Oh boy, here we go again -- with appraisers...

Think it's hard to get a loan? Thanks to the government, it might be juuuust about to get a littttle bit harder (sense any sarcasm?)

Home appraisers played a very big role in the build up and subsequent tear down of the housing bubble. I can tell you some stories from the trenches that would make you cringe and may even take the blame off of the Bush Administration (for awhile) on this whole "housing mess".

So let's look at how appraising works, and what role it has played (so far) in the housing business. Appraisers are generally retained by brokers or lenders. There are shady people in every business (mortgage brokerage companies are full of them) and these brokers (in particular, but lenders too) seemed to find people who would support numbers that they wanted to get deals done. Many of these numbers were overinflated. Appraisers are one of many on the long list of real estate food chain that get paid for a service that really either isn't needed, or could be done online very easily. Some have found Zillow to be more accurate than their local appraiser because Zillow isn't freaked about getting sued.

There are many, many written stories of collusion and fraud so I won't even bother to go into them here, you can google that and have hundreds of thousands of them from reputable sources. But here is the problem - the government.

See, appraisers pulled back after they took a lot of the heat from the inflated market. No one wants to go to the pen over a house appraisal that they made an extra $500 bucks on. They started doing the opposite - being VERY conservative on appraisals such that buyers would often have to come in with another 10 or 15%, just because an appraiser cut an appraisal to cover their asses - not because the house was really worth that but because it "could be later on" (some lenders creatively call this a declining market). This caused lots of sales that would have proceeded just fine to be yanked out from under the buyers and sellers.

Here is the catch. The government has decided it's in "everyone's best interest" to have yet another middleman in real estate (by the way, they already exist - they are called real estate agents - see my former book Commissions at Risk available on Amazon).

A new code of conduct will exist beginning May 1 that requires the nation's 60000 freelance appraisers and lenders and brokers to use Appraisal Management Companies (AMCs), which will prevent lenders and appraisers from actually talking to each other. No, Im not kidding (see previous blog about Countrywide fiasco that I personally went through with appraisers).

This gets better. See added onto the new rules are players in a game of rules that were broken years before and full of shady characters. There is one company exposed in several stories called NovaStar Financial out of Kansas City. This was a subprime lender during the boom and they were slapped on the wrist by three states for employing unlicensed brokers and charging unlawful fees (nawh.. mortgage brokers NEVER do that! See previous blogs about never using a mortgage broker!)

After its collapsed business (like many other brokers), they reinvented themselves into the -- yep --- AMC model and bought an appraisal company, and call themselves StreetLinks National Appraisal Services. One of the very same companies that led to the trouble to begin with is now going to be part of this new group that is designed to police the problem.

There are a few issues here.
1. Screening AMCs - who is going to do that exactly?
2. The communication between lenders and appraisers - it must exist for any deals to get done!
3. This gives appraisers even more power than they had before, and may kill deals particularly in the prime or jumbo markets
4. The government is involved - the fed housing officials will regulate (aHH!)
5. Added processes, and less money to the actual appraiser

So when you buy a house, it should work like this (well it shouldn't - it should be easier - but it has):
1. Borrower goes to get a mortgage or a refinance
2. Lender sends an order to an appraiser
3. Appraiser appraises, sends underwriter the appraisal
4. Bank does their "thing".

Now it will go like this:
1. Borrower goes to get mortgage/refi
2. Lender sends order to AMC
3. AMC sends to a local appraiser
4. After reviewing the appraisal, the AMC may seek changes on behalf of the lender (ah ha!)
5. Borrower pays $300 to $500 - and the AMC keeps half of the change

Do you think appraisers are going to work as hard to be as accurate when they aren't getting the full cash for the appraisal? My guess is we're just going to have even more ticked off appraisers who on top of feeling blamed for the mess (particularly the good ones who did their diligence and take this personally), are also underpaid.

Under the new rules, if AMCs are applying any 'undue pressure', they will be in violation of Freddie and Fannie rules and they will "take action". They will have immense power over freelance appraisers. To earn a living, most have determined that they will have to be part of AMCs preferred group, or most major banks won't use them - they will lose a lot of business.

Fannie and Freddie cannot even lend Grandma $200k to buy a house worth $400k - you think they can handle this too? Oh, and the taxpayers now own a big chunk of yet another government wasteful project that will not only hurt housing, but create yet another layer and another obstacle to get all of this inventory off of the market! All in an effort to save people from themselves -- which could easily be done by reading a contract. I know, crazy huh?

Small biz money not as hard to get as you might think

Since John Rutledge and I started taking the Entrepreneur calls on Fox Business Saturdays 1-2pm EST, we've had a lot of call-ins with people asking if it's "really hard" to get money, where they should go to get it, and what they need to do to make their dreams a reality. The focus of our show is all about not whining, and not waiting for people to come to you with aid - but to tap into the American spirit we see alive and well in so many viewers, emails, twitter followers, students, book readers and so on. This is not a very PC show, for those of you who have watched it. :)

I think one of the most common mistakes people make is listening to Washington. They're trying to get re-elected; with the exception of very few, they don't really care if you panic because they'll be seen as heros when you stop! So don't let them create the reaction! Yes, our 401ks suck. Yes, who likes logging into eTrade and seeing much of your portfolio wiped away? Or delaying retirement? Or having our houses under water? Or being late on our bills? I realized today that the market is only 5 years off from being at the level it was at when I first started investing! That is enough to make even sane rational people a bit (aka not politicians) freaked.

What we have to focus on is not letting the politicians who are telling us how bad things are so they can spend money for outrageous things like a World Trade Center in Montana and pig-stench research convince us that 1) this "spending" will help, or that 2) this is a sign of how bad things are. The only thing this is a sign of is how stupid our politicians are!

You watch our show, you may have read one of our books, bla bla.. and you want the bottom line. You want to know how to take your idea, get some CASH, and go for it. You may be in the boat that thinks money is harder to get these days than Hillary Clinton looking comfortable in stiletto's and a skirt, know this - it isn't. In fact, thanks to the Obama administration's pork-ridden bill (did I just say thanks? It isn't taxes, think of it as a big tip for Obama) the government has nearly $700 billion more to spend on small businesses. Yes, they'll try to tax it away from you later, but that shouldn't stop you from trying to earn it now. If you spend it all, there are no earnings left to tax. ;) (How is THAT for stimulus!?)

One of the most commonly asked questions is, what kind of loan can I get from the Small Business Admin?

First, know that the SBA doesn't lend. It backs banks that do. It makes it safe for banks to give you money, and right now, quite a lot of it at relatively cheap prices. Think of this as a Fannie/Freddie back in the days when F and F weren't run by morons (or no one was watching).

Go to the SBA.gov and look at the loan types, but here is a quick rundown of the types, and what you can get:

Community Express
250k
Price? Prime plus 2.25%
7 year loan, and you'll have an answer in 36 hours
No collateral
Focused on helping distressed communities

Express Loan
350k
50% SBA guaranteed; 50% bank or collateral
6.5% over prime (eek!)
36 hour turnaround time

Patriot
500k
2.25% over prime
Vet/active duty/reserves/guard/spouse
7 year loan
36 hour turnaround

7a) Capital, Land, Building
10 year loan, rates and time vary

Microloan 7m
35k, inventory, supplies, furniture
Can’t be used to pay existing debt or for real estate

CDC504
Long term
Brick and mortar only - sorry Internet businesses

In addition to this, check out whitehouse.gov in mid March for information on how you can get grants if you're developing clean technology, green "stuff" or anything else that someone like me won't use, but sure can get a lot of dough in this environment.

Most importantly, don't let the government get in the way of your dreams. The government is a buzz killer. Only YOU know your own worth - if someone tells you directly or indirectly you aren't worth the price, give them the finger. It isn't just easier said than done, I do it every day. Believe it or not, it can feel good.

And watch our show every Saturday. :) Thefoxdocs.com

Dani