_Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In this post, after noshing, drinking and dancing in the conga line during the holidays with mortgage lenders, Marty observes what appears to be a series of quick fixes for looming foreclosure problems. “_ …Jonathan Miller

A recent article in the Wall Street Journal described how lenders are dealing with mounting mortgage delinquencies through the latest plug-the -dike quick fix tools created to cope with the easy credit and underwriting gluttony of the past few years. This parallels the diet industry’s post-holiday marketing blitz where all of that rich holiday noshing and drinking has added inches and pounds that are conjuring images of the saftig pre-diet Kirsti Alley.

The latest “crash diets” that the lenders have come up with are:

* Allowing some borrowers to refinance into a different loan at no closing cost
* Alerting those holding ARM loans months before the rate is reset
* Allowing the property to be sold at a loss and forgiving the shortfall in proceeds or remaining debt without it affecting the borrower’s credit record

Of particular interest was a story of a borrower caught in the vise of trying to sell a house in Las Vegas where the market tanked after he bought a new house following a job transfer to Dallas. The man’s dilemma stemmed from his expected sale at $475,000 and the buyer’s bank appraisal of $419,000 compared to his present loan balance of $440,000. Now I have been around this business long enough to sniff out aberrations when I smell them so here it comes.

* I was intrigued by the appraisal of $419,000-not $420,000, not $415,000 but exactly $419,000. I would like to meet the appraiser who is so certain that he can reconcile to a residential value at that exact amount. He/she must be very good on their adjustments or else they know how to read numbers off their Excel spreadsheet, BUT-where is their professional judgement in rounding? It reminds me of putting an asking price on a house at $499,500-you want to avoid the $500K priceline but you know you will settle for something in the high end $400’s.
* The gap between the loan balance of $440,000 and the present appraised value of $419,000 bears some scrutiny. Let us assume that the loan is relatively recent and thus that amortization of principal is minimal. Let us further assume that LTV is 80% so the $440,000 balance would equate to an original appraised value of $550,000 at the 80% ratio. That is a 23.8% decline in market value based on the assumptions above.

And so, Dr. Phil, here is my dilemma:

* Did the easy credit people allow too much partying and noshing ?
* Could a declining market have wiped out the borrower’s equity in such a relatively short period or did the fault lie with the original appraisal?
* Did the appraiser on the original loan get carried away with his adjustments in an up-market and overvalue or
* Is the appraiser of the current market value of $419,000 so sure that maybe he has undervalued?
* Should the owner allow the lender to sell the Las Vegas house and cut his losses?
* Should we all join Kirsti Alley in the conga line?
* Is gluttony the first deadly sin?