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Bill Fleckenstein

Contrarian Chronicles6/29/2009 12:01 AM ET

Realty fervor takes aim at reality

The real-estate balloon has deflated, but there's still plenty of hot air surrounding home prices. Let us now appraise industry lobbying efforts to lift valuations.

By Bill Fleckenstein
MSN Money

As the aftermath of the real-estate/credit bubble enters its second year, let's begin by devoting our attention to two key cogs in that wheel: the National Association of Realtors and the National Association of Mortgage Brokers.

For both organizations, the operative words are: long on bombast, short on shame.

Mark-to-fantasy still rules

Reacting last Tuesday to macro data near and dear to his heart, NAR Chief Economist Lawrence Yun made his own plea for what -- in Wall Street terms -- would be called mark-to-model:

"Pending home sales indicated much stronger activity, but some contracts are falling through from faulty (my emphasis) valuations that keep buyers from getting a loan."

By "faulty," he meant: "Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales." (A slight variation is contained within a letter to members from the NAMB: "Appraisal Management Companies are assigning appraisers from a different municipality, county, or even state to appraise the target house. Therefore, unfamiliar with the neighborhood and unable to produce an accurate appraisal.")

In other words, we don't want these house prices marked to the last sale. We want them marked to where we think they ought to be marked.

Yun continued: "In the past month, stories of appraisal problems have been snowballing from across the country, with many contracts falling through at the last moment. There's the danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected."

Honest appraisals: Not in my backyard

That pathetic little threat didn't cut it for Barry Ritholtz (the author of "Bailout Nation," among his other talents), who, in an e-mail to me, summed up the situation:

"I did some more digging, and I quickly discovered what this contemptible suggestion was all about: It is part of a broader lobbying effort by the National Association of Mortgage Brokers (NAMB) and the NAR against honest appraisals. For more proof of this lobbying effort, see the letters to mortgage brokers and real estate agents from their trade associations to mobilize against mandating honest appraisals."

(Ritholtz has posted both the mortgage brokers letter and the Realtors letter on his Web site.)

Video on MSN Money

Is the housing recovery stalling? ©  CNBC
Is the housing recovery stalling?
Kenneth Rosen, chairman of the Fisher Center at the University of California, Berkeley, and Lawrence Yun, of the National Association of Realtors, discuss the housing recovery.

So, in the wake of the greatest credit/real-estate bubble the world has ever seen, we get this: On the one hand, the powers that be decide they really don't want to utilize mark-to-market accounting in the financial system. On the other, those at the epicenter of the real-estate bubble itself are advocating the use of appraisers who will come up with the "right" number rather than a realistic evaluation.

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