A little tidbit to keep in mind about WaMu: They just laid off their entire appraisal staff, including their supervisors and managers. For most of their employees, their final day is 09/12/2006.
WaMu has contracted with 2 appraisal management companies (LSI and E-Appraiseit) to perform all appraisal and review functions. The fee appraisers who were working directly for WaMu were already cut off, and those who have no other options have already started working for the AMCs, at fees that are 35% – 50% less than what they were getting before. Nobody on the appraisal side of this sees this move as having good results.
I’ve had occasion to speak with a couple of the soon-to-be laid off local managment as well as a couple of the already-laid-off fee vendors, and everyone I’ve spoken to is deeply angry and resentful. Since they now have to do a lot more assignments to make the same amount of money, and since the AMCs are notorious for constantly harrasing their appraisers with 5x daily phone calls and lowball fees, there’s a lot of scheming going on right now on how to do the absolute minimum amount of work necessary to collect the reduced fee. Time is money. Unlike before, most of these people are not taking the position that the company’s exposure to bad loans is a high priority.
I’m already hearing real horror stories about how bad some of these AMC appraisals going to WaMu are. The AMCs are notorious for failing in their review functions and meddling with those appraisers who are trying to complete their due diligence. They’re quite candid that their priorities are about getting appraisals back fast and cheap, everything else be damned.
In the appraisal community, most of the AMCs are generally reviled as parasites, and the people who choose to work for them have often been characterized as being the bottom of the barrel. Lots of really inexperienced appraisers and has-beens who can’t find work anywhere else.
Bottom line here is that WaMu’s exposure to fraudulent loans and poorly developed appraisals is skyrocketing at a critical time. They could not have picked a worse time to give up on appraisal quality. They should be tightening up their standards at this juncture, not gutting them.
Another thing I’m hearing is that WaMu is rolling out a new loan program that will more easily enable overencumbrance of properties. This is also a poor decision (on a long term basis) to be making at this time.
It’ll probably take a while before any of these decisions come back to roost, so it may not figure into your decisions to short right now. But sooner or later these decisions are going to cost them – big time.
