Phantom value

The veil begins to slip:

“A few years ago, I refinanced my house and got a lower mortgage, took a little money out for some landscaping and bills. Loan was $187K, house was appraised at $225K.

“This spring, I went to refinance again. Unfortunately, because times have been hard, employment has been on and off, and we were hoping to sell the house in a few years, so I refinanced to an interest-only loan, took some money to pay more bills, and kept a pretty low rate, 5.25% fixed, I think. At this time, just a few short months ago, the appraisal of my house was $260K, my new loan amount $204K.

“I was only willing to refinance and take out money because my home was now valued at $260K. $260K seemed high to me, I’ve also seen nonremodeled homes on my street selling for under $200K, but I thought I could probably sell for $240K.

“I live in an area that realtors say is ‘hot.’ It’s a neighborhood that used to be undesirable because it was near the airport, but now the airport has moved far away and the old airport is a very hip and trendy new home community. New shopping areas are springing up around this area; recently they built a brand-new arts magnet school one block away….

“So we decided we would try to sell the house this month. I called a realtor…. They did a very thorough comp evaluation and came back to me saying I would be lucky to get $200K for the house.

“In my mind, I thought I would like to list it for $250K and accept $240K. I was floored. I explained the $260K appraisal and the response, ‘Oh yeah. Appraisers do that for mortgage brokers to get the loans/refinances.’

Always remember that value is what someone is willing to give you for something, not what someone else says someone will give you. I’ve seen people get reversed on their mortgages before and it’s a grim scenario. Unfortunately, it’s one that all too many people are likely to be facing in the next few years.

As Mish points out in the linked article, rampant fraud is a hallmark of any boom – or fifth wave, in EW terms – and it should be no surprise to anyone who has been paying attention that sketchy activities are abounding in the real estate industry today.