I was having dinner with a young married couple, friends of my daughter, who are expecting their first baby in a few months. They were at a shopping center with a pet supplies store and knowing they would not be drawn in by emotions, decided to check out the puppies for sale, just for fun.
They both described a litter of adorable Husky puppies. They were being attended to by a young teenage boy who when asked how much the puppies cost, stumbled a bit and consulted his sales binder. He engaged them in a conversation explaining how he had just returned from the puppy farm in North Carolina where he learned all about this puppy oasis. “It’s no puppy mill”.
Before getting to a price, he explained they had a financing program and pulled out amortization schedules. After great effort to avoid the price it was ultimately revealed that the price for the puppy was $6,000. However, it was available for affordable monthly payments and no money down. No doubt in the fine print would have been an obligation to make these payments long after the “economic life” of the puppy.
Predatory puppy lending!
But that doesn’t happen anymore in housing finance, right?
It feels so 2005, doesn’t it? We are relaxing appraisal requirements just as the market seems to be reaching its zenith. The credit box is being expanded. As business tapers off consumers will be overleveraged which we all know will not end well. So why do we continue to repeat the sins of the past? Simply because we can.
Regulators are allowing, and in fact enabling, the bad behavior. These pro-cyclical policies are all sanctioned under the guise of “safety and soundness” and “regulatory relief”. According to a retired FDIC regulator, several decades ago bank regulators were instructed to treat the banks as customers. There is a concerted effort to eliminate the engagement of a licensed or certified independent real estate appraiser. At first there was an alleged shortage. Now they are too slow or too expensive. All of these issues are red herrings.
A decision to remove the independent checks and balances that an appraisal affords would be reckless and irresponsible. Diminishing the role of the appraiser promotes exploitive, deceptive practices at the expense of the American taxpayer.
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