Adding Back Checks & Balances

If you haven’t been paying attention, there seems to be widespread consensus that much of the “recent unpleasantness” (what some people in the South called the Civil War) has to do with too few checks and balances in the financial system.

So, one of the reasons that securitized mortgages became such a mess is that everyone involved had an incentive to simply collect their fee, and keep the “product” moving along the assembly line.

Clearly, that “assembly line” — now very much idle — is going to be overhauled at best, dismantled at worst (or is it the other way around?).

No matter what happens, though, we are still going to have mortgages, banks, appraisers, etc. (and hopefully, Realtors!).

In that vein, one of the ideas I’ve heard lately is to rate — or at least track — appraisers by the default rate associated with homes they evaluate.

Appraiser “Batting Average”

Ultimately, the appraiser’s job is to give the bank that dispatched them a “pass/fail” verdict on the subject home: if the bank proceeds to make a loan (mortgage) on the home in question, will it get paid back? And if not, is the collateral (the home) worth enough that the bank can sell it and recoup its capital?

Obviously, there’s more that goes into that determination than the home’s market value at the time of purchase. For example, if the Buyer subsequently suffers a major illness or loses their job, they may default on the mortgage even though the appraiser nailed the price.

However, that’s what averages are for.

Just like a major league baseball player needs to hit over .250 or so (a Hall of Famer hits over .300 lifetime), you’d expect a good appraiser to have a “success rate” over .95 (ideally, .97 or .98).

P.S.: speaking of accountability, I loved this sentiment from Caroline Baum’s most recent column for Bloomberg: ‘members of Congress should be compelled to wear uniforms like Nascar drivers, so we could identify their corporate sponsors.’

So, Chris Dodd, head of the Senate Banking Committee, would sport a pink Lacoste shirt with “endorsements” from Citigroup, Bear Stearn, AIG, etc. emblazoned across his chest in large, black letters (the corporate logos go on the back).

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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