i want a $100 billion support fund too!!!

sonrisa, I do not see any serious attempt to address the real issue. At least not in the appraisal industry. While there will always be ups and downs in the real estate market and there is a small percentage of borrowers that default on loans but the crux of the issue is the way the system is designed. As an appraiser I am supposed to be independent, but how independent can I be when my work comes directly from a loan officer. The loan officer only makes money if the loan closes. I have been in the industry for 18 years and there isn't a day that goes by where some loan office doesn't try to pressure me to get them an inflated value or ignore some problem with the house. In my opinion the problem is human nature itself. We all need to eat and pay the mortgage. The only way appraisers can be truly independent is to take the loan officer out of the equation. The FHA used to maintain a panel of approved appraisers. The list of appraisers would rotate. When your name came to the top of the list you got an order. When you completed the order you were put back on the list and then got another order. We need a national system similar to that.

Tommy- I'm glad you brought up the appraisal end of the deal. I work in real estate/economic consulting and we spend a lot of time analyzing this mess, but I have hardly heard mention of how appraisals play into the equation and have actually never given it any thought myself. There are just so many pieces to this puzzle. I don't know if you ever read any of the many articles about how mortgage companies like New Century put huge pressure on brokers to make subprime loans even if the brokers felt that the loan could be dangerous to the consumer. Obviously not all brokers are bad and everyone needs to put food on the table, but there is a definite problem when loans are being made to people that make less in a month than their loans will reset to, (we've all heard the horror stories about migrant farm workers in the Central Valley getting loans for $700,000 homes). But, it is so hard to pin the blame on any particular segment of the industry. The real question now is how do we recover and ensure that it doesn't happen again, (although real estate is cyclical, so there will surely be another downturn... just hopefully not because of bad lending practices). Is the appraisal industry changing as a result of this crisis?

sonrisa, you make some very good points. There are many places to point fingers for the sub-prime mess. One area that I have not hear about is the real estate appraisers role in this disaster. As an appraiser I have first hand knowledge of what pressure is placed on us. Since the lender does not make money if the loan does not go through, the loan officer places substantial pressure on the appraiser to "make the value" that they need or else the deal will fall through. If you are an ethical appraiser and you tell the loan officer that you can't get the value he needs to make the loan work, your orders dry up as the loan officer looks for an appraiser that can get the value he needs. This goes on on a daily basis. An since appraisers are people too and have mortgage payments to make, homes get overvalued. So when you hear that nobody knows what the value of the MBS are, appraisers are partially to blame.

I don't think it's really a reward...

There is very little liquidity in the secondary market right now because no one will buy residential mortgage-backed securities, (banks unload the loans on their books as MBS to free up more money to lend). As a result, there are fewer loans available to consumers, which is further slowing the housing market. The idea is that if there is more liquidity in the secondary market, banks will again be able to extend more credit to consumers. Right now, many credit-worthy consumers are having trouble acquiring loans, which is making things more difficult for home owners in trouble that need to sell their homes in order to avoid foreclosures or avoid reseting mortgage payments outside of their budgets.

Already, some banks, like Washington Mutual, are trying to use more of their own funds to make mortgages and hold loans directly on their books instead of packaging them up and selling them on the secondary market. However, lending is still way down because everyone is scared and no one wants to hold all of the bad loans that were already made. Ultimately, $100 billion is a very small piece of an overall market of $10.7 trillion dollars in outstanding loans.

The idea is that this $100 billion fund will help prevent further credit crisis by providing a little stability to the secondary market, which in turn may help increase liquidity again and increase lending on the consumer level. Increased lending would benefit both banks and homeowners because activity cannot occur in the market without loans and homeowners in trouble need activity to pick up in order for homes to sell and median prices to at least stabilize.

Although I am not confident that this fund would make a big difference, I think people forget that banks/lenders/investors want the consumer-level market to be healthy because that is how they make money. Right now, both institutions and consumers are hurting, so efforts to relieve this pain are ultimately striving for improvements at all levels, because there is a symbiotic relationship between them.

Now, should more be done at the consumer level? Probably. But, this does not mean that efforts at the other end of the market are not important and will not ultimately help the consumer.

To blame just the banks for the fact that large quantities of bad loans were issued overlooks the role of the consumer and the mortgage brokerages that pushed risky loans. All parties are responsible, it is just unfortunate that so many average Americans are suffering as the result.

What do you think should be done?