Now before you go off half cocked and scream “BIG BROTHER”, I want to let you know that this is a good thing. You see, everyone is suing everybody else with regard to selling mortgages that were overvalued.
This new policy will help in determining who the ultimate culprit is. You see, the secondary market game is played like this:
- I lend you money on a loan that has a higher risk of default than normal.
- I charge you an extra point to execute the loan mitigating my risk by a small degree.
- I package your loan, along with a few others into a portfolio of standard risk loans.
- I sell the loans to FHA, Fannie, Freddie and private investors.
- I get a premium on the “face” amount of the loan for the right to collect the long-term interest associated with the entire portfolio.
- You then issue securities and other financial instruments and pay interest to bondholders who invest. The interest is backed by the mortgage portfolio.
- The value of the portfolio is tied to the stated value of each property in it which determines the weighted average of the interest available in the portfolio.
- If something goes wrong (like it obviously has) I can now determine who skewed the value of the portfolio.
Before the new standards were created, there was no real way to determine if there was a problem in the portfolio except through spot checking. Spot checking is okay, unless something gets missed. And something always gets missed.
So, with the new data set standards, it will be quite clear who is culpable. Remember the aforementioned law suits?
In the future, nobody can claim ignorance and the jig is essentially up. Now do you understand why those that have played the game in the past are nervous?
Appraisal Source is a New York based residential real estate appraisal firm. Their highly-qualified appraisal staff provides independent residential real estate appraisals throughout Long Island and New York City.
Here’s the original article…New GSE Appraisal Database to Tighten Scrutiny on Mortgage Lenders (Appraisers)