the Wall Street Journal participate in such obvious nonsense?  And how does such news end up causing the stock market to go up, even for an hour.  What’s the deal?  Don’t these people read… or think for that matter?

I don’t know the answer to these questions, but I do know this… I’m glad I stopped getting my news from the “news” years ago.  I don’t know how people do it.

We’re going down for a good long time… and everyone should have known that last year at the latest.  We had maybe a year to positively affect our path, but that time is long over.  Now, all we can HOPE for is to hear a yes to the question: “Mr. can you spare some change?”

Oh, and one more thing… until we stop the foreclosure crisis, there is no recovery coming and none possible.  I know, Geithner doesn’t seem to get that, but he’s not in touch with anything in this country at the street level.

It’s time to move to Acceptance… time to save ourselves… this hope stuff is not a strategy.

Mandelman out.

“What’s HVCC?”  I believe those were the exact words I used in response to being asked by the editor of The Niche Report to write a July cover story on the Home Valuation Code of Conduct.

“But I don’t know anything about appraisals, much less the appraisal industry.”  Those were my next words.  “All I know about appraisals is that my mortgage broker orders them, and then someone has to wait at home for the appraiser to arrive, a job that has historically fallen to my wife.”  We’ve purchased three homes and the truth is that I’m not even sure I’ve ever actually met an appraiser.

“Perfect!”  That was my editor’s response.  He confuses me at times.  “That’s exactly why we want you to write it.  You’re going to be outraged, and readers love it when you’re outraged.”

“What if I’m not outraged?” I thought to myself.  I wasn’t at all sure that I cared enough about appraisals to be outraged by a new rule affecting them.  I do, however, care about writing cover stories, so I said yes and within days went to work reading about appraisers and the appraisal industry… which was all kinds of boring at first, to be entirely candid.

“Uh oh,” I thought.  “Where’s the outrage in this new rule, assuming you’re not an appraiser, of course?”  HVCC does put a real crimp in an appraiser’s future by reducing his or her compensation as a result of being forced to join an Appraisal Management Company, that much was immediately apparent.  But that alone seemed like something less than what would naturally inspire me to become outraged.  Maybe I could get by just being miffed, or possibly peeved.

Then I saw who was behind the new HVCC ruling, and I started to feel apprehensive.  To begin with, New York’s Attorney General Andrew Cuomo, who has said some of the most uninformed things I’ve ever tried to ignore in my entire adult life, is no stranger to the banking industry, or its exceedingly powerful lobbyists at the Mortgage Bankers Association, or MBA for short, who are known as the most influential real estate finance lobby in Washington.  I may not know much about appraisals, but I’m no dummy and these days, if it lies like a bank, and it steals like a bank, and it lobbies like a bank… then it’s a bank.

In fact, Countrywide’s now infamous CEO, Angelo Mozilo, who was once the MBA’s president, was on the MBA’s executive board from 1997 to 2001, the whole time Mr. Cuomo was busy bungling things at HUD.  And Mozillo, along with many of his questionable colleagues later became contributors to Cuomo’s campaigns.

Okay, I was becoming irritated.

The fact is, Andrew Cuomo had essentially no experience in finance or real estate when he assumed regulatory control over Fannie Mae and Freddie Mac, the titans of home finance that many would say are at the center of today’s foreclosure crisis, when he became the youngest HUD Secretary in history back in 1997.  And here, I had always thought those jobs were traditionally reserved for people who knew something about… oh, I don’t know… mortgages perhaps.  Had I known, I might have considered applying for the job.  Live and learn, I suppose.

It might therefore come as little surprise that it was Cuomo’s decisions as HUD Secretary that drove Fannie and Freddie into the world of sub-prime lending.  He also decided that Fannie and Freddie didn’t need any reporting systems that would allow them to monitor the increased risk associated with sub-prime lending.  We all know how well that worked out, so bang up job so far Andrew.

Also during Cuomo’s tenure at HUD, FHA kicked off its no money down programs, so it seems that Cuomo thought that it only made sense to simultaneously increase the amounts the agency was willing to loan with no money down.  I mean, why bother doing zero down loans, if you’re not going to blow through the limits and loan out as much as possible, right?  It’s scary, but I’m starting to understand how these people think.

Cuomo also made possible what a federal judge would later describe as being “kickbacks” to mortgage brokers that some say were a big motivator related to the proliferation of loans that were destined to default.  Some, apparently, aren’t sure whether providing kickbacks for selling expensive and unsustainable loans tends to drive brokers to sell more of them, so perhaps the government should commission a study.  I know a 6^th grade class that would be happy to take the project on, and I’m confident that they’d reach a solid conclusion quickly, like before recess.

According to The Center for Responsible Lending, 2.4 million Americans may face foreclosure in 2009, and 8.1 million may fall into this tragic group over the next four years.  To be diplomatic, there’s little doubt that New York’s Attorney General Andrew Cuomo is at least partially responsible for their plight.  In somewhat less diplomatic terms, he’s the boob that left the door to the vault open at Fannie and Freddie.

I was fast becoming incensed.

Of course, today Attorney General Cuomo has crossed over to the other side and is looking to play a very different role in the foreclosure crisis.  Today, he’s going after mortgage brokers, rating agencies, loan modification firms, Fannie, Freddie… and… drum roll please… Appraisers, with his Home Valuation Code of Conduct (“HVCC”), which went live on May 1, 2009 over a cacophony of objections from the National Association of Mortgage Brokers (“NAMB”) among others.

If you read Andy’s press releases, he says he’s also going after banks, but what he means by “going after banks,” isn’t what I mean when I say someone’s going after something, so I left banks out of the sentence above.  When Mr. Cuomo says he’s going after banks, he mostly means he’s coddling them and giving them whatever they want.

The latest egregious example of Cuomo’s Crossing is HVCC, a new rule governing how appraisals are to be handled in these United States, which was passed into law by the United States Congress and signed by the president on… no, no, no… now wait a minute… that’s not at all what happened here, now is it?

If you remember your eighth grade civics class… the one about how our government works and how bills become laws, you won’t remember anything like this:

The new HVCC rule, which will affect millions of Americans, began with an investigation by Attorney General Cuomo into the GOEs, or Government Owned Enterprises.  In case you’re not familiar with the acronym, a GOE is called a GSE, or Government Sponsored Enterprise, before Andrew Cuomo runs it.

With me so far?  Good.

Okay, so then Attorney General Cuomo threatens to subpoena the personal records of the CEOs of the two GOEs, which causes the investigation to stop, at which point the GOEs agree to write a $24 million check to fund an Independent Valuation Protection Institute, a new organization to help implement and monitor the new rule.  Of course, it’s all completely transparent, in a totally opaque sort of way.

I’m not going too fast for anyone I hope.

Then the Attorney General drafts the new rule with an undisclosed group of industry participants, which is another way of saying “the banks,” who get to influence the new rule’s language so that it favors banks at everyone else’s expense.  Following in the rich tradition established by Cuomo while he was still at HUD, whatever leads to the agreement is not made public, and the Attorney General is never required to provide any details of what occurred.  I can’t seem to remember that Right in the Bill of Rights, but fair enough.

And that, boys and girls, is how our country makes important and costly rules these days.  It’s so much more efficient than that whole checks-and-balances nonsense that held us back for so many years.  Plus, the new way completely circumvents the public having any say in the new rule whatsoever, so that saves time right there.

You see, when I started to do the research for this article, I had no idea I’d also get a lesson in how new rules that affect enormous segments of our population can come to pass in this country.  It was quite the shocker because I had thought previously that I had that process down pat.   deleted

Alright, that’s enough of that… I’m plenty outraged.

What the heck is going on around here?  Since when do we have a process like the one that gave us HVCC?  Are there any other rules that were developed in such a way?  Why don’t we just cut the fat out of this process and just let the banks draw up whatever they’d like in the way of rules and we’ll just go with whatever they come up with?  We don’t need all the investigative foreplay, do we?

HVCC is one of those codes that starts out talking about its purpose being to right wrongs and protect the people, before it proceeds to favor the financial institutions and cost everyone else an arm and a leg.  Think: bankruptcy or credit card reform without all the riveting media attention.

In February 2009, Marc Savitt, President of the National Association of Mortgage Brokers (NAMB) filed a lawsuit against the Federal Housing Finance Administration (FHFA) to block implementation of HVCC on the grounds that it would “inhibit competition among mortgage originators and increase the cost of mortgages to consumers”.

According to NAMB, “the HVCC constituted a “de facto” rulemaking that did not comply with the requirements of the Administrative Procedures Act (APA), which sets out the procedures a federal agency must follow when issuing a regulation.”  NAMB’s press release said: “NAMB strongly opposes FHFA’s position that it does not need to comply with the APA and other laws.”

And isn’t that a relief?  At least that says that the procedures used in formulating the new HVCC rules were not the norm.  So, NAMB wins this one for sure, right?  This one’s a lock.  Article over.  The end.

Well, no.  Not exactly.  Actually, not at all.  NAMB had to drop its lawsuit, strategically, according to NAMB’s press release in order to assess how to respond to FHFA’s claim, which was clearly pulled out of someone’s hindquarters, that “no court may review their decisions while the GSE’s are in conservatorship”.  See… and that’s why regular people don’t like lawyers, right there.  NAMB withdrew the suit without prejudice, however, so you never know… they may be back.

Mr. Savitt explained that he’s had several meetings with Cuomo’s office where he’s pointed out that HVCC is costing American consumers $2.8 billion.  “We’ve met with his staff, but Mr. Cuomo has never had the time to meet with us personally,” Savitt told me.  “And his people say the $2.8 billion cost is acceptable.”

Oh, do they now?   Well, that’s something.  I happen to know quite a few American consumers.  I’ll have to remember to ask them whether they find that $2.8 billion cost “acceptable,” because I had an entirely different word in mind.

NAMB’s president, Marc Savitt, didn’t say this specifically, but you know he’s got to be more than irked that NY’s AG never seems to have time to meet with him.  I mean, we’re talking the President of NAMB here… he represents hundreds of thousands of mortgage brokers in all 50 states, and while NAMB may not have the clout on Capitol Hill that the bankers do, they’re far from being without influence.   Marc is a smart and classy guy, and I liked talking with him a lot.  He did imply that he doesn’t exactly have a great deal of respect for the HVCC, or the process from whence it came.  And it’s obvious that there’s no love lost between himself and Mr. Cuomo.

“HVCC doesn’t do anything to prevent fraud,” Savitt told me.  “It’s a bit like catching someone robbing the bank and then making them a bank guard.  Many of the same people who defrauded the system are now running the show.”  He didn’t say who “defrauded the system,” or who has been made into a “bank guard,” so the reader shouldn’t read anything specific into that statement, but I think I have a rough idea who he was talking about.

Why do our government officials keep doing things like this?  I’m convinced that had Enron’s Ken Lay not kicked the proverbial bucket, the government would have made him Energy Secretary.

My appraisal of Andrew Cuomo is that he’s had quite a few difficulties with appraisals over the years.  According to the U.S. House of Representatives, Subcommittee on Oversight and Investigations, Committee on Financial Services, from September 10, 2001:

“Then-Secretary Cuomo knew this problem existed, yet allowed it to balloon into a $130 million defrauding of the American taxpayer. Because of this scam, dozens of coconspirators, crooked investors, phony non-profits, willing appraisers and greedy attorneys have already been arrested and there is more to come.”

And after a paragraph like that one, it makes complete sense that there was only one job the State of New York wanted him for: Attorney General, which turned my Ken Lay joke above into a straight line.

So, Cuomo as New York’s Attorney General, presumably as a result of having learned from past mistakes, starts investigating Fannie and Freddie, where he knows from personal experience that a problem exists, and when he threatens to subpoena the CEO’s records, the two giants of home finance give in and decide to settle.  In the settlement agreement, the parties agree to address the issues of appraisal coercion and appraisal independence by adopting the HVCC as the standard of conduct in exchange for the Attorney General terminating his investigation.  And that’s funny all by itself, but I’m not going to make another joke about it here.

The agreement also states that a newly formed Independent Valuation Protection Institute (“IVPI”) would oversee the HVCC and that Fannie and Freddie would fund the institute for a period of 28 months to the tune of $24 mil.  All that, just because come AG threatened to subpoena their records?

Now, at this point I had to take a moment to ask the question: Who was attempting to improperly influence appraisals, and I asked both Marc Savitt and Steve Gillan, who has been a New York State Certified Appraiser for 27 years and has personally completed 17,000 appraisals.

Savitt told me of a study that was conducted a few years back that asked appraisers the question and the results were that everybody in the process had done so to one degree or another, so when Gillan confirmed this, it came as no surprise.

As a homeowner, that made me feel all warm and fuzzy inside, but it did explain why I hadn’t seen the problems with the HVCC right out of the box.  The HVCC opens by talking about the need for accurate appraisals that are free from undue influence or coercion on the part of the lender or anyone else for that matter, and that sounds like solid thinking to me.  But, as is so often the case with government documents, it’s the large print that giveth and the small print that taketh away.

In the case of HVCC, it seems that the small print has not only taken away roughly half of the income of essentially every appraiser in the country, but it has created a misleading, costly, and even hazardous situation for borrowers… or me, in other words.

Here’s how I see the HVCC:

1. To begin with, the HVCC essentially mandates that all appraisals must be done by an Appraisal Management Company, or AMC, which cuts the appraiser’s pay in half, while it increases my cost as the borrower by twofold.  That means going forward there will only be a handful of AMCs, which explains the efficiencies that cut pay in half while doubling cost.  Fabulous so far, right?

The even bigger problem that I see here, however, is that this won’t do anything to curtail coercion; it will just change somewhat who will be allowed to coerce.  Cuomo should know this too.  His original suit was filed against an AMC by the name of eAppriasalIT, and in that suit he accused the company of inflating appraisals to satisfy demands made by Washington Mutual.

If you’d like to take a moment to stretch… breathe… or put your head through a plate glass window, I’d understand.

2. I readily admit that some of the HVCC provisions were hard for me to understand, but this one wasn’t. Appraisals under HVCC aren’t portable… they’re tied to the lender.  This protects borrowers like me from shopping my loan at different banks where I might get a better deal, so thank you Mr. Attorney General… and please don’t protect me anymore.  I’ve decided that I’d like a little more danger in my life.

3. HVCC says that banks can’t own more than 20% of an AMC, and what a surprise… many of the “big banks” (and when I use the term “big” I mean “insolvent-but-propped-up-by-Treasury”), have already bought up the maximum allowable interest in most, if not all AMCs.  I’m sure that’s just a coincidence.

But it also says that lenders can own 100% of an AVM, BPO, or other TLA (“three-letter acronym”) for an alternative valuation provider.  The language says that lenders are expressly allowed to “develop, deploy, and use internal automated valuation models,” and there are no restrictions on who controls the ordering or modeling of an AVM, and no requirements for disclosure to borrowers that an AVM report is solely controlled by the lender.

Transparency like that brings a tear to my eye?  God bless this country.  And that’s all I have to say about that.

4. The HVCC has a “don’t ask, don’t tell, don’t talk, don’t know, no laughing and no talking” type of provision that I found to read like something a 5^th grade teacher might use to keep his or her class under control.  It bars appraisers from interacting at all with agents, mortgage brokers, loan officers, and others.  So, that means if your brother-in-law is an appraiser, and you’re a real estate agent, you won’t be seeing him at Thanksgiving anymore, and I think that’s sad.  Families don’t get to see enough of each other these days and, well… it chokes me up just to think about it.

Besides that… it’s stupid.  No other party to a real estate transaction has to follow this type of rule under RESPA, and in fact RESPA encourages competition and interaction among the other parties, as long as proper disclosures are made.

RESPA’s anti-coercion measures, assuming they are properly applied to all valuations, already protect homeowners.  If all parties to a real estate transaction are licensed and governed, then the problem of coercion is much more efficiently addressed, and the independent appraiser is still allowed to operate in a competitive free market, while being protected from coercion, collusion, and whatever else we’ve seen on The Sopranos.

5. It seems to me that the HVCC, instead of strengthening appraisals, will have exactly the opposite effect.  Why?  Because experienced appraisers, like Steve Gillan, are already leaving the profession.  Steve told me that he’s already left the business, not only because he can make more money asking people if they’d like to “see that in a pump or a loafer,” but also because HVCC has rendered his business relationships, which took decades to develop, worthless.

According to Gillan: “HVCC knocked experienced guys like me right out of the business, so now you’ve got inexperienced people doing appraisals.  They don’t know the business, they don’t know the neighborhoods, they’re being forced to work twice as hard for half the pay, and why… appraisals weren’t responsible for the increase in home values… that’s ridiculous.  There were many factors, but if you want to point at any one thing, it was the advent of seller’s concessions.”

That caused me to pause.  Mostly because I had no idea what a “seller’s concession” was.  Steve explained:

“First we had 80% financing, then 90%, then 100%, then with seller’s concessions we went to 106% financing.  As an appraiser, you look at recent comparable sales in the area.  So, if a house that was appraised for $100,000 actually got recorded at $106,000, no one can tell that the $6,000 was a seller’s concession.  So, do the math.  The next time it sold, and during the bubble some houses sold three times in one year, and it was sold with the “plus 6%” seller’s concession again, the next appraiser had the same problem.  Over a couple of years the seller’s concession factor could add 50% or more to the home’s appraised price.”

For the record, I love it when 5^th grade math is to blame for a national catastrophe.  Someone should make Andy Cuomo stay after school, because he’s obviously a remedial learner.  I’d be happy to tutor him, but I’m pretty sure there’d be a line from New York City to L.A. were that position to become available.

So, Where Do We Go From Here?

Unquestionably, HVCC has many other problems that have been identified by thousands of professional appraisers across the country, but frankly many of them are over my head.  And Mr. Cuomo, while preaching transparency, has refused to disclose anything about the process through which the agreement between Fannie and Freddie and his office was reached, or even who was involved in drafting the final language of the new rules.  That, of course, stinks to high heaven, but hey… why quit on a winner, I suppose.  It seems to me that Cuomo’s made an entire career out of saying things like “I don’t recall,” and in general, not disclosing much of anything, so who am I to say he should change now?

Actually, I’m a homeowner and a taxpayer and a voter… and an outraged American citizen, that’s who I am.  And I can absolutely promise Mr. Andrew Cuomo that I’m going to be reading up on everything he touches for the remainder of my days.  At 48 years old, let’s hope that’s quite some time.

There are two very positive developments that I learned about as this assignment came to a close.

One was finding the National Valuation Service, a national AMC, of sorts, that’s been formed as a cooperative.  According to Randall Marquis, Senior Editor of ML-Implode, “It’s essentially the only ‘not-for-profit’ Appraisal Management Company out there. It’s governed by its appraiser members, and it’s those members that decide what they get paid.  It may just be the only way to find a happy appraiser these days, and I think it’s safe to assume that a happy appraiser does a better job.”

Already, the National Valuation Service has attracted something like 4,000 appraisers to its membership, so clearly, it’s an idea that’s got merit.  (And by “merit” I mean that it can’t be owned by a bank.)

The other development occurred literally as this story was going to press and thankfully my publisher is beyond understanding.  Apparently, Congress may step in just in the nick of time.  According to NAMB, Representatives Childers (D-MS) and Miller (R-CA) have introduced legislation that calls for an 18-month moratorium on HVCC.  And from the sounds of NAMB’s press release, they think it’s going to pass.  Here’s what NAMB released on June 26^th:

“The National Association of Mortgage Brokers (NAMB) applauds the introduction of H.R. 3044. NAMB would like to thank Representative Childers (D-MS) and Representative Miller (R-CA) for their continued efforts and leadership on this issue.  The introduction of this legislation is a victory for consumers and members of the industry alike,” said NAMB President Marc Savitt, CRMS. “We thank Congress for recognizing the need to address the issue of appraiser coercion without causing undue harm to borrowers or diminishing competition in the marketplace.”

“NAMB has taken an active stance against the HVCC since its introduction in March of 2008. “We urge Congress to pass H.R. 3044 as soon as possible to ensure that more borrowers will not be negatively impacted by this de facto rule,” stated Savitt. “In the period of time since its implementation, the HVCC has increased costs to consumers and decreased the quality of appraisals and has provided a level of uncertainty in an ailing housing market. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo’s rule.”

“NAMB looks forward to working with Members of Congress as this legislation progresses.”

I don’t know about the rest of you, but I’d say Marc Savitt may have been forced to drop NAMB’s lawsuit, but I could tell from talking with him that he was still intent on terminating HVCC… so it looks to me as if… “he’s back”.

Oh, and Mr. Cuomo… next time the president of a national association that represents hundreds of thousands of professionals travels to your office, perhaps you might consider taking a few moments out of your obviously very busy schedule to poke your head in to say hello.

Of course, that’s just my appraisal of the situation.  Just thinking out loud over here.

The July issue of The Niche Report is in mailboxes across the country and the cover story was written by me once again. It’s on HVCC, the Home Valuation Code of Conduct, which is a new set of rules that affect appraisals and appraisers in this country.

Just like when I did the covers story for The Niche Report in May… “Pigs, Puppets & People in Peril,” the July issue has another fabulous cartoon on the cover, created by my partner, Richard Taylor. He’s got more talent in his little finger than I do in my whole body. If you remember the May cover, the pigs were the bankers, so this month there’s a giant banker-pig on the cover, as you can see below.

I realize that many of my readers are busy and may not have time to read the story, so for those too busy to read an article that impacts everything in real estate for the rest of their lives, I thought I’d so a summary here. Ready? Go…

… Andrew Cuomo had a famous father so he got a job running HUD even though he had no experience in anything related to HUD and in fact had trouble spelling it. So after turning the GSEs (Government Service Entities) into GOEs (Government “Owned” entities), and being responsible for one of the biggest appraisal scandals in history, the State of New York decided that it only made sense to make him their Attorney General.

With me so far? Good.

… So, then he decided to investigate the GOEs for fraud and stuff, because he knew there was fraud going on because he’s the one that started the fraud department there. He threatened the new CEOs of Fannie & Freddie and they immediately settled and agreed to whatever he wanted. Since Cuomo’s a lackey for the banking lobby, what he wanted rules that put the bank in charge, while neutering everyone else.

… The new HVCC rules were born and the first thing they did was to cut the pay of the group of professionals that made the least amount of money of anyone during the housing bubble by 40%. Beyond that, HVCC basically puts the banks in charge of everything.

The End.

Okay… well, I hope that helps. But, in the event that you want more than the USA Today version of the story, why not take a few moments to click on the linked words about The Niche Report below and read the story in its entirely. I wrote it, so it’s not boring. I may not be Hemingway, but I don’t do boring, right?

I STILL Haven’t Had The 2 Minutes it Takes to Subscribe for FREE (How Rude, By the Way) So, Cal I Please Read The Niche Report Online?

Sure, why not?

And here’s the cover with the giant pig of a banker… when I see it, I think Kenny Lewis from B of A… the resemblance is uncanny. Don’t you think?