Banks Continue to Betray the Public Trust

July 3, 2012

Most people continue to use banks to house their money and take out loans simply because they have no other choice, but that doesn’t mean the general public isn’t still outraged by the role these money lenders played in the housing market crisis or the fact that they took government bailouts to line their own pockets rather than returning that money on to the public that provided it through taxation. Although more and more people are turning to alternatives like credit unions, there’s no getting around the fact that multinational banks have more money, more options, and easier access to offer. However, like most corporate entities, they’re always on the lookout for ways to diversify. And one of the options is to push out independent companies in peripheral fields.

In “Public Trust Betrayed: The Truth Behind the Real Estate Appraisal Industry”, James E. Manning offers up yet another reason to shy away from the big banking industry. Any time a house is bought or sold it must be appraised. This is as much for the banks as the buyers and sellers. Lenders want to know that they can get their money back in the case of buyers defaulting on loans, resulting in foreclosures and bank sales. Of course, that hasn’t worked out so well for them recently. Most banks have a glut of foreclosures on their hands at the moment that they have taken huge losses on thanks to the bubble bursting in the housing market. But with bailout funds in hand they managed to ride out the storm (some of them), which may be why they’re up to the same old antics.

According to Manning, appraisals are a big part of the problem. In most cases, appraisals go through banks as part of the approval process for the loan. Although the buyer pays for this, the banks often choose the appraiser. The competition for these jobs is high, and appraisers that are not willing to play whatever game the banks are running risk getting blackballed. If, for example, an appraiser turned in a report that was less than favorable (in other words, it would reduce the value of the home or lead buyers to back out of the deal), banks might threaten to deny payment for service or simply make sure the appraiser never got hired again. Part of the housing market collapse had to do with the destabilization of home loans (typically a safe market). Another portion was the fact that loans were offered to parties that couldn’t really afford them. And the third piece of the puzzle was the fact that appraisers were willing to let banks set the value of homes.

Manning posits that without transparency and regulation this whole process could repeat itself, and in fact, it has already started. It’s almost enough to make buyers give up on the dream of owning a home and start seeking¬†apartments for rent¬†instead. But there is a solution. By demanding the right to select an independent contractor, prospective homeowners can take back at least a measure of control over the process to ensure that they get a fair value that hasn’t been influenced by the bank’s agenda. Since people seeking home loans will pay for the appraisal anyway, it behooves them to choose a professional they trust. It’s a big step towards ensuring that the banks don’t push out independents in order to clear the way so that they can set market values once again.

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