Thursday Morning: Subprime Spillover, Appraisal Games

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Good Morning. Why the SUV photo? Because General Motors, maker of this Chevy vehicle, has been bitten again in the bottom line by the subprime mess. The subprime lender its GMAC unit is in the process of selling, ResCap, reported a loss of $910 million in the first quarter. Presumably Cerebus Capital knew this was coming when it agreed to buy ResCap.

Curious about how the appraisal game really works? Ben Jones’ Housing Bubble Blog links to CNN Money’s new four-part series on the Housing Bubble, which contains this troubling little snapshot of the appraisal game: ‘Last summer Daniel Kim was feeling pinched. So when Kim, of San Leandro, Calif. got a call from a mortgage company, he was intrigued.” “The loan officer, Mia Yi, sold Kim on refinancing, putting him an additional $81,000 in debt on his house. Kim says he was surprised he could borrow more. He had bought the two-bedroom the previous year for $560,000 with no money down.”

“According to an appraiser MONEY hired, Kim’s house is worth only $580,000 and was at the time he refinanced the house.”

“Yi strongly suggested to appraisers what the answer ought to be. In an e-mail she sent to numerous appraisers, Yi said she needed ‘a value of $650,000 or more. Please let me know ASAP with max value.’ Five days later, an appraiser in Discovery Bay, produced the appraisal that led to Kim’s $642,000 mortgage, less than Yi wanted but enough to do a deal.”

“The result: Kim now owes $62,000 more than his house may be worth. Kim put the money from the refinancing into a business and paying off a car loan. He can’t move without foreclosing. ‘It’s not a good feeling,’ he says.”

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