Monster From Below, Not from Above — Appraisal Fraud

Editor’s Comment: Again, myth prevails.
The monster that gobbled our home equity and the value of our pension funds came from the waters beneath the market not from some economic disaster or sudden migration of population to Australia. The “loss of value” was nothing of the sort. Prices were going up during a decade when median income was going down. Prices at best should have been level. This disaster is from a lack of support on the fundamentals of economics — the houses were never worth what the money that appeared on appraisals.
Most pundits, reporters and “experts” talk about the decline in housing prices as the result of some mysterious downward market pressure — like a lack of demand. Demand for housing is no lower or higher than it ever was.
The truth is that there never was any increased demand for housing to support the huge price jumps over the last decade. THAT was caused by an increase of what economists call liquidity and the rest of us now know as phoney money pumped in by Wall Street who paid appraisers to render a report that conformed to contracts instead of market conditions.
Those contracts went through not because of public demand or population increases or even migration. They came from the fact that Wall Street paid or created “lenders” to pretend they were “underwriting” loans and assessing risk the way banks normally perform their duties as lenders. But since they had no money at risk, these “lenders” as straw men in a complex securitization chain, dropped their underwriting function altogether and merely pretended to “qualify” borrowers and approve contracts to purchase or refinance.
February 15, 2010

U.S. Housing Aid Winds Down, and Cities Worry

ELKHART, Ind. — Over the next six months, the federal government plans to wind down many of its emergency programs for housing. Then it will become clear if the market can function on its own.

People here are pretty sure the answer will be no.

President Obama has traveled twice to this beleaguered manufacturing city to spotlight the government’s economic stimulus program. The employment picture here has indeed begun to improve over the last nine months.

But Elkhart also symbolizes the failure of federal efforts to turn around the housing slump at the heart of the economic crisis. Housing in this community has become almost entirely dependent on a string of federal support programs, which are nonetheless failing to prevent a fall in prices and a rise in mortgage delinquencies.

More than one in 10 mortgage holders in Elkhart is seriously behind on payments. The median sales price has plunged to the level of a decade ago. Many homeowners owe more than their home is worth, freezing them in place for years. Foreclosures recently hit a record.

To the extent that the real estate market is functioning at all, people here say, it is doing so only because of the emergency programs, which have pushed down interest rates on mortgages and offered buyers a substantial tax credit.

Equally important is an expanded mortgage insurance program run by the Federal Housing Administration, which encourages private lenders to accept borrowers with small down payments. The government takes the risk of default.

A few years ago, only one in 10 buyers in Elkhart used the housing agency program. Now about half do. Across the country, the agency has greatly expanded its reach so that it now insures six million mortgages.

“There has been all kinds of help for housing. I’m not unappreciative,” said Barb Swartley, president of the Elkhart County Board of Realtors. “But you can’t turn real estate into a government-sponsored operation forever.”

Many in Washington agree. With worries about the deficit intensifying, the government is eager to start withdrawing some of its support programs.

The first step could happen as early as next month, when the Federal Reserve has said it will end its trillion-dollar program to buy up mortgage securities. That program has driven mortgage interest rates to lows not seen since the 1950s.

Yet it is uncertain whether the government can really pull back without sending housing markets into another tailspin. “A rise in rates would kill us all by itself,” Ms. Swartley said.

The Obama administration has offered few ideas about reforming the housing market. Proposals for the future of Fannie Mae and Freddie Mac, the mortgage holding companies taken over by the government at the height of the crisis, were supposed to be introduced with the president’s budget this month. They were not.

The government programs, however crucial, are distorting the market. The tax credit produced sales last fall, but some lenders here say it has troubling implications.

“People are buying to get that tax credit, to get some reserve money. They’re saying, ‘If something happens, I will have a little bit of money to fall back on,’ ” said Denny Davis of Horizon Bank in Elkhart. “That’s not healthy.”

The programs favor first-time buyers, who have the fewest resources to bring to a deal. Heather Stevens, a 23-year-old nurse here, is closing on a three-bedroom house this week. Since her loan was insured by the Federal Housing Administration, she had to put down only 3.5 percent of the $74,900 purchase price.

“It was a breeze to get approved,” she said.

The sellers are covering her closing costs, which agents say is often the case here. That meant Ms. Stevens had to come up with only the $2,600 down payment, which still took all her savings.

But the best part is the $7,500 tax credit. She will use that to remodel the kitchen. “If it wasn’t for the credit, we would have waited to buy,” said Ms. Stevens, who is getting married this year.

Buying houses with no money down was a feature of the latter stages of the housing bubble. It gave prices a final push into the stratosphere. But buyers with no equity were the first to abandon their properties as the market turned south.

With housing prices stagnant, bolstering the market by again letting people buy with hardly any money down is viewed in some quarters as a bad bet.

Neil Barofsky, the special inspector general for the government’s Troubled Asset Relief Program, wrote in his most recent report to Congress that “the federal government’s concerted efforts to support” housing prices “risk reinflating” the bubble.

He noted one difference from the last bubble: taxpayers, rather than banks, are now directly at risk in these new mortgages.

In Elkhart, the worries are less about the risks of doing too much and more about the perils of doing too little. If the Federal Reserve really ends its $1.25 trillion program of buying mortgage-backed securities, economists say, mortgage rates could rise as much as one percentage point. In recent weeks, rates on 30-year fixed mortgages have drifted below 5 percent.

The tax credit requires home buyers to make a deal by April 30, the middle of the prime spring selling season.

For now, the F.H.A. is modestly tightening the requirements on some of its programs, trying to strike a balance between stabilizing the market with qualified buyers and overwhelming it with unqualified borrowers.

John Katalinich, chief lending officer at the Inova Federal Credit Union in Elkhart, says there is danger in letting buyers get into properties with so little at stake, but those risks are minimal compared to the alternative.

“If the government were not to continue the same level of support, it would be very detrimental, like cutting the legs off a wobbling child and expecting it to run a marathon,” he said. “It’s very possible we’ll still be at this level of need five years from now.”

Elkhart, in the northeast corner of Indiana, became a symbol of distressed Middle America after Mr. Obama chose it as the place to introduce his stimulus plan last February. The region is a hub of recreational vehicle manufacturing, one of the first industries to falter in the recession. In less than a year, the unemployment rate tripled, peaking at 18.9 percent last March.

Mr. Obama returned in August to promote the effectiveness of the stimulus program and of government grants for the manufacture of battery-powered electric vehicles. Several companies have announced they are hiring. Unemployment in December was down to 14.8 percent.

No such improvement is visible with housing. In the last 18 months, the F.H.A increased its loans in Elkhart by 40 percent even as its defaults rose 174 percent.

As these troubled loans become foreclosures, the government takes over the property and tries to sell it. On Saturday, Gina Martin, an administrative assistant, examined a three-bedroom government house for sale southeast of Elkhart.

In late 2003, the house sold for $115,000, but in these depressed times the government was willing to let it go for $75,000.

Ms. Martin’s agent, Dean Slabach, thought the government would eventually have to take a much lower bid, substantially increasing its loss. Most of the F.H.A. properties on the market in Elkhart carry notations like “significant price reduction” and “all reasonable offers considered.”

“They’ll end up selling this for $60,000 or less,” Mr. Slabach said.

But Ms. Martin, a 47-year-old renter who has approval for an F.H.A. loan, said she was not tempted at any price.

“We’ll see what else is out there,” she said.

3 Responses

  1. Definitely worth a read.

  2. Hi I found this Appeal Court decision thats help us the homeownsers stick it to the bad guys , and get back some overdue justice. This article was copied from Matt Weidner’s Blog .

    1st version
    A Stunning Second District Court of Appeals (Florida) Foreclosure Reversal! (The Courts Are Finally Pushing Back Against Lender/Attorney Lies!)February 14th, 2010 · Foreclosure
    BAC FUNDING CONSORTIUM V. US BANK- The Liar Lender Game is Up!
    Remember that case name because this case, which was released by the Florida Second District Court of Appeals on February 12, 2010, represents a stunning change in the legal landscape governing foreclosures. The full text of the opinion can be found here. This case is an absolute must read for any attorney practicing law, any homeowner in foreclosure and respectfully, any judge who presides over foreclosure cases.
    As I’ve been screaming about on this blog, and as I plead in virtually all my foreclosure cases, a lender must present some kind of evidence to show they have any rights whatsoever to foreclose on a home. In the vast majority of cases, Plaintiff’s attorneys file pathetic foreclosure lawsuits with attached copies of notes and mortgages, but no documents that show the Plaintiff has any rights whatsoever to file the foreclosure case. The standard response from Plaintiffs attorneys has been, “Screw off, we say we have the right to take the home and we’re taking the home.” Unfortunately in far too many cases, and despite case law to the contrary, judges have often given in to these unsound positions, just as the trial court did in this case. This brand new opinion should help to eliminate these arguments because the appellate court reversed the trial court finding:
    U.S. Bank’s complaint conflicts with its allegations concerning standing and the exhibit does not show that U.S. Bank has standing to foreclose the mortgage, U.S. Bank did not establish its entitlement to foreclose the mortgage as a matter of law.
    But wait, there’s more oh so much more. When challenged, a bank will often come to court with the original note. Judges have been quite impressed with this and have responded….”Plaintiff has the original note, they must be entitled to foreclose”…..not so fast…
    Moreover, while U.S. Bank subsequently filed the original note, the note did not identify U.S. Bank as the lender or holder. U.S. Bank also did not attach an assignment or any other evidence to establish that it had purchased the note and mortgage. Further, it did not file any supporting affidavits or deposition testimony to establish that it owns and holds the note and mortgage. Accordingly, the documents before the trial court at the summary judgment hearing did not establish U.S. Bank’s standing to foreclose the note and mortgage, and thus, at this point, U.S. Bank was not entitled to summary judgment in its favor. And that part of the opinion really is earth shattering because even if the lender comes marching into court with the original note, the appellate court is now saying that’s not enough. (I can hear plaintiff law firms across the state fabricating the evidence they need to comply with this new ruling right now.) The real irony of this opinion is that the stunning reversal did not come because a homeowner had a talented foreclosure defense attorney defending the case….no, the parties involved in this appeal were two banks fighting over the loans they had on the home…’s that for ironic justice.
    It doesn’t matter where it came from, the opinion represents a watershed moment in foreclosure defense and is a tremendous victory for justice and the integrity of the court
    2nd Version
    BAC FUNDING- The End of Summary Judgment For Foreclosures In Florida?
    February 15th, 2010 · Foreclosure
    Every so often, the appellate courts issue opinions that dramatically change the legal landscape. BAC Funding v. US Bank is just such an opinion, because no longer will banks and lenders get a free shot at foreclosure on concocted evidence and mere possession, even of original documents. The full text of the opinion can be found here, but it should be brought to the attention of every judge in every foreclosure case across the state.
    The opinion is full of great direction, but the bottom line is the appeals court has made it clear that it is no longer permissible for Plaintiffs attorneys to come marching into court with documents alone….even if they are original documents. Throughout the foreclosure crisis, Plaintiffs attorneys have been permitted to ignore the basic rules of evidence and just enter in documents without any explanation of how they came into possession….this will now change and Plaintiffs will be required to have both the original documents and some evidence to support how they came into possession of the documents–something they will have a difficult time doing in many cases.
    Here is language taken directly from the opinion:
    U.S. Bank filed a written response to BAC’s motion to dismiss. Attached as Exhibit A to this response was an “Assignment of Mortgage.” However, the space for the name of the assignee on this “assignment” was blank, and the “assignment” was neither signed nor notarized. Further, U.S. Bank did not attach or file any document that would authenticate this “assignment” or otherwise render it admissible into evidence. (That last sentence is key because it now requires Plaintiffs to “authenticate” their filings.)
    Despite the lack of any admissible evidence that U.S. Bank validly held the note and mortgage, the trial court granted summary judgment of foreclosure in favor of U.S. Bank. (Although the bank had introduced an assignment, the court is saying that assignment should not have been the basis to grant summary judgment because it was not properly admitted into evidence.)
    When a plaintiff moves for summary judgment before the defendant has filed an answer, “the burden is upon the plaintiff to make it appear to a certainty that no answer which the defendant might properly serve could present a genuine issue of fact.” Settecasi v. Bd. of Pub. Instruction of Pinellas County 156 So. 2d 652, 654 (Fla. 2d DCA 1963); see also W. Fla. Cmty. Builders, Inc. v. Mitchell, 528 So. 2d 979, 980 (Fla. 2d DCA 1988) As these cases show, a plaintiff moving for summary judgment before an answer is filed must not only establish that no genuine issue of material fact is present in the record as it stands, but also that the defendant could not raise any genuine issues of material fact if the defendant were permitted to answer the complaint.
    Further, it did not file any supporting affidavits or deposition testimony to establish that it owns and holds the note and mortgage. Accordingly, the documents before the trial court at the summary judgment hearing did not establish U.S. Bank’s standing to foreclose the note and mortgage, and thus, at this point, U.S. Bank was not entitled to summary judgment in its favor. (This language is key because it directs the courts to demand an evidentiary basis for documents, not just the documents themselves.)
    Regardless of whether BAC answered the complaint, U.S. Bank was required to establish, through admissible evidence, that it held the note and mortgage and so had standing to foreclose the mortgage before it would be entitled to summary judgment in its favor. Whether U.S. Bank did so through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer, it was nevertheless required to prove that it validly held the note and mortgage it sought to foreclose. See Booker v. Sarasota, Inc., 707 So. 2d 886, 889 (Fla. 1st DCA 1998) (The key word here is “validly”. The Plaintiff cannot just show up in court with the documents, it must validate them and authenticate the documents for the court to consider.)
    The incomplete, unsigned, and unauthenticated assignment attached as an exhibit to U.S. Bank’s response to BAC’s motion to dismiss did not constitute admissible evidence establishing U.S. Bank’s standing to foreclose the note and mortgage, and U.S. Bank submitted no other evidence to establish that it was the proper holder of the note and/or mortgage. (The Plaintiff must introduce authenticated, properly introduced evidence to proceed.)
    The Court Recognizes That Insuring Proper Title To Property Will Be a Real Challenge in Years to Come….
    Given the vastly increased number of foreclosure filings in Florida’s courts over the past two years, which volume has taxed both litigants and the judicial system and increased the risk of paperwork errors, it is especially important that trial courts abide by the proper standards and apply the proper burdens of proof when considering a summary judgment motion in a foreclosure proceeding. Accordingly, because U.S. Bank failed to establish its status as legal owner and holder of the note and mortgage, the trial court acted prematurely in entering final summary judgment of foreclosure in favor of U.S. Bank. We therefore reverse the final summary judgment of foreclosure and remand for further proceedings.
    And so, in this brand new, and as yet, unpublished opinion, the legal landscape for foreclosures changes forever!


  3. I agree. See Cr Case number 07-00755 where several individuals will be paying a price for fraud committed by wall street through such pretender lenders. Instead of punishing the aiders in this scheme the IRS which essentially is a police and watch dog for the bankers who rule this country indicted the small time players in the industry who are merely puppets within a system which is controlled by criminals who hide behind securitizations and sales of instruments created, by them.

    These individuals can be protected. I have a reason to believe that some dump trucks have pleaded them guilty. I sincerely believe in their innocence and they need to be protected. Politically appointed judges on the other hand seem to be on the other side more so because there was no one to educate them about the massive fraud that these masters of this country are perpetuating amongs’t common men. Essentially I believe that the comman man is a slave in this system and need to wake up and rise. This is the time. If this opportunity is missed the tentacles of this monster will grip this nation in such ways that the commoners will be able to do nothing. Let the politicians aside. Their mouth is bigger than than what they cand really do. At the end of it all they are all playing the game for their own benifit.
    Satish Shetty

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