Gaming of the System

Gaming of the System - Not With My Money Fannie & Freddie!

…gaming of the system is happening not only with income, (yes automated income verification has returned) but now property valuations…

Appraisers have some very strong opinions on computer driven appraisals. Others are noticing the dangers as well. It is more than just automated valuation models though. In an article written by Danielle DiMartino Booth, for Bloomberg, Fannie Mae and Freddie Mac are specifically called out on their appraisal waivers. The author compares the dangers of the automated income verification being done in the 2000’s and how the system was easily gamed to the appraisal waivers currently being done. The author is not wrong, gaming of the system is happening not only with income, (yes automated income verification has returned) but now property valuations. AVMS, Collateral Underwriter and Hybrids. Do we even know what is real anymore?

Now we all know how gaming of the system has turned out in the past and what is going to happen in the near future, but there are many consumers who are unaware that Fannie and Freddie are repeating the same bad practices that caused The Great Financial Crisis of 2008. This time it is with taxpayer money at risk.

“I’m a big fan of automation,” Pinto said in a recent conversation. “But the one I designed was for a bank, which retained the risk of the mortgage. With Fannie and Freddie, it’s the taxpayer who assumes the risk, so their only incentive is to push volumes and share as high as possible. We saw how dangerous this was with the GSEs’ automated underwriting systems in the ’00 years. My fear is that appraisal waivers will repeat the same pro-cyclical mistake.”

Many appraisers know Ed Pinto. He is the Director of the AEI Housing Center and former Chief Credit Officer at Fannie Mae.

The article in Bloomberg is very telling and has lots of facts and figures. Not only should every appraiser read the article, it should be shared with everyone you know. Clearly pointed out in the article, Fannie and Freddie are gambling with taxpayers money. American Citizens have the right to know!

Let’s educate our friends, neighbors and community. Fannie and Freddie may not remember what happened in 2008, but consumers still do. Can we all please share? Make sure you share with your representatives as well. It is an election year and time will tell how this plays out. Let’s do our part and educate our fellow Americans.


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VaCAP Board
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VaCAP Board

VaCAP Board

Coalition of individual appraisers working together to unite, promote and protect the collective interests of all appraisal professionals in Virginia; to promote needed changes in laws, rules, regulations, policies and standards affecting all appraisers in Virginia; to observe and report the actions of regulatory, legislative, oversight, and standards-setting entities of the Commonwealth.

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8 Responses

  1. AngeloDS on Twitter AngeloDS on Twitter says:

    An automated valuation model is a powerful tool when used properly. They should always be developed and/or fine-tuned under the supervision of domain experts (Appraisers). Otherwise they are a disaster waiting to happen.

  2. Ronny on Twitter Ronny on Twitter says:

    one of the best articles ive read .Appraiser relevance and survival will always be necessary as we are essential to the public trust . ensuring the well being of the greatest investment in most peoples lives,from the fruits of their labor, still the american dream

  3. Avatar don says:

    What does The borrower’s income have to do with the appraisal process MABEE the 1031 exchange might the issue with the item of “boot”

  4. Avatar Jeanie says:

    Great article. Sharing!

  5. Baggins Baggins says:
    In case you hit the privacy blocker wall. Same article cached on google.

    Place all the risk on taxpayers, and all the reward with private companies. What could go wrong? The GSE’s are only public per se. They are private financial institutions which benefit first receivers of money most, with a side benefit to the individual whom is the second receiver of the fiat money if a loan is issued. The entire public body takes on all the risk through a distributed burden, aka; taxpayer backing (with an increasing cumulative effect.) Getting a loan is not a constitutional right, it is an earned privilege. Fiduciary responsibility. In the absence of gse’s we’d see more sensible and more restrictive lending policies, risk assignment based on individual merit and accountability, rather than calculations of group pooled risk and loss. With GSE’s, the taxpayer becomes the insurer.

    The pontifications on industry correction for better mortgage practices with less risk are mostly lip service. What would be wrong with stopping all cash out offerings for primary mortgages and scooting all cash out requests to helocs or lein based signatory loans with naturally shorter term lengths? Oh yes, we would not want anyone getting in the way of big lending and their direct long term mainline access to monetize peoples entire equity stack. Imagine a system where nobody would have to reset the 15 or 30 year clock except for a better rate. This would have a lasting effect on a wide range of economic behaviors especially the consumers willingness to take on new debt, provide disincentive to use the home like an atm. Leveraging property for cash is an original form of predatory lending. You want a loan? I want your most valuable asset. Sign here.

    Don’t kid yourself, lenders love cash out refinances. It stacks on significant interest amortization over time as the clock restarts and puts the lender in control of your property interests. Consumers are inundated with the industry buzzwords and mantras; we’ll make it simple, easy access, increased convenience, automation. In realty though, those advancements which remove tedious and often costly bureaucracy are of primary benefit to the lender and not the consumer. It is the bureaucracy and red tape which keeps land and home ownership in place, which allows fee simple ownership, holding swindlers at bay.

    Refried refi’s. Tricking consumers into only reviewing monthly costs without considering cash equivalency over the entire term of amortized interest. Not clearly describing and not clearly disclosing the actual cash equivalent multiplier in borrower disclosure. If only they had a clearer understanding that the monthly savings results in significant out of pocket costs increase over term. If they understood that by leveraging that debt into a 30 year new mortgage, they’ve actually increased the total cost of that debt by a multiplier which is likely 2x or more. That $100k house actually costs you $200k over term and if you roll your debt in there, oh billy! Lenders have no real motivation to reform the system. More debt equals more profit. More monetary extension means more taxes as the taxation is the recapture mechanism to manage an infinite stream of fiat currency. It keeps the show going. Consumers lose twice for every government loan issued with federal reserve currency.

    Meanwhile just keep everyone arguing about waivers, avm’s, automation, middle men, racism, spilled coffee, whatever they go for. Under no circumstances will we focus on the real issue, which is that government should get out of the business of providing lending and insurance. Or one could just audit and abolish the fed to stop the first receivers of fiat money from having this unethically allocated monetary leverage. The root cause of the problem persists, the federal reserve. Want to talk elections? It’s been over a 100 years and the American people are still waiting for our chance to vote if we want the Federal Reserve in the first place.

  6. Avatar Julio E. Sune, Jr says:


    [Place all the risk on taxpayers, and all the reward with private companies. What could go wrong? ] (Mr. Baggins)

    “The commercial mortgage-backed securities market is taking a beating. As more and more CMBS borrowers default on their payments and send properties to special servicing, the appraisals on those properties have averaged about a 27% drop in value from when the loans were originated, according to Wells Fargo data reported by the Financial Times.

    A majority of the troubled properties that have been appraised are hotels and retail buildings. “The numbers themselves are atrocious,” PineBridge Investments portfolio manager Gunter Seeger told FT. “A [nearly] 30% markdown in appraisals pretty much across the board is horrific.”

    The set of CMBS loans used for Wells Fargo’s analysis comes from 116 properties that have been sent to special servicing since April 1, FT reports. Over half of the appraisals have occurred in the past month, and 101 of the properties are either in hospitality or retail.

    By May, $32B worth of CMBS debt, almost all of it in those two sectors, had already been sent to special servicing.”

    Read more at:

  7. Avatar Julio E. Sune, Jr says:


    CMBS Posts Record Delinquency Rate
    Fed, Treasury Extend CMBS-Eligible TALF
    CMBS TALF May Bring New Issue in November: Sources
    Wells Fargo CMBS Servicer Ratings Fall on Management Concern
    COVID fallout: Pressure Builds For A CMBS Bailout

    CMBS Appraisals Show ‘Atrocious’ Value Loss In Hospitality, Retail CMBS (WITH FRAUDULENT ECHOES OF ’08)

    2020-09-29 —

    “”The numbers themselves are atrocious,” PineBridge Investments portfolio manager Gunter Seeger told FT. “A [nearly] 30% markdown in appraisals pretty much across the board is horrific.”… The issue may also be more complex than an equation of properties losing value in a bad economy. A Securities and Exchange Commission whistleblower complaint in May alleged that financial institutions like Wells Fargo and Deutsche Bank had been systematically and fraudulently inflating the value of properties in CMBS loan packages — behavior strikingly similar to what precipitated the subprime mortgage crisis that collapsed the housing market in 2008.”


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Gaming of the System

by VaCAP Board time to read: 2 min