For those of you with mortgage experience - here is a question I can't seem to get truthfully answered and That drives me a little nuts.

It's my personal opinion that investment property loans held "in-house" tend to have artificially low appraisals by banks.

Conversely, those same investment property loans when being sold to Freddie Mac mysteriously have a much higher appraisal.

I know what you are all thinking - appraisers have a set of standards to follow - wink wink yada yada yada. But here's an example :

SFH appraised by the Bank for holding in-house, they call it their portfolio loan - thier appraised value $100K (70% LTV)

Same property two months later. This Loan being sold to Freddie

Appraisal value : $180K (80) LTV

I believe banks that hold their loans in house are very conservitive with their appraisals and LTV. Basically they are getting falsely low appraisals coupled with low LTV's to protect them economically.

However, these same banks have no issue with a significantly higher appraisal, (meaning more money (and fees) lent to the borrower) because they are selling these loans. Thus no risk to the original bank. Seems a bit disingenuous if you ask me.

Thoughts ?

My answer to this is Self Fund !

Banks want the appraisal that "makes the loan work." But they do not want an appraisal that leaves them holding the bag if the borrower defaults leaving them with a property that won't sell for enough to cover their loan + legal and holding costs.

So yes, I think banks have every motivation in the world to get the "correct" appraisal depending on what they plan to do with the loan. It's how they protect their interests. And appraisers know that...and mostly comply. Why not? It's an "opinion" of value. Like the weather man who is only correct 50% of the time, appraisers usually cannot be sued for being inaccurate as long as they have their comps regardless of how accurate they are. When are appraisers ever fired or fined for being wrong by 20 - 30%? Again, it's an opinion based off current market conditions. If the loan goes bad after 3 years, how do you audit that since the market and the comps have all changed considerably?

This is why hardly anyone went to jail or got canned post-2008-2009 meltdown unless it was excruciatingly obvious that there was egregious wrong-doing and collusion (i.e. multiple parties in cahoots). It is illegal? Nah, not really. Real estate always has been and always will be "caveat emptor" regardless of how many trees the Govt says we must sacrifice on the alter of the closing table.

How do you think the bubble and collapse of 07-08 happened?

Keep an eye out for when they start again with the no-no loans and the 125 percent interest only loans. That's one signal that it's time to unload the boat so to speak.

One thing that really irritates me is when these junk loans became popular and many people who had absolutely no business getting a loan did anyway, and then either resold for a profit or just lived in the houses for a year or two for free and GOT AWAY WITH IT INSTEAD OF GOING TO JAIL while the honest people that honored their obligations got hammered, many good people I know lost their places while the scammers and crooks pocketed the profits and laughed at the honest people. More than one good person told me that the next time it happened (and it looks like it is building that way again), they were going to "get theirs".

Back in the 1980's when you wanted to buy a house, you actually SWEATED the appraisal. Would it appraise? No one knew. And income verification was very stringent. They wouldn't even accept commission as valid income, even though we were outside sales people with quotas and targets and could prove past performance.

Sometime in the 1990's, I noticed that Realtors had their favorite appraiser, who always came through for them. Appraise for the selling price? Of course it did. Usually just SLIGHTLY more.

FF to the early 2000's and suddenly not only Realtors had favorite appraisers, so did the mortgage brokers and they all worked together to ensure the top-dollar price was agreed upon. They also absolutely didn't care about documenting income at all, all you had to do was state it.

My answer to this is that it is no skin off of my posterior. What difference does it make to you?

When I get an appraisal done, there are appraisers who will ask me about the details of the underlying purpose, so that they will know to appraise high, low or neutral. I am sure that the banks' appraisers have the same flexibility!!

As said above bank owned loans can be more flexible. We have a wonderful bank that does all sorts of loans for use that could never be sold on the secondary market.