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Featured news — posted April 28, 2004
Mortgage fraud artificially inflating property values

Nationwide, housing values grew 8.4 percent last year, and 7.6 percent the year before that, according to Freddie Mac. In the fourth quarter alone, the last quarter for which data has been released, the annualized property value appreciation rate was a staggering 17.8 percent.

What's feeding this remarkable growth? It's a question that's been asked and theorized upon by investors, money managers, chairpersons of the Federal Reserve and homeowners. Clearly, low interest rates, government action to encourage homeownership, a plentiful supply of homes, and other economic and demographic factors are drivers of growth.

But there are important artificial movers of property appreciation that appraisers and economy watchers need to be aware of. Mortgage fraud is one. As fraud becomes more and more prevalent, values are skyrocketing in certain areas beyond the sustainable.

A recent report in the Atlanta Journal-Constitution said that in the seven years from 1995 to 2002, prices for residences south and east of downtown Atlanta more than doubled, from about $79,000 to $183,000 (it was unclear whether the figures were averages or medians). South and west of downtown, prices skyrocketed from about $46,000 to nearly $117,000.

Mortgage fraud, a recurring problem in Fulton County with hundreds of prosecutions in the past five years by the U.S. Attorney there, is said to contribute to the meteoric rise, according to the report.

"Mortgage fraud tends to take place in a small geographic area that has a wide variety of prices," Anne Fulmer, former DeKalb County prosecutor, told the AJC. "Areas undergoing renaissance are ripe for this because you could have a $20,000 crack house within a quarter-mile of a $500,000 renovation. They use the renovation to establish the bogus value of two or three homes, and the neighborhood seems to take off.

"On paper, it all seems to fit for out-of-state lenders who are looking at automated underwriting and automated valuing," Fulmer said.

This is one of the hidden costs of the inexplicable push to use automated valuation models (AVMs) more and more frequently. Some AVM vendors have taken the step of having a real estate professional — appraiser, broker, realty agent, it doesn't usually matter — to drive by the subject and verify its existence and overall condition.

But as illustrated in Atlanta, what about the comps? Are appraisers "assisting" AVMs looking into whatever the algorithm decided were the best comparables to the subject as well? And as layer upon layer of inflated values build up in fraud-prone areas, would it even help? If a $150,000 sale price on a run-down comp was supported by an inflated value, the sale of which was supported by an inflated value, the sale of which was supported by an inflated value... how can a professional appraiser, let alone a computer model, possibly get it right?

Next week, we'll look at two less nefarious but probably more prevalent factors in artificially inflating values: creative mortgage financing and seller-assisted down payments. In the meantime, if you have any war stories about fraudulent values, send them to the editor by clicking here.

How "rugged" do you need to be?

The first Gulf War brought us, among other things, the Hummer urban assault — er, utility vehicle. By some accounts, the war and occupation of Iraq this time around are going to bring us the "rugged notebook" computer. Sounds very manly! But do you need one?

A "rugged notebook," produced and sold principally by companies called Itronix (GoBook) and Panasonic (ToughBook), tends to feature sturdy magnesium cases with rubber bumpers outside and well-cushioned innards, hermetically sealed keyboards to protect against spills, connectors are equipped with water- and dirt proof covers, displays designed to be readable even in direct sunlight, and even touchscreens to allow easy clicking in tough conditions. Anyone who uses a laptop or notebook computer in the field would probably enjoy some or all of those features. But there is a significant tradeoff.

First, since the idea is not to achieve optimum processing speed and agility, but rather to be able to withstand abuse, some of your more resource-intensive applications aren't going to fare well on a rugged notebook. Second, and more important (or at least more immediate), they cost an arm and a leg. Or around $4,000 and up, if you prefer specifics!

The most popular and expensive ruggedized notebooks pass the U.S. military's stress tests for field equipment. Considering that includes among other things being able to work at four degrees below zero Fahrenheit and withstand four inches of rain an hour, there's no question that they can take the abuse an appraiser might give them in the field. But processing speed, cost, heft (these things aren't light) and looks (one reviewer for a personal computing magazine said they look like bombs, not computers) probably make a "semi-rugged" notebook the more attractive option.

Panasonic's "semi-rugged" is equipped to sustain a one-foot drop, features more processing power (it's not hermetically sealed, like its big brother, so can vent the heat a powerful processor gives off), and weighs only 2.8 pounds. Other manufacturers include Twinhead, which bills itself as more spill proof, and the aptly named Rugged Notebooks, which reviewers say does the best job of blunting outdoor glare.

But while priced lower than the military-ready line, these computers still make more sense for workers who spend almost all their time in the field. While it sometimes seems that way to our appraiser customers, they tell us a Tablet PC or PocketPC handheld device loaded with Pocket TOTAL, does everything they need. For data calculation and storage, quick notes and sketching that can then be easily imported into the PC in your office, going handheld is still probably the best bet over a semi-rugged notebook computer.

Windows XP spam popups can be eliminated

Windows XP is being installed as the operating system on more and more PCs nationwide, including among a la mode customers. One of the first things your indefatigable newsletter editor noticed when he switched was that via his always-on Internet connection, he was suddenly very popular with somebody named "Messenger Service."

"Messenger Service" popup windows — not browser window popup ads, those are different — hawk hot stocks, male enhancement, gambling sites and the like. And the most popular product they try to sell you: a way to eliminate XP spam popups!

If this is happening to you, you know it (for one thing, you've come to dread the high-pitched, dull "thud" sound that accompanies a new popup). You may also have had a hard time finding instructions on how to eliminate them. If so, aren't you glad you're an a la mode e-newsletter reader? Because here is what you do:

  1. Click: Start > Control Panel > Settings > Performance and Maintenance
  2. Choose Administrative Tools
  3. Choose Services
  4. Scroll down through the list of "services," highlight "Messenger"
  5. Right click while highlighted and choose Properties
  6. Click STOP in the middle
  7. Select Disabled or Manual in Startup Type scrollbar also in the middle
  8. Click OK, and you're spam-free!

  
News briefs
Joint property journal produced
The American Society of Appraisers (ASA), American Society of Farm Managers and Rural Appraisers (ASFMRA), the International Association of Assessing Officers (IAAO) and the National Association of Independent Fee Appraisers (NAIFA) agreed earlier this year to produce a joint journal of appraisal and property economics issues for their respective members. The first edition was due to mail out at the end of this month.

“The articles in this journal are written by some of the most forward thinkers of the nation’s four most distinguished property associations,” said Ted Baker, ASA executive vice president. “This is the first time four appraisal-related associations have jointly produced a scholarly journal for their members,” he said.

The first edition is 104 pages long and includes 13 articles covering a range of issues and disciplines.

South dominates new home sales
About half of the new home sales in March 2004 were in the South. According to data released by the Department of Housing and Urban Development (HUD) and the U.S. Census Bureau. 613,000 new homes were estimated to have been sold in the South, compared to 349,000 homes in the West, 188,000 in the Mid-West, and only 88,000 homes in the Northeast.

The South has maintained sales that comprise about 50 percent of total sales for well over the past few years.

Average prices have increased 10.9 percent on a year-to-year basis to $260,800, while the median price of a new home has risen 12.8 percent over that same time period to $201,400. As the price of wood, concrete, and steel continue to rise, along with other crude materials used in the construction of homes, expect continued price appreciation at this rate.

Homeowners younger than ever
Armed with low down payment programs and without their parents' and grandparents' resistance to debt, younger Americans are buying homes at a record pace. The Census Bureau reports that 40.2 percent of residents from the ages of 25 to 29 owned homes as of the third quarter of 2003. Just five years earlier, that figure stood at 36.2 percent. Ten years ago, it was 33.6 percent.

But that group isn't even the fastest growing segment of homeowners. A total of 23.3 percent of residents under the age of 25 owned homes late last year, compared to only 18.2 percent five years earlier. Ten years ago, only 14.8 percent of those under 25 were homeowners.

Send tips and feedback to the editor: mattb@alamode.com.

e-Newsletter archives



e-Newsletter 4/20/04
Beginning of the end for AVMs

e-Newsletter 4/13/04
New mortgage boom coming

e-Newsletter 4/6/04
IRS targeting number-hitters

See full archives

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