What types of things will an underwriter look for when they review the appraisal?

Restore Credit and Prices to Halt Foreclosure Wave

To Vee, or not to Vee... that is the question.

The optimists see the steep far side, the middle roaders see bottom nearby, and the skeptics see the economy still declining, just slower, possible multiple bottoms ahead.

A .4% drop in April retail sales was less than the 1.3% dive in March, but the weakness still surprised the optimists, who are happy today with an "only" .5% decline in April industrial production. That is the least decline since October, but "capacity in use" fell .3% to a new post-Depression low 69.1%.

The high week for new unemployment claims was April 4, 668,000 ex-workers filing, and the cycle claims-top often precedes recession bottom by a couple of months. From a late-April low at 604,000, claims popped back to 637,000 last week.

The NFIB April small-business survey climbed a hair from all-time low territory, but did so only on two "soft" sentiment indicators. The "hard" ones -- sales, compensation, capital spending, employment -- all headed lower.

Administration spinners point to improved credit markets with some truth. No large institution has collapsed this year. Survivors have been able to sell some new stock. Some spreads have narrowed. However, only the very best businesses can borrow at affordable rates; BBB-rated bonds are still 6.00% above Treasurys, normal is 1.00%.

The all-important effort to extract toxic assets from banks, recapitalize them, and get them back in the game has stalled. Tim Geithner is the new opening-skit star on Saturday Night Live, energetic and vacant while announcing new and wacky plans.

The greatest gap between credit reality and the authorities' comprehension or effectiveness (dunno which is worse) is in housing.

This morning, Minneapolis Fed Prez Stern announced that "creditworthy mortgage borrowers" would be approved, "if not at the first bank, the second or third." Fool.

We are now almost two years without affordable Jumbos, fixed-rate spreads most places 1.50% above Fannie conforming. Jumbo down payments are 20%-25%. From the '70s on, these loans were available up to 95% -- capped amounts, hyper-qualified, but available. Thus, if you aspire to a $500,000 home, no matter how strong your income, credit, and retirement savings, and have only $50,000 to put down... forget it.

Second mortgage lending in just the last 60 days has receded to 85% maximum.

The last "common sense" loans disappeared almost a year ago. 50% down, huge reserves in savings, but a quirky 1040 -- forget it. Almost every day we must explain to a startled applicant that today's system cannot make a loan that our Granddaddy would have been happy to make at his Ponca City, OK S&L in 1935. And he was tough.

The new Market Conditions Addendum to every Fannie appraisal has added a whole new layer of destruction to regional redlining. Even if value is there (if we can find recent comparable sales), we can't make loans because the number of sales is down.

With an 80% loan on with a 674 FICO (low because of $1,000 in medical collections in an insurance dispute, co-borrower 740), we must tell them Fannie's surcharge will cost them 5.50% with one point instead of 4.50%. The purchase will die.

Suicide-tight underwriting has overwhelmed all-time low rates, as shown in dead-flat applications for purchase loans, and even refis are falling off.

The Obamanauts have a new foreclosure-preventer scheme every week, but this toothpaste-back-in-tube priority has failed for two solid years. Agency 90-day delinquencies rose a half-percent from December to February, to 2.63% of 30,000,000 loans -- up from .95% one year ago.

There is no way to stop the foreclosure wave without restoring price appreciation, the only means to give hope to underwater and breakeven households. And there is no way to get markets going without mortgage credit restored to the reasonable standards of the '70s, '80s, and '90s. If the plan is for the nation to adapt to a Marie Antoinette standard for credit, the plan will fail.