Foreclosure Defense: Over-appraisal argument: Why Would They DO that?

> To:
> Subject: Just a thought…opposing arguments
> On the whole idea with an inflated appraisal and the $amount delta between real and legit, if I’m opposing counsel I argue that that the only one an inflated appraisal benefited was the seller of the property, not anyone in the chain of “conspiracy” from mortgage broker to Wall Street, in fact the inflated appraisal increased their clients risk at no benefit…..obviously this may not wash with a condo/developer in bed with broker/appraiser conspiring to sell units but may be valid argument in typical homeowner sale


Dear Rainmaker: Look a the Bill Moyers piece on the blog and you’ll see the counter arguments.

It’s true that the seller benefited if his/her timing was right. But chances are he turned around and bought some other house at an equally inflated price and THEN took the same loss everyone else did.

In any event, the intent of the Wall $treet parties involved here was to get rid of the cash that was flooding in from investors all over the world, trillions and trillions of dollars of it — far in excess of any normal demand for mortgage loans.

So they had to create a euphoric bubble with the full complicity of developers, who dutifully raised prices every couple of months to give the people who bought the misimpression their house was going up in value and the misimpression to people who were thinking of moving that they better do it fast before the prices go out of reach. In the sales pitch it was the same as the car business. They switched from the price of the asset to the cost of the payment. You can afford $300 per month, can’t you? Yes. Well that’s it, what do you care about the rest of the numbers? If things get tight, you’ll be able to refi at an even higher price and pull out even more money.

The reason for the up market was two-fold — (a) it created demand where there wouldn’t be any because we had a situation of money looking for people not people looking for houses and (2) the higher the price the faster the money could be deployed. Brown’s suit in California says that Countrywide had a quota of 80 loans per day per “mortgage specialist”. So break that day down and see how much time was spent considering the character and qualities of the loan applicant after the socializing was over. 3 minutes, if that?

No, the seller got screwed just like everyone else did, but one step removed. After he “made” all that oney in a resale, he bought a house that plummeted in value. The developer was the only one who made out, but they got ahead of themselves just like the investment bankers etc., who started sucking on thier own exhaust and holding “inventory”.

As to the no benefit argument, you miss the point. They had no risk and ONLY benefit. Wall Street makes money when it moves from one place to another. Here the money moved from investors to home sellers and homeowners (refis). The certificates on asset backed securities (mortgage backed securities) sold to the investors had a premium so great that they could pay premiums all the way down the chain and pay bonuses and kickbacks that were undisclosed.

When the deals tanked who really bites the bullet? The source of funding (investors) and the people who did it to them when the investors start making their claims. Over appraisal was absolutely required because the fundamentals were not there. So appraisers used the developer hatched pricing scheme to justify unjustifiable appraisals. Even an amateur would examine things pretty closely if the same house was selling for $250,000 last year and now has a purchase price of $375,000. Any lay person if they were asked to fund that mortgage would say, wait a minute, how stable is that price?

In the end it was the same thing on both ends of the transaction. They lied to the investors with false desciptions of the underlying “assets” and false descriptions of the actual investment, and false pricing supported by false “independent” ratings and false insurance. They lied to the borowers with false description of the underlying assets to the mortgage, and false descriptions of the actual investment and loan documents, and false pricing supported by false “independent” appraisals and false assurances of future prices.

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