The ratings agencies got paid by the big houses (goldman, bear stearns, jp morgan etc...) to rate these bonds. They were "paid" to give good ratings. That is were the rub is, they were not impartial. They needed more mortgages to package into toxic waste, thus the mortgage brokers got in on it. They added the RE agents. RE agents got the appraisers into it. RE agents got joe public into it. Then the whole pile of them discovered NINJA loans (NINJA = No Income, NO Job or Assets).
I read a great letter from Howard Marks (he runs Oaktree Capital - one of the largest most successful hedge funds ever existing...he was running hedge fund strategies in the 50s) who made the case that the Home Appraiser is the #1 culprit to the current housing mess
1) 75% are uneducated past high school. Those that are, do not do finance or true valuation for a living, just do it to add extra income
2) Almost none of them had prior real estate experience before entering the field
3) test to be an appraiser is easier than getting a GED
4) they are subject to influence and bias from mortgage companies and lenders, no "true" 3rd party vaulation in almost every deal.
5) Appraisals only occur every 18-24 months. All that goes into an appraisal is recent area comps and a quality check to make sure nothing is broken
Quite the theory and i do buy part of it....
