Real Estate Appraisal Regulation

HIGHLAND, UT | 19 August 2008| The real estate industry in the United States is in complete disarray. Many articles have been written on FreeCapitalist Daily to illustrate this point. Still, little has been done to really capture the severity of this problem. Throughout the country, many news articles and even books have been written in attempt to expose who these authors believe to the culprits of the fraud that has led to the recent bursting of the real estate bubble that has so many people losing their homes. Yet, it is doubtful whether the finger of blame has landed correctly on the right person or persons.

A similar housing crisis in the late 1980s led to stronger federal regulations in many areas of the real estate industry. One of the strongest holds the government took was upon independent appraisers. Mitch Weiss’ in-depth AP article this week gives a good overview of that history. However, the rest of Weiss’ article was lost on the lament that the regulation is basically a paper tiger, lacking any teeth in bringing “rogue appraisers” to justice. Questions a thinking reader must pose include: What is such an appraiser cheating on? Whom is he cheating? According to what standard is such an appraiser deviating? Who says he is acting fraudulently? The reader’s questions may be endless in this respect.

Correctly understanding the principles of prosperity will enable even the most casual looker on to recognize the trouble and to take appropriate measures to right this sinking ship. Namely, one must begin to understand the relationship between agency and stewardship.

Key Points

• Regulation means discipline and well measured action. Regulation means maintaining honesty in transactions. Regulation is attached to stewardship.
• Stewardship properly lies in the parties involved in a given transaction.
• In the 1980s real estate crisis, the federal government has erroneously yet effectively assumed stewardship of nearly every real estate transaction in the U.S. This happened progressively over the decades, first with the founding of the twin debacles of Freddie Mac and Fannie May; then with the Savings and Loan Bailouts where the government finally got a hold of the real estate agents and the appraisers.
• This erroneous assumption of stewardship simply is not within the government’s proper role.
• This has robbed the buyer, seller, and lender of their agency, in that they have been unable to determine their own values in a given transaction—they must now seek government permission for the transaction.
• Government regulation begets black markets. Because the human soul is autonomous and yearns for that freedom, it will search for it and achieve it in any way possible. This has created a system that is broken and a bureaucracy unable and unwilling to enforce itself.
• Stewardship is very closely tied to self-interest. One who lacks self-interest will not do his due diligence in a given transaction; but one who recognizes much self-interest will seek to establish the truth regarding the transaction he wishes to engage in.
• Mortgage lenders also have a stewardship in real estate transactions because if a borrower defaults on a mortgage, mortgage lenders will want to make sure they are adequately collateralized. They have surrendered their stewardship because government agencies have guaranteed nearly every loan. This has robbed the lender of his self-interest so he feels no need to do due diligence.
• In the end, the entity that is defrauded in a given real estate transaction is ultimately the government because of those loan guarantees.
• No one, however, is willing to take responsibility of the due diligence.

Conclusion

On the John Pendleton show on the Accent Radio Network this morning, the author of Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis explained that to eradicate all regulation would make this problem worse. This introduces the question: Is it good to regulate? The answer is shockingly: Yes. However, what was missed on the radio and is also missed in Weiss’ article is that regulation must accompany stewardship. The regulation is the individual’s personal adherence to correct principles. As this problem illustrates, the government, ultimately, is unable to enforce such regulations unless it is willing to bring out the big guns to force its hand. Fortunately, this country has not seen the veritable bloodbath of its appraisers, real estate agents, and mortgage brokers. However, to continue down this path of ever tightening government regulation would ultimately result in such a bloodbath. Nothing short of a full-scale overhaul of the system will remedy itself of these problems. And when that overhaul takes place, the government must not be invited to the party.

Action Items

1. Evaluate your own life. Are there stewardships that you willing hand over to someone else, hoping that everything goes alright? Resolve to reinsert your own human life value (HLV) into the equation. Take back the stewardship and do your due diligence.
2. Write to your Congressman and express your opinion that the govern should remove itself from all real estate activity and allow the marketplace to overhaul itself.
3. Search for alternative solutions to the real estate crisis, including methods which do not require a mortgage for a lending institution.

MRFC Principles: (2, 3, 6, 11)

Sources

Mitch Weiss, AP IMPACT: Weak rules cripple appraiser oversight, Yahoo! News, August 17, 2008.

John Pendleton, The Tom Pendleton Show, August 19, 2008.

Paul Muolo and Mathew Padilla, The Chain of Blame: How Wall Street Caused the Mortgage and Credit Crisis, Hoboken, NJ, John Wiley & Son’s, Inc., 2008.

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