Quote:
Originally Posted by onewhippedpuppy
The bank is absolutely NOT in the business of appraisal. The independent appraisal that the bank requires prior to closing is typically the only information a bank sees. The appraisal typically takes the home, location, and condition into account and provides a number based on comps and current market conditions. That's fine when a single house is over-priced, but what if it's the entire market? How is a mortgage officer who never sees a house in person qualified to judge a house as over/under valued? Asking banks to assess the "true" value of a home is asking them to take on an entirely new skill set. You could make a case that appraisers need to take the the bubble effect into account, but that opens the process to a LOT of interpretation. Who determines what yearly appreciation in SoCal should be?
I don't argue with you on putting money down, but that's really not relevant to this conversation. The thread poster is upside down on his loan. Had he put 20% down he would still be upside down on his loan. The question and business case would remain the same. He's considering walking on his loan not because he can't afford it, but because that's what the numbers tell him to do.
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In a non-recourse situation (i.e., where the bank can only look to the collateral in the event of a default), the value of the collateral is everything. What else is there? That's their ONLY remedy, they better be darn sure they know what the value of their remedy is, if not, they have no meaningful way to price risk. Perhaps banks, like you, did believe their business did not involve making realistic evaluations of their collateral. Look what it got them. Banks ARE in the business value of appraising their collateral, though, whether they knew it or not. Those that did not realize that was their business will go out of business.
Putting money down is highly relevant. In any given situation, someone who put down 20 or 30% is far more likely to not walk away from that. He has a sizeable cash investment that he would be tossing away, immediately, when he walks. He has to analyze whether that is worth it, or whether he should stay in the house and try to wait for it to rise in value again, so he doesn't realize his loss.
But when the homeowner put no money down, and has no skin in the game, it makes it much easier to walk.