Appraisers Reverse — Now Going Low

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“We can account for small to reasonable increases in values,” Mr. McKinnon said. “We cannot account for $20,000 jumps in a month.”

Editor’s Comment: An amazing quote from someone who obviously is NOW stressing the fundamental elements of an appraisal, especially where there is a loan involved. During the meltdown $20,000 price jumps were taken seriously by appraisers to justify the ever-increasing values they put on property. In some cases you can see jumps much higher than $20,000 within a few months or perhaps a year after the last financing on the same property.

No lender would lend more than the property is worth if they were doing a legitimate loan. In fact, in most cases they require 10%-20% down payment so that their loan to value ratio (LTV) builds in a buffer if the market goes down. So the big question for the sages of appraisal standards, is “where were you and what standards did you apply during the mortgage meltdown?”

And no lender would accept an appraisal report based upon price jumps that were out of character and recent in time. Like before the mortgage meltdown, the lender is responsible for the value used in the deal for a loan — not the borrower.

Any appraiser who had similar views when the securitization scam from Wall Street was in full swing was squashed. Everyone was just making too much money to confront the banks’ demands for higher appraisals — including jumps in prices that were as little as one month ago.

Now appraisers are showing us the way it would have been if the loan originator was actually at risk. Most originators are still not at risk but the threat of litigation from the managed funds that supply the cash for these deals is keeping most players within the normal rules of the game. By keeping appraisals within the realm of reason, they are protecting both the borrower and the investors putting up money for the deal.

When the market was going up, realtors were cheering the appraisers on so that the market would look like it was going up higher and higher and would continue forever. “Better buy now or you miss the boat and you’ll never be able to buy a home the way prices are going.” (Remember that?). Now the realtors are complaining that appraisals are too low and that those low appraisals are killing their deals.

When litigating Appraisal Fraud, it is not only the appraiser that is sued, it is everyone who participated in the securitization “chain” to nowhere. The very comments that appraisers are using to justify their behavior now can be used as the standard by which to judge them (and the banks that hired the appraisers) and their past behavior. I wouldn’t be too surprised if the same appraiser could be put on the stand to justify his current low appraisal reports using industry standards and to show how those standards were ignored in the mortgage meltdown period.

Meanwhile, banks in Spain are finally relenting and lowering the stated value of their real estate assets, which is causing an uptick in the market activity. That can’t happen here until the mega banks finally admit that the “assets” they are holding and reporting on their balance sheet are either fictitious or incredibly over-valued.

But the real jolt that will take us back to economic recovery is only going to be achieved when the millions of people who participated in tens of millions of real estate transactions are given relief in the form of restitution for appraisal fraud and other bad behavior on the part of the banks.

Scrutiny for Home Appraisers as the Market Struggles

By SHAILA DEWAN

When Justin Olson put his Southwestern-style ranch house outside Phoenix on the market, he got what he was expecting: an immediate batch of offers, virtually all above his asking price, which was set intentionally low, at $197,500, to attract interest. He chose an offer of $210,000.

But then came an unpleasant surprise. An appraiser for the buyer’s bank said the house was worth only $195,000. That limited the amount that the bank would lend, forcing the buyer to come up with more cash or negotiate a lower price.

“There was just no way I was selling that house for less than $200,000,” Mr. Olson said. His broker, Brett Barry of Homesmart, advised him that there was little chance of changing the appraiser’s mind. Mr. Olson said, “The part that blows me away — the appraisal can be such an arbitrary, personal decision and there is no appeals process.”

Adding to his indignation, a similar house two doors away was appraised at and sold for $225,000.

Appraisals are generally ordered by banks so they can verify the value of collateral before granting a mortgage. Before the housing crash, when home values seemed only to rise, appraisals were almost an afterthought. But now, with banks far more cautious about lending, a low appraisal can torpedo a deal.

The problem is so widespread that this week the National Association of Realtors blamed faulty appraisals for holding back the housing recovery, saying its members had reported that more than a third of all deals were canceled, delayed or renegotiated to a lower price because of a low appraisal. Several real estate agents said they were starting to include appraisal contingencies in their contracts, spelling out how much a buyer would be willing to pay in cash if the appraisal fell short.

Appraisers use previous sales of comparable houses to help value a home. If prices are just starting to climb, and sales take two or three months to close, there can be a lag before the change in prices is observed.

The Realtors report said appraisers were improperly using foreclosures and neglected properties as comparable homes, failing to account for market conditions like scarce inventory and bidding wars, and working in areas where they lack local expertise. The report faulted banks for using inexperienced appraisers, and for creating unrealistic requirements, like six comparable sales instead of three, at a time of few sales.

“It’s holding sellers off the market,” said Jed Smith, the managing director of quantitative research for the Realtors group. “Sales volume could probably be an additional 10 to 15 percent higher if we had normal lending practices and if we had normal appraisal practices.” That in turn, he said, would create more jobs.

Appraisers and real estate brokers agreed that a ban, imposed since the housing crash, on loan originators’ handpicking appraisers had led to the use of appraisal management companies that take a healthy cut of the consumer’s fee and hire inexperienced, low-cost appraisers.

But appraisers took issue with the complaints and pointed out that unlike real estate agents, they have no bias or incentive to help complete a deal.

“Appraisers don’t set the market, they reflect what’s happening in the market,” said Ken Chitester, a spokesman for the Appraisal Institute, a professional association. “So don’t shoot the messenger. Blaming the appraiser for a bad housing market is like blaming the weatherman because you don’t like the weather.”

Mr. Olson and his buyer compromised on a price of $205,000, less than initially offered and therefore, some might say, less than the house was worth.

But any transaction involving a mortgage is limited by the appraisal — an assessment that is part science and part art and is based on a variety of factors like location and square footage.

Though Mr. Olson’s house was in good condition, the house nearby that sold for more had at least $30,000 worth of upgrades, said Craig Young, the broker who represented the seller. But Mr. Young said appraisals could still be unpredictable, pointing out that a home across the street sold for even more, $239,000.

Some appraisers said agents misunderstand the way homes were valued. For example, although bank-owned homes generally sell at a discount, that is not true in every neighborhood, said Dan McKinnon, who runs an appraisal company with his wife in Phoenix. Appraisers, therefore, do not automatically make adjustments if they are using such sales for comparison. Some bank-owned homes are in good condition, and in some neighborhoods bank-owned sales dominate the market, and thus determine prices.

“If that property is in similar condition to your subject, it is direct competition,” Mr. McKinnon said.

R. James Girardot, an appraiser in Seattle, said appraisers could protect buyers — particularly those from out of town who might think a home sounds like a great deal because prices are much higher where they live.

He said he recently did an appraisal in a desirable subdivision where the contract price was head and shoulders above other recent sales.

“I was told by all the agents I talked to that there’s a real shortage out here, and this house is the sharpest house that has ever come on the market,” Mr. Girardot said. Then he found six other houses in the area for sale, and not one was close in price to the house in question.

Still, in some areas the light sales activity can cause legitimate worries. This week Shannon Moore, a real estate agent on Florida’s west coast, said she had written a contract for more than $1 million for a house on a barrier island. There had been no recent sales on the island, but one was set to close soon, meaning that a single price could affect her deal. “Everybody holds their breath until the appraisal comes in,” she said.

In some cases, agents use appraisals to convince sellers that their expectations are too high and that they should accept a lower offer. But in other cases, sellers know that traditional buyers are competing with cash investors who will pay more.

Afra Mendes Newell, a Florida agent, said one of her clients recently bid $150,000 on a home that was appraised for $135,000. The deal fell through, but another buyer stepped in with $150,000 cash. The good news, she said, was that the next appraisal in the neighborhood would take that price into account.

Agents can try to head off low valuations by arming the appraiser with relevant comparable sales and information about renovations or upgrades that are not readily visible, like insulation. Buyers who disagree with an appraisal can ask the bank to review it, ask for a second appraisal, pay for their own appraisal, or file a complaint with the state, though agents said the chances of salvaging a sale were slim.

Appraisers see some irony in the accusation that, so soon after a housing bubble, they are being accused of holding prices down. They said buyers should not be too eager to make a purchase that is far above recent sales in a neighborhood.

“We can account for small to reasonable increases in values,” Mr. McKinnon said. “We cannot account for $20,000 jumps in a month.”

Five Bad Reasons to Avoid Principal Correction (Reduction)

5 years ago it was obvious to anyone with the facts that the entire system or mortgage origination and mortgage foreclosures had been turned on it’s head, starting with one huge lie: that the value of the property exceeded the amount of the loan. It was in 2005 when 8,000 appraisers warned congress that their industry had been poached by the banks — unless they came back with an “appraisal” that was $20,000 higher than the contract amount, they would never see another dime of business. This one fact was the keystone for the largest economic crime in human history.

The answer is obvious. If a borrower had bribed an appraiser to submit a fair Market value that they both knew could never be sustained — and the obvious purpose was to defraud a lending institution not underwriting a loan under the mistaken belief that the collateral was adequate to repay the loan, the borrower and the appraiser would be punished, disciplined and prosecuted and rightfully so. The outcome of such a case would have been that the perpetrators would lose any license they had for appraisals, that the property would be foreclosed, and that the perpetrators would be ordered to pay restitution for the loss incurred by the lending bank.

The law is pretty simple and there is no protection for anyone to lie for the purpose of defrauding another person. There are no federal or state exemptions, no complexities that make prosecution difficult, just plain facts in which the money of the lending bank was converted into the money of the borrower, the appraiser and maybe their co-conspirators — the mortgage broker, the real estate broker and others. Indeed a perusal of the newspapers across the countries reveals just such prosecutions against borrowers, mortgage brokers and others who conspired to defraud the system (albeit the actual victim being unknown but nonetheless named in each indictment or information prosecuting people “low on the food chain.”

The facts in the mortgage meltdown are equally simple and we call for the same remedies, prosecution, discipline and punishment of the perpetrators. But in this case the perpetrators are the banks. They needed to inflate the appraisals in order to accomplish their twin objectives — closing another loan and making certain that even the “good” loans would fail. Now they confused the issue of title to the property and loan ownership beyond recognition if you look at THEIR paperwork instead of the traditional way record title is kept as notice to the world — through public records title registries.

By blaming the homeowners for the mortgage mess and by sleight of hand tricks played with investors, the Banks managed to steal the homes, steal the money of the investors and steal the bailout. They now seek to steal the non-existent mortgage bonds to fill their balance sheets with non-existent assets. The simple remedies that apply against the. Borrower and the appraiser who lied about the property value are said to present system risks, thus making old fashioned restitution for fraud inapplicable.

So here are the five major reasons the media, the pundits, the government agencies and of course the all-powerful Banks say that the most obvious remedy doesn’t apply.

1. The Banks didn’t commit the crime. It was the originators, the borrowers, the mortgage brokers, the appraisers — anyone but them. Not true. In fact not even close to true. The Banks put the pressure on by setting quotas in dollar volume without regard to quality. There are only two ways of enlarging the dollar volume of loans funded — (1) increase the number of loans and (2) increase the dollar amount of the loans. Since we know that the number of loans was decreasing by 2004-5, the only option left was to artificially inflate the value of the collateral which would enable the originator to fund a larger loan.

2. It’s not fair to reduce principal. But of course it is fair that banks get paid 100 cents on the dollar based upon an initial value and loan they tricked the borrower into taking. And it is fair that the banks get paid by the investors, paid by the insurers and paid by taxpayers all for the same loans even if they were not in default. The debt has been paid in full several times over. Allowing correction to a value of the collateral and the principal on the loan where the banks or investors get paid all over again, but at a realistic level is better than what the banks deserve — I.e., nothing.

3. Reducing principal will cause secondary problems that will disrupt the markets. First this refers to something bad happening if HELOCs or other secondary financing get paid off or modified. It is at best a muddled argument that is both wrong and at variance with the main argument that the borrowers are dead beats that don’t want to pay anything to anyone.

4. Correcting principal will cause disruption of the credit markets. Right. So by this logic, the fruit of fraud should always be sustained and allowed to prosper no matter who gets hurt. This logic certainly undercuts the notion of creating confidence in the credit markets.

5. Correcting principal to the value that should have been used when the deal was made will encourage people in the future to take out loans they nave o intention of repaying. This theory is advanced over the proposition that if Banks get away with this chicanery they might do it again. Here the borrowers did nothing wrong except believe the value that was used in the appraisal. Itmis the banks with a history if wrongdoing, not the borrowers.

BOFA-Aurora Appraisal Fraud $1.8Million Lawsuit Filed in New York for One Homeowner

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Use this form under the heading “Best Practices” — Excellent in every respect. Hats off to Ivan Young of the Young Law Group in Bohemia, New York. I say the Defendants have a collective exposure of several million dollars. If I can find one lawyer that writes a complaint for identity theft on a client like this, we will have completed our forms library. They never could have done this without falsely inflated appraisals, falsely inflated ratings and without stealing the identity of credit worthy borrowers.

Appraisal Fraud Newby- Complaint 12302011

Talk about a lawyer who gets it!! These lawyers all get it and they are after the the biggest players, weaving together the fraud and the participants in the fraud in an artful way that will in my opinion easily get past a motion to dismiss. My only regret is that these lawyers are so good at  pleading and most likely so good at discovery that the case will settle before we get much more out of this case. I am fairly certain that these lawyers were probably threatened with all sorts of consequences if they file the suit. This lawsuit says “Bring it on!”

Here are the things I like about this lawsuit:

  1. It puts appraisal fraud front and center in the complaint. Nothing timid about this.
  2. The Defendants include everyone in the securitization chain including, counter-intuitively but factually correct, the Aurora Lehman Nexus with BOA and Countrywide.
  3. The point is that but for the appraisal fraud none of these players would have played the game at all, and this is clear from the complaint.
  4. BOA “expected or should reasonably have expected its acts and business activities to have consequences within the State of New York, County of Nassau.”
  5. Paragraph 7 correctly states the interrelationship between BOA and the CW companies.
  6. Nailing the appraiser for failing to register in the State to do business. Could lead to blocking the appraiser from filing any defense.
  7. Names the individual appraisers as Defendants — the only way to have someone on the hook who can flip on the other defendants and admit the wrongdoing.
  8. The lawyer figured out the relationships between the different appraisers and appraisal companies before he filed the suit. So when they come in trying to play the shell game they will end up with dirt all over themselves.
  9. The lawyer figured out the interrelationships between the appraiser, the title agents, the title agent etc. before he filed the suit.
  10. The lawyer nails the facts on appraisal fraud. Then traces step by step how the value was inflated.
  11. The allegations weave in violations of TILA and RESPA seamlessly so that the facts speak for themselves without interpretation required.
  12. The clear language of the complaint details the manner in which the Plaintiff was duped and the manner in which the plaintiff was financially damaged in money and credit standing.
  13. “Countrywide fully knew that the loan was based upon a completely bogus appraised value” and “immediately sold, transferred or assigned Plaintiff’s’ first mortgage to Aurora Bank, F.S>B. a/k/a Aurora MSF Lehman.”
  14. RICO, instead of looking like it is out of the blue or a stretch, is an obvious next step, and the lawyer takes it with ease.
  15. READ THE REST YOURSELVES. REMEMBER THIS IS ONE CASE AND NOT ALL CASES ARE THE SAME AND NOT ALL STATES ARE THE SAME. CONSULT WITH A LAWYER!

Foreclosure-Gate Screw Tightens: Banks Face $17 Billion in Suits Over Foreclosures

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EDITOR’S COMMENT: Here is our problem writ large. The commentary written by Shedlock (see below) is basically on the side of punishing the banks for their wrongdoing, but not giving any relief to borrowers. The logic behind the position is that anyone who does not pay their mortgage should expect to lose their home. On its face, it would seem that nobody could reasonably argue to the contrary. The problem we face is the assumption behind that sentiment. The presumption is that the payments were due, that the creditor was not getting paid, and that the homeowner should lose the house for which they paid a “stupid price” — a slam at homeowners who accepted the lender’s appraisal of the property.

My premise goes deeper than the shallow waters of Shedlock’s position, who clearly represents the feeling of a majority of people who just take a quick glance at the problem. My premise is that anyone who has a debt that is due has the responsibility to pay it to the party to whom it is due, less any legally meritorious defenses for bad behavior on the part of those who induced him into the transaction.

So if you enter into a transaction where you get funded for $100,000, you have agreed to repay that $100,000. If you have a claim against the party who wants to enforce the obligation, then you should repay the net amount due after computation of damages for both sides. And if the amount due from the “enforcer” (pretender) is more than the amount claimed by the enforcer, there is no debt to pay from the borrower’s perspective. The borrower in that scenario is owed money which is an unsecured debt. I don’t think anyone could reasonably argue with that position either.

The first issue, though is whether the debt is due, and to whom. The debt might not be due at all if the creditor has received, directly or indirectly, payment or settlement from bailouts, insurance, credit default swaps, guarantees, etc. Shedlock’s mistake is the same as most people — assuming that because the homeowner stopped paying, there must be a default. In ordinary times with ordinary mortgage lending practices that would be true. In the context of the illusion of securitization and following the actual money trail, it is not true.

At the time of the declaration of default, the servicer is probably continuing to make the payments to the creditor, which means that from the creditor’s perspective, the obligation is NOT in default. Because the securitization scheme involves multiple obligors on the obligation, only one of which is the homeowner, it is not possible to determine a default unless one gets an accounting from all levels of the securitization chain. If the servicer is making the payments, then the original obligation to the creditor is NOT in default, but the servicer MIGHT have a claim for restitution against the homeowner for making his payment — but that claim is not secured and not  liquidated unless and until the servicer proves the actual money trial. So my premise is based upon making decisions based upon the actual facts rather than a set of incorrect presumptions.

The most serious defect in Shedlock’s position is that taken at face value, it would allow anyone to take the house away regardless of whether or not they are the creditor. Assuming the creditor is the investor-lender. Just because the actual lender refuses to enforce the obligation, and the obligation is “perceived” as due, does not give a license to ANYONE with some knowledge to make the claim in lieu of the real creditor. That is insane. If that were the law, then our marketplace would be filled with uncertainty inasmuch as it would virtually guarantee multiple claims on the same debt by multiple parties. In a race to the courthouse the first one to initiate proceedings to enforce the obligation would arguably be the winner — even though they never loaned any money and never purchased the obligation — and even though the obligation has potentially been paid in full or is being paid current by the servicer. Nobody can reasonably argue with this point either.

The last major point I would make is that Shedlock presumes the original transaction was properly documented and recorded in the form and content required by law. This is not the case in virtually all securitized loans. The documentation shows that homeowner-borrower (HB) was funded by originating lender (OL). In truth OL was merely acting as stand-in for undisclosed parties contrary to federal and state laws. The money trail clearly shows that the investor-lender (IL) was the source of the funds and was the intended beneficiary of the transaction.

So the documentation shows a transaction (HB-OL) that never existed since OL did not lend or otherwise even handle the money involved in the funding of the loan, most of which work was done by the closing or escrow agent. The documentation should have identified IL as the lender but didn’t. In fact, there is no documentation in which both IL and HB appear as parties, neither one actually knowing about the other nor the terms of the transaction by which IL advanced money and HB received the benefit of money.

And here is the rub: the investors don’t want any part of the predatory lending practices and faulty underwriting that was custom and practice in the industry during this mortgage mess, so they seek no remedy from the homeowner. IL does not want to limit itself and collect from HB because IL knows that the investment banker who sold the mortgage bonds didn’t use all the money for funding mortgages. Instead they used the money to claim fees and profits part of which funded bets against the very loans that they said they were selling to the IL but in fact never transferred from OL.

If  Shedlock’s premise were accepted, then the pretender lenders score a great victory for themselves at the expense of the IL whose money they used to fund the scheme and the HB whose obligation has been partially or entirely extinguished by trillions of dollars in payments received by the securitized parties on behalf of the IL but which was neither reported nor paid to IL. IL therefore has chosen to sue not the homeowner, where the damages would be reduced to near zero, but rather to sue the investment bank, where the damages are 100% of the money they advanced. If they went for the HB, they would end up with at best a home worth a small fraction of fraudulent appraisal OL used to get HB’s signature. Both the loan amount and the security for the loan would already be substantially lower than the money advanced by IL. So given that they are looking at 20 cents on the dollar if they go after the HB, less offset for predatory lending claims, they have chosen to sue the investment banker for 100 cents on the dollar.

The void created by the choice of IL not to enforce against HB has been filled with pretender lenders who see an opportunity to gain a free house. It is the banks who have created the choice of a free house (or HB relief for the borrower) or a free house for the pretender lenders. Given the equities and the fact that all of the fees and profits of the securitizers and pretenders are ill-gotten based upon fraudulent statements it hardly seems right to say that the collateral benefit from all this should flow to the banks rather than homeowners who were duped into the transaction to begin with.

from Mish Shedlock, http://globaleconomicanalysis.blogspot.com

Foreclosure-Gate Screw Tightens: Banks Face $17 Billion in Suits Over Foreclosures; Common Sense Says $5 Billion is Very Generous

State attorneys general are not happy with a $5 billion offer by major banks to settle lawsuits regarding robo-foreclosures and other alleged grievances. Some officials want as much as $20 billion. The compromise threat is on the high end.

Please consider Banks Face $17 Billion in Suits Over Foreclosures

State attorneys general told five of the nation’s largest banks on Tuesday they face a potential liability of at least $17 billion in civil lawsuits if a settlement isn’t reached to address improper foreclosure practices, according to people familiar with the matter.

The figure doesn’t cover additional billions of dollars in potential claims from federal agencies such as the Department of Housing and Urban Development and the Justice Department. State and federal officials haven’t proposed a specific comprehensive settlement figure, but Tuesday’s discussions represented the first effort to formally quantify potential liability.

Banks have proposed a $5 billion settlement that would be used to compensate any borrowers previously wronged in the foreclosure process and provide transition assistance for borrowers who are ousted from their homes. Federal and state officials have dismissed that as insufficient. Some officials have pushed for a total price tag of more than $20 billion to resolve foreclosure-handling abuses that surfaced last fall.

The U.S. Trustee Program, a part of the Justice Department that oversees bankruptcy cases, has asked for an additional $500 million to $1 billion in penalties, according to people familiar with the matter. Officials of the unit have raised questions in several cases over the authenticity of foreclosure documents.

Banks have argued that their problems are largely technical and that few if any borrowers have faced wrongful foreclosures. State and federal officials have faulted mortgage companies for not hiring enough staff to provide assistance to millions of borrowers that have fallen behind on their mortgages.

The latest development comes as state and federal officials are intensifying their scrutiny of other parts of the mortgage machine. Attorneys general in California and New York have announced wide-ranging mortgage investigations.

What are the Damages?

This is what I want to know:

  1. How many people lost their home to foreclosure out of an error? By error I mean the wrong person, a home with no mortgage, or a major procedural error.
  2. How many people think they deserve a free house and clear or a principal reduction over “show me the note” nonsense or other problems including unemployment?
  3. How many people did banks string along for many months with promises of work-outs, where the person paid their mortgage for months, then lost their home.

Throw Category #2 in the Ash Can

I am sure category #2 is the largest. Throw those cases in the ash can where they belong.

No one want to admit they were stupid. Yet people paid stupid prices for homes. Others were unlucky. Some lost their jobs. Even then, one can ask “did you have a year’s worth of living expenses saved up in the bank, in case you lost your job?” Regardless of the answer, banks should not be on the hook for people losing their jobs or having medical problems.

Here’s the cold simple truth: If you do not pay your mortgage, it is reasonable to expect to lose your home. There is no other realistic way of looking at it. Robo-signing may not be right, but it is irrelevant.

Category #1 the Real Problem

I have deep sympathy for those in cases where banks foreclosed on the wrong home, the wrong address, or on homes with no mortgage at all. Those people deserve their home paid free and clear and some huge penalty on top of it.

I suspect the number of such cases is minuscule. They receive enormous publicity but is the number 10,000? 5,000? 500? or 50? I suspect the number is far closer to the lower end than the higher end. 50 might easily be on the high side.

Whatever the number is, banks should pay mightily and punitively for it. The money should go to those wronged, not to the states. Even with massive penalties I doubt the total would come close to $200 million.

Category 3 is Where the Uncertainty Is

I do not know how big the “strung along” category is, but the only ones in this category who were genuinely harmed to any significant degree are those who continued to make mortgage payments, strung along on a promise, when instead they could have and should have walked away.

How many is that? You tell me. However, the harm is easy to quantify. The harm is extra payments people made (if any), while the banks engaged in deceptive practices or were simply understaffed.

Assume banks engaged in deceptive practices and people made extra payments instead of walking away. Would those extra payments amount to as much as $1 billion? I rather doubt it.

$5 Billion is Very Generous

What is a valid penalty? $4 billion seems like a lot of money to me. That would be a 400% penalty if the total wrong-doing amounted to $1 billion which I doubt.

The sad truth of the matter is we have a full scale witch-hunt over robo-signing and other alleged grievances even though there was little actual damage caused by banks.

If you disagree then total up the damages. However, I insist you start from two essential points.

  1. If you do not pay your mortgage, it is reasonable to expect to lose your home.
  2. Robo-signing may not be right, but it is irrelevant as per point #1.

So total up the damages, add a huge penalty, and let me know what you come up with.

No doubt, many will accuse me of siding with banks. The reality is I am siding with common sense. No one fought against bank bailouts harder than I did. Banks should have been allowed to go under.

Unfortunately they were bailed out. However, two wrongs do not make a right.

I am all for punishing banks provided the punishment is based on damages rather than the widespread belief “we need to stick it to the banks”.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

THE PROBLEM WITH PRINCIPAL “REDUCTION” VS PRINCIPAL “CORRECTION”

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While Wall Street has us all thinking that this is so complicated that it can never be unraveled, the reverse is true. If the homeowner was the victim of a crime or misfeasance or malfeasance, then the homeowner has every right to restitution and redress of his grievances. If the homeowner was treated fairly and there were no material violations of the Federal and state lending laws, then there is no restitution or redress, because nothing bad happened. Anyone opposed to this plan of action is taking a position against our centuries old system of common law, statutes and procedural due process.” — Neil Garfield

The problem is that the Courts are looking at policy instead of legal precedent. The pretender lenders are doing everything they can, and doing it successfully, to make sure that the Court never considers or hears the factual question of whether the homeowner was harmed by a wrongful act committed by some or all of the people at the closing of the loan. This isn’t magic or rocket science. If the wrongful act occurred we all know that the law requires the wrongful actor to be punished and the victim is to be made as whole as possible given the reality of the circumstances.” — Neil Garfield

EDITOR’S ANALYSIS: The Washington Post editorial below hits the nail on the head as to the political and legal problems associated with principal REDUCTION. Where does it end? The current plan being discussed is too little, too late and carries political liability equivalent to a third rail. It also is probably not legal.

And THAT is why words make all the difference. Principal REDUCTION stands for the proposition that we are going to arbitrarily pick a number of people and reduce the balances due on the amount demanded, as evidenced by the promissory note. I see nothing but problems in such an approach. The principal problem is that it does not address WHY lowering the obligation from the amount stated on the promissory note is necessary or proper?

On the other hand principal CORRECTION stands for the proposition that the amount demanded is not the right amount and that we are going to correct it to  assure that it matches up with reality. There is no arbitrary or political decision necessary. The only basis for doing it would be that the amount stated on the note is wrong, or was procured by fraud, or some other long-standing legally recognized doctrine of law in which the borrower is the victim who has suffered damages that require redress.

If the Obama administration wants to propose a program of principal correction, it can do so by rule or regulation, just as the Federal Reserve can do in Reg Z. Given the fact that table-funded loans (i.e., all securitized loans for practical purposes) are improper and that the appraisals were false along with other violations of underwriting standards relied upon by homeowners and investors, they only need to state that upon proof of one or more of the violations of the consumer’s rights to disclosure and fairness, the terms of the obligation shall be adjusted to reflect terms of the transaction proposed to the borrower at the time of closing as opposed to the deal claimed by the pretender lender now.

If the mortgage is legally invalid and requires reformation or a substitute to make it valid, then the party seeking protection under the terms of the alleged mortgage must negotiate terms with the homeowner, same as any other case where such things have happened.

As in all other cases where such things have occurred before the latest mortgage foreclosure rampage, these things are self-evident if taken on a case by case basis. In some cases, the property will be foreclosed by a party who is in fact the creditor and has the right to do so. In other cases there will be adjustments to the terms of the obligation which might include a correction of principal (where the appraisal was inflated), interest rate (where the rate was not properly disclosed), term where the “reset” was not properly disclosed etc.

While Wall Street has us all thinking that this is so complicated that it can never be unraveled, the reverse is true. If the homeowner was the victim of a crime or misfeasance or malfeasance, then the homeowner has every right to restitution and redress of his grievances. If the homeowner was treated fairly and there were no material violations of the Federal and state lending laws, then there is no restitution or redress, because nothing bad happened. Anyone opposed to this plan of action is taking a position against our centuries old system of common law, statutes and procedural due process.

The problem is that the Courts are looking at policy instead of legal precedent. The pretender lenders are doing everything they can, and doing it successfully, to make sure that the Court never considers or hears the factual question of whether the homeowner was harmed by a wrongful act committed by some or all of the people at the closing of the loan. This isn’t magic or rocket science. If the wrongful act occurred we all know that the law requires the wrongful actor to be punished and the victim to be made as whole as possible given the reality of the circumstances.

LLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLLL

A questionable plan to aid underwater homeowners

THE U.S. ECONOMY can’t truly recover until the housing market revives. Yet recent data indicate that prices, already off an average of 30 percent from their peak in 2006, have still not touched bottom. Lending conditions are tight, and mortgage rates are ticking up again. Nearly a quarter of mortgage borrowers are “underwater,” owing more than their houses are worth. Massive federal assistance – $1 trillion in Federal Reserve mortgage-bond purchases; dramatic expansion of Federal Housing Administration (FHA) loans; an Obama administration push to modify existing home loans – has slowed the collapse but not, apparently, ended it.

What more, if anything, should be done? The latest administration idea is to use the two government-controlled mortgage-finance firms, Fannie Mae and Freddie Mac, to help underwater borrowers. Under the plan, Fannie and Freddie, which back about half of all U.S. home loans, would identify creditworthy borrowers who are underwater but still current on their payments – and then turn their loans over to the FHA, which would refinance them in return for a write-off of at least 10 percent of the unpaid principal balance. Though the administration notes that this is no panacea, officials argue it could make a significant difference to between 500,000 and 1.5 million borrowers, reducing their debt and their risk of eventual foreclosure. Fannie and Freddie would absorb losses from the principal writedown, but proponents of the plan argue that Fannie and Freddie would be even worse off if foreclosures occur later – and the Treasury, which is covering the two entities’ losses, would be on the hook either way.

The entities and their regulator, the Federal Housing Finance Agency (FHFA), are cool to the idea. In addition to the threat to Fannie and Freddie’s already disastrous bottom lines, an obvious drawback is moral hazard: If government starts paying off some people’s debt principal, what’s to stop others from demanding the same break? Preventing moral hazard, of course, limits any plan’s impact. Previous loan-modification efforts also have attempted to target that elusive cohort of distressed-but-capable borrowers, with disappointing results. Analysts at Credit Suisse recently described the potential benefits of the administration plan as “more symbolic and psychological than fundamental.”

Republicans in Congress have started to push back as well. On Monday, the incoming chairman of the House subcommittee that oversees Fannie and Freddie, Rep. Randy Neugebauer (R-Tex.), published a letter to FHFA noting that “the program targets performing loans” and asking “why it would be in the best interest of the U.S. taxpayer for Fannie and Freddie to write down principal on these types of loans.”

Mr. Neugebauer wants a public report detailing the potential costs of the program. More transparency might be a good idea before Fannie and Freddie proceed. Given the mixed results of past loan-modification schemes, a formal public statement of the potential costs and benefits of the latest one doesn’t seem too much to ask.

NY Appeals: AG may pursue Banks for Fraudulent Appraisal

Editor’s note: I think the standards used here apply to ALL private actions for appraisal fraud. With appraisal fraud proven, virtually all lending statutes are proven to have been violated. Appraisal fraud lies at the root of the mortgage mess with its sister, ratings fraud. Both are appraisals and both are ratings. Both were designed to track people into doing what they otherwise would never have done if they had the right information. If the either the investor to advanced the money or the borrower who took it knew that the appraisal was bogus and that there was going to be a hit virtually as fast as you drive a new car off the lot, they would not, as reasonable people, have completed the transaction or they would demanded more information.
From Jake Naumer: This goes to the root and branch of the problems we have today.The good news is that there is actually a TRUE and CORRECT VALUE for any property.It just seems that no one seems to know what it actually is.

Historically and emperically, true value has always been a fairly fixed relationship between total aggregate income and total aggregate property, with some deference for location and ammenities.All of the players with varying vested interests seek to distort the perception of value, through the use of manipulation and misinformation, in order to extract the profit that is created by the gap between true value and perceived value. Unfortunately, once the distortion machine was exposed by exacting market forces, robbery of the honorable rule abiding tax paying citizens was required to maintain the status quo.

It will not last.

Submitted by Jeff

People v First Am. Corp.
2010 NY Slip Op 04868
Decided on June 8, 2010
Appellate Division, First Department
Gonzalez, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on June 8, 2010

SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Luis A. Gonzalez, P.J.
David B. Saxe
James M. Catterson
Rolando T. Acosta, JJ.
406796/07

1308

[*1]The People of the State of New York by Andrew Cuomo, Attorney General of the State of New York, Plaintiff-Respondent,

v

First American Corporation, et al., Defendants-Appellants.

Defendants appeal from the order of the Supreme Court, New York County (Charles Edward Ramos, J.), entered April 8, 2009, which, insofar as appealed from as limited by the briefs, denied their motion to dismiss the complaint on the ground of federal preemption.

DLA Piper LLP (US), New York (Richard F. Hans,
Patrick J. Smith, Kerry Ford
Cunningham and Jeffrey D.
Rotenberg of counsel), for
appellants.
Andrew M. Cuomo, Attorney General, New York
(Richard Dearing, Benjamin
N. Gutman and Nicole
Gueron of counsel), for respondent. [*2]

GONZALEZ, P.J.

This appeal calls upon us to determine whether the regulations and guidelines implemented by the Office of Thrift Supervision (OTS) pursuant to the Home Owner’s Lending Act of 1933 (HOLA) (12 USC § 1461 et seq.) and the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) (Pub L 101-73, 103 STAT 183 [codified in scattered sections of 12 USC]), preempt state regulations in the field of real estate appraisal.

The Attorney General claims that defendants engaged in fraudulent, deceptive and illegal business practices by allegedly permitting eAppraiseIT residential real estate appraisers to be influenced by nonparty Washington Mutual, Inc. (WaMu) to increase real estate property values on appraisal reports in order to inflate home prices. We conclude that neither federal statutes, nor the regulations and guidelines implemented by the OTS, preclude the Attorney General of the State of New York from pursuing litigation against defendants First American Corporation and First American eAppraiseIT, LLC. We further conclude that the Attorney General has standing to pursue his claims pursuant to General Business Law § 349.

In a complaint dated November 1, 2007, plaintiff, the People of the State of New York, commenced this action against defendants asserting claims under Executive Law § 63(12) and General Business Law § 349, and for unjust enrichment. The complaint alleges that in Spring 2006, WaMu hired two appraisal management companies, defendant eAppraiseIT and nonparty Lender’s Service, Inc., to oversee the appraisal process and provide a structural buffer against potential conflicts of interest between WaMu and the individual appraisers. The gravamen of the Attorney General’s complaint asserts that defendants misled their customers and the public by stating that eAppraiseIT’s appraisals were independent evaluations of a property’s market value and that these appraisals were conducted in compliance with the Uniform Standards and Professional Appraisal Practice (USPAP), when in fact defendants had implemented a system allowing WaMu’s loan origination staff to select appraisers who would improperly inflate a property’s market value to WaMu’s desired target loan amount.[FN1]

Defendants moved for dismissal of the complaint pursuant to CPLR 3211, asserting that the Attorney General is prohibited from litigating his claims because HOLA and FIERRA impliedly place the responsibility for oversight of appraisal management companies on the OTS, and asserting a failure to state a cause of action. Supreme Court denied defendants’ motion, finding that HOLA and FIRREA do not occupy the entire field with respect to real estate appraisal regulation and that the enforcement of USPAP standards under General Business Law § [*3]349 neither conflicts with federal law, nor does it impair a bank’s ability to lend and extend credit. We affirm.

The Supremacy Clause of the United States Constitution provides that Federal laws “shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding” (US Const, art VI, cl [2]), and it “vests in Congress the power to supersede not only State statutory or regulatory law but common law as well” (Guice v Charles Schwab & Co., 89 NY2d 31, 39 [1996], cert denied 520 US 1118 [1997]). Indeed, “[u]nder the U.S. Constitution’s Supremacy Clause (US Const, art VI, cl 2), the purpose of our preemption analysis is . . . to ascertain the intent of Congress” (Matter of People v Applied Card Sys., Inc., 11 NY3d 105, 113 [2008], cert denied
_ US _, 129 S Ct 999 [2009]).

Congressional intent to preempt state law may be established “by express provision, by implication, or by a conflict between federal and state law” (Balbuena v IDR Realty LLC, 6 NY3d 338, 356 [2006], quoting New York State Conference of Blue Cross & Blue Shield Plans v Travelers Ins. Co., 514 US 645, 654 [1995]). Express preemption occurs when Congress indicates its “pre-emptive intent through a statute’s express language or through its structure and purpose” (Altria Group, Inc. v Good, 555 US __, __, 129 S Ct 538, 543 [2008]). Absent explicit preemptive language, implied preemption occurs when “[t]he scheme of federal regulation [is] so pervasive as to make reasonable the inference that Congress left no room for the States to supplement it . . . [o]r the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject” (Rice v Santa Fe El. Corp., 331 US 218, 230 [1947]). Further, when “[a] conflict occurs either because compliance with both federal and state regulations is a physical impossibility, or because the State law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress,” the State law is preempted (City of New York v Job-Lot Pushcart, 213 AD2d 210, 210 [1995], affd 88 NY2d 163 [1996], cert denied 519 US 871 [1996] [internal quotation marks and citations omitted]).

Here, defendants do not argue, nor have they directed this Court’s attention to any language within HOLA or FIRREA that establishes, that Congress expressly created these statutes to supersede state law governing the causes of actions asserted in the Attorney General’s complaint. Defendants also have not argued that there exists a conflict between federal and State laws or regulations. Rather, defendants assert that because Congress has legislated so comprehensively, and that federal law so completely occupies the home lending field, the Attorney General is precluded from bringing claims against them under the theory of field preemption. Thus, the necessary starting point is to determine whether HOLA and FIRREA so occupy the field that these two statutes preempt any and all state laws speaking to the manner in which appraisal management companies provide real estate appraisal services.

In 1933, Congress enacted HOLA “to provide emergency relief with respect to home mortgage indebtedness at a time when as many as half of all home loans in the country were in default” (Fidelity Fed. Sav. & Loan Assn. v De la Cuesta, 458 US 141, 159 [1982] [internal [*4]quotation marks and citations omitted]). HOLA
created a general framework to regulate federally chartered savings associations that left the regulatory details to the Federal Home Loan Bank Board (FHLBB). The FHLBB’s authority to regulate federal savings and loans is virtually unlimited and “[p]ursuant to this authorization, the [FHLBB] has promulgated regulations governing the powers and operations of every Federal savings and loan association from its cradle to its corporate grave” (id. at 145 [internal citations and quotation marks omitted]).

When Congress passed FIRREA in 1989, it restructured the regulation of the savings association industry by abolishing the FHLBB and vested many of its functions into the newly-created OTS (see FIRREA § 301 [12 USCA § 1461 et seq.] [establishing OTS], § 401 [12 USCA § 1437] [abolishing the FHLBB]). According to FIRREA’s legislative history

“[t]he primary purposes of the [FIRREA] are to provide affordable housing mortgage finance and housing opportunities for low- and moderate-income individuals through enhanced management of federal housing credit programs and resources; establish organizations and procedures to obtain and administer the necessary funding to resolve failed thrift cases and to dispose of the assets of these institutions . . . and, enhance the regulatory enforcement powers of the depository institution regulatory
agencies to protect against fraud, waste and insider abuse” (HR Rep 101-54 [I], at 307-308, reprinted in 1989 US Code Cong to Admin News, at 103-104).

FIRREA was also designed
“to thwart real estate appraisal abuses, [by] establish[ing] a system of uniform national real estate appraisal standards. It also requires the use of state certified or licensed appraisers for real estate related transactions with the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Fannie Mac), the RTC, or certain real estate transaction [sic] regulated by the federal financial institution regulatory agencies” (HR Rep 101-54 (I), at 311, reprinted in 1989 US Code Cong to Admin News, at 107).

Further, 12 USCS § 3331, which was enacted as part of FIRREA, states that the general purpose of this statute, is
“to provide that Federal financial and public policy interests in real estate related transactions will be protected by requiring that real estate appraisals utilized in connection with federally related [*5]transactions are performed in writing, in accordance with uniform standards, by individuals whose competency has been demonstrated and whose professional conduct will be subject to effective supervision.”

The uniform standards described in 12 USCS § 3331, are defined in 12 USCS § 3339 which requires that the OTS, as a
“Federal financial institution[] regulatory agency . . . shall prescribe appropriate standards for the performance of real estate appraisals in connection with federally related transactions [FN2] under the jurisdiction of each such agency or instrumentality. These rules shall require, at a minimum — (1) that real estate appraisals be performed in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation; and (2) that such appraisals shall be written appraisals.”
The Appraisal Standards Board (ASB) of the Appraisal Foundation promulgates the appraisal standards mandated by 12 USC § 3339 and are called USPAP. The Appraisal Foundation is a private “not-for-profit organization dedicated to the advancement of professional valuation [and] was established by the appraisal profession in the United States in 1987″ (Welcome to The Appraisal Foundation [The Appraisal Foundation], https://netforum.avectra.com/eWeb/StartPage.aspx?Site=TAF [accessed May 27, 2010]). The ASB is responsible for “develop[ing], interpret[ing] and amend[ing]” USPAP (Welcome to The Appraisal Foundation, https://netforum.avectra.com/eWeb/
DynamicPage.aspx?Site=TAF & WebCode=ASB [accessed May 27, 2010]). However, “[e]ach U.S. State or Territory has a State appraiser regulatory agency, which is responsible for certifying and licensing real estate appraisers and supervising their appraisal-related activities, as required by Federal law” (State Regulatory Information [The Appraisal Foundation], https://netforum.avectra.com/eWeb/DynamicPage.aspx?Site=taf & WebCode=RegulatoryInfo [accessed May 27, 2010]; see also State Appraiser Regulatory Programs > State Contact Information [Appraisal Subcommittee], https://www.asc.gov/State-Appraiser- Regulatory-Programs/StateContactInformation.aspx [accessed May 27, 2010] [listing each State appraiser regulatory agency’s website]). Further, the OTS itself has determined that

“[i]t does not appear that OTS is required by title XI of FIRREA to [*6]implement an appraisal regulation that reaches all the activities of savings and loan holding companies, at least to the extent that those activities are unrelated to the safety and soundness of savings associations or their subsidiaries. Neither the language of Title XI nor its legislative history indicate that Congress intended title XI to apply to the wide range of activities engaged in by savings and loan holding companies and their non-saving association subsidiaries” (55 Fed Reg 34532, 34534-34535 [1990], codified at 12 CFR 506, 545, 563, 564 and 571).

Indeed, the OTS encourages financial institutions
“to make referrals directly to state appraiser regulatory authorities when a State licensed or certified appraiser violates USPAP, applicable state law, or engages in other unethical or unprofessional conduct. Examiners finding evidence of unethical or unprofessional conduct by appraisers will forward their findings and recommendations to their supervisory office for appropriate disposition and referral to the state, as necessary” (OTS, Thrift Bulletin, Interagency Appraisal and Evaluation Guidelines at 10 [November 4, 1994], http://files.ots.treas. gov/84042.pdf [accessed May 27, 2010]).
In looking at the legislative history it becomes clear that Congress intended to establish

“a system of uniform real estate appraisal standards and requires the use of State certified and licensed appraisers for federally regulated transactions by July 1, 1991. . . The key . . . lies in the creation of State regulatory agencies and a Federal watchdog to monitor the standards and to oversee State enforcement. . . It is this combination of Federal and State action . . . that . . . assur[es] . . . good standards are properly enforced (135 Cong Rec S3993-01, at S4004 [April 17, 1989], 1989 WL 191505 [remarks of Senator Christopher J. Dodd]).

Thus, we conclude that neither HOLA or FIRREA preempts or precludes the Attorney General from pursuing his claims.
Having rejected defendants’ general arguments for preemption under HOLA and FIRREA, “[t]he Court’s task, then, is to decide which claims fall on the regulatory side of the ledger and which, for want of a better term, fall on the common law side” (Cedeno v IndyMac Bancorp, Inc., 2008 WL 3992304, *7, 2008 US Dist LEXIS 65337, *22 [SD NY 2008] [internal quotation marks and citation omitted]). Defendants assert that the Attorney General is preempted from pursuing his claims because subsequent to FIRREA’s passage, the OTS issued extensive [*7]regulations specifically addressing the composition and construction of appraisal programs undertaken by federal savings and loans.

It is well settled that “[a]gencies delegated rulemaking authority under a statute . . . are afforded generous leeway by the courts in interpreting the statute they are entrusted to administer” (Rapanos v United States, 547 US 715, 758 [2006]). Indeed, the OTS regulations “have no less pre-emptive effect than federal statutes” (Fidelity Fed. Sav. & Loan Assn., 458 US at 153). 12 CFR 545.2, states that regulations promulgated by the OTS are “preemptive of any state law purporting to address the subject of the operations of a Federal saving association.” However, 12 CFR 560.2(a) limits the language of 12 CFR 545.2 by setting parameters to the OTS’ authority to promulgate regulations that

“preempt state laws affecting the operations of federal savings associations when deemed appropriate to facilitate the safe and sound operation of federal savings associations, to enable federal savings associations . . . to conduct their operations in accordance with the best practices of thrift institutions in the United States, or to further other purposes of the HOLA” (12 CFR 560.2[a]).
12 CFR 560.2(b) provides a non-exhaustive list of illustrative examples of the types of state laws preempted by 12 CFR 560.2(a). Further, 12 CFR 560.2(c) states that the following types of State law are not preempted

“to the extent that they only incidentally affect the lending operations of Federal savings associations . . . (1) Contract and commercial law; (2) Real property law; (3) Homestead laws specified in 12 U.S.C. 1462a(f); (4) Tort law; (5) Criminal law; and (6) Any other law that OTS, upon review, finds: (i) Furthers a vital state interest; and (ii) Either has only an incidental effect on lending operations or is not otherwise contrary to the purposes expressed in paragraph (a) of this section.”
The OTS advises that when a court is

“analyzing the status of state laws under § 560.2, the first step will be to determine whether the type of law in question is listed in paragraph (b). If so, the analysis will end there; the law is preempted. If the law is not covered by paragraph (b), the next question is whether the law affects lending. If it does, then, in accordance with paragraph (a), the presumption arises that the law is preempted. This presumption can be reversed only if the law can clearly be shown to fit within the confines of paragraph (c). For these purposes, paragraph (c) is intended to be interpreted narrowly. Any doubt should be resolved in favor of preemption” (61 Fed Reg 50951-01, 50966-50967 [1996]).
[*8]
Defendants argue that the Attorney General’s challenges to defendants’ business practices are preempted because the conduct falls within 12 CFR 560.2(b)(5), which provides examples of loan-related fees “including without limitation, initial charges, late charges, prepayment penalties, servicing fees, and overlimit fees.” Defendants also assert that their alleged conduct is within 12 CFR 560.2(b)(9), which provides

“[d]isclosure and advertising, including laws requiring specific statements, information, or other content to be included in credit application forms, credit solicitations, billing statements, credit contracts, or other credit-related documents and laws requiring creditors to supply copies of credit reports to borrowers or applicants” (id.).

Lastly, defendants assert that their alleged conduct falls within 12 CFR 560.2(b)(10) which states that “[p]rocessing, origination, servicing, sale or purchase of, or investment or participation in, mortgages” is preempted.
The Attorney General’s complaint asserts that defendants engaged in conduct proscribed by Executive Law § 63(12)[FN3] and General Business Law § 349 [FN4]. It further alleges that defendants unjustly enriched themselves by repeated use of fraudulent or illegal business practices, in that they allowed WaMu to pressure eAppraiseIT appraisers to compromise their USPAP-required independence and collude with WaMu to inflate residential appraisal values so that the appraisals would match the qualifying loan values WaMu desired.

Under the first prong of the preemption analysis, we find that this action brought pursuant to Executive Law § 63(12), General Business Law § 349(b) and on the theory of unjust [*9]enrichment is not preempted by 12 CFR 560.2(b)(5) because it involves no attempt to regulate bank-related fees. We also find, under the first prong of the preemption analysis, that there is no preemption pursuant to 12 CFR 560.2(b)(9) because these claims do not involve a state law seeking to impose or require any specific statements, information or other content to be disclosed. Although at least one case has held that claims similar to those asserted here were preempted (see Spears v Washington Mut., Inc., 2009 WL 605835 [ND Cal 2009]), we find
under the first prong of the preemption analysis that 12 CFR 660.2(b)(10) does not preclude the Attorney General’s complaint because prosecution of the alleged conduct will not affect the operations of federal savings associations (FSA) in how they process, originate, service, sell or purchase, or invest or participate in, mortgages.

The question then becomes whether the Attorney General is nevertheless precluded from litigating his claims under the second prong of the preemption analysis. Because enjoining a real estate appraisal management company from abdicating its publicly advertised role of providing unbiased valuations is not within the confines of 12 CFR 560.2(c), we answer it in the negative.

Defendants argue the OTS’s authority under HOLA and FIRREA is not limited to oversight of a FSA and that its authority under these two statues extends over the activity regulated and includes the activities of third party agents of a FSA. Defendants assert that providing real estate appraisal services is a critical component of the processing and origination of mortgages and represents a core component of the controlling federal regime. Defendants cite 12 USC § 1464(d)(7)(D) and State Farm Bank, FSB v Reardon (539 F3d 336 [6th Cir 2008]) for
support. 12 USC § 1464(d)(7) states, in pertinent part, that

“if a savings association . . . causes to be performed for itself, by contract or otherwise, any service authorized under [HOLA] such performance shall be subject to regulation and examination by the [OTS] Director to the same extent as if such services were being performed by the savings association on its own premises . . .”
Here, it is alleged eAppraiseIT and Lender’s Service, Inc., were hired by WaMu to provide appraisal services. However, defendants are incorrect in asserting that providing real estate appraisal services is an authorized banking activity under HOLA. In an opinion letter dated October 25, 2004, OTS concluded that it had the authority to regulate agents of an FSA under HOLA because

“[i]nherent in the authority of federal savings associations to exercise their deposit and lending powers and to conduct deposit, lending, and other banking activities is the authority to advertise, market, and solicit customers, and to make the public aware of the banking products and services associations offer. The authority to conduct deposit and lending activities, and to offer banking products and services, is accompanied by the power to advertise, market, and solicit customers for such products and services . . . A state may not put operational restraints on a federal savings [*10]association’s ability to
offer an authorized product or service by restricting the association’s ability to market its products and services and reach potential customers . . . Thus, OTS has authority under the HOLA to regulate the Agents the Association uses to perform
marketing, solicitation, and customer service activities” (2004 OTS Op No. P-2004-7, at 7, http://files.ots.treas.gov/560404.pdf, 2004 OTS LEXIS 6, at *15 [accessed May 27, 2010]).
State Farm Bank, FSB v Reardon (539 F3d 336 [6th Cir 2008]) follows this principle. In Reardon, the plaintiff, a FSA chartered by the OTS under HOLA, decided to offer, through its independent contractor agents, first and second mortgages and home equity loans in the State of Ohio. The Sixth Circuit concluded that although the statute at issue

“directly regulates [the plaintiff FSA’s] exclusive agents rather than [the FSA] itself . . . the activity being regulated is the solicitation and origination of mortgages, a power granted to [the FSA] by HOLA and the OTS. This is also a power over which the OTS has indicated that any state attempts to regulate will be met with preemption . . . [T]he practical effect of the [statute] is that [the FSA] must either change its structure or forgo mortgage lending in Ohio. Thus, enforcement of the [statute] against [the FSA’s] exclusive agents would frustrate the purpose of the HOLA and the OTS regulations because it indirectly prohibits [the FSA] from exercising the powers granted to it under the HOLA and the OTS regulations” (Reardon, 539 F3d at 349 [internal quotation marks and citation omitted]).
Since appraisal services are not authorized banking products or services of a FSA, defendants have failed to show that the Attorney General is preempted from pursuing his claims under 12 USC § 1464(d)(7)(D). Consequently, under the second prong of the preemption analysis, the result of the Attorney General litigating his claims against a company that independently administers a FSA’s appraisal program would “only incidentally affect the lending operations of [the FSA]” (12 CFR 560.2[c]). Thus, defendants have failed to show that OTS’s regulations and guidelines preempt or preclude the Attorney General from pursuing his claims.

Defendants assert that Cedeno v IndyMac Bancorp, Inc. (2008 WL 3992304, 2008 US Dist LEXIS 65337 [SD NY 2008]) provides this Court with persuasive authority that the federal government and its regulators alone regulate the mortgage loan origination practices of FSAs including all aspects of the appraisal programs they utilize. In Cedeno, the Southern District found preemption precluded a private individual from maintaining a cause of action against a bank. It was alleged that the bank failed to disclose to the plaintiff that it selected appraisers, appraisal companies and/or appraisal management firms who would inflate the value of [*11]residential properties in order to allow the bank to complete more real estate transactions and obtain greater profits. This practice resulted in the plaintiff being misled as to the true
equity in her home. The Southern District found that the conduct of the bank was

“directly regulated by the OTS: the processing and origination of mortgages, a loan-related fee, and the accompanying disclosure. The appraisals are a prerequisite to the lending process, and are inextricably bound to it. Because the plaintiff’s claim is not a simple breach of contract claim, but asks the Court to set substantive standards for the Associations’ lending operations and practices, it is preempted” (Cedeno, 2008 WL 3992304, *9, 2008 US Dist LEXIS 65337, at *28 [internal quotation marks and citations omitted]).

Contrary to defendants’ assertions, we find that Cedeno is not applicable here because Cedeno does not reach the question as to whether HOLA, FIRREA or OTS’s regulations and guidelines are intended to regulate the conduct of real estate appraisal companies.
Annexed to the OTS’s October 25, 2004 opinion letter is a document entitled Appendix A – Conditions. In this document, OTS requires FSAs that wish to use agents to perform marketing, solicitation, customer service, or other activities related to the FSA’s authorized banking products or services to enter into written agreements that “(4) expressly set[] forth OTS’s statutory authority to regulate and examine and take an enforcement action against the agent with respect to the activities it performs for the association, and the agent’s acknowledgment of OTS’s authority” (2004 OTS Op No. P-2004-7, at 16, http://files.ots. treas.gov/560404.pdf, 2004 OTS LEXIS 6, at *37 [accessed May 27, 2010]). We note that defendants have neither asserted that such written agreements exist nor produced such documents. Thus, we conclude that the Attorney General may proceed with his claims against defendants because his challenge to defendants’ allegedly fraudulent and deceptive business practices in providing appraisal services is not preempted by federal law and regulations that govern the operations of savings and loan associations and institution-affiliated parties.

Defendants assert that the Attorney General cannot rely upon a substantive violation of a federal law to support a claim under General Business Law § 349 because this is an improper attempt to convert alleged violations of federal law into a violation of New York law. Defendants claim that where a plaintiff seeks to rely upon a substantive violation of a federal law to support a claim under General Business Law § 349, the federal law relied upon must contain a private right of action.

However, the Attorney General is statutorily charged with the duty to “[p]rosecute and defend all actions and proceedings in which the state is interested, and have charge and control of all the legal business of the departments and bureaus of the state, or of any office thereof which requires the services of attorney or counsel, in order to protect the interest of the state” (Executive Law § 63[1]). Indeed, when the Attorney General becomes aware of allegations of persistent fraud or illegality of a business, he [*12]

“is authorized by statute to bring an enforcement action seeking an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, [and] directing restitution and damages’ (Executive Law § 63 [12]). He is also authorized, when informed of deceptive acts or practices affecting consumers in New York, to bring an action in the name and on behalf of the people of the state of New York to enjoin such unlawful acts or practices and to obtain restitution of any moneys or property obtained’ thereby (General Business Law § 349 [b])” (People v Coventry First LLC, 13 NY3d 108, 114 [2009]).
It is well settled that “[o]n a motion to dismiss pursuant to CPLR 3211, the court must accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory’” (Wiesen v New York Univ., 304 AD2d 459, 460 [2003], quoting Leon v Martinez, 84 NY2d 83, 87-88 [1994]). The Attorney General’s complaint alleges that defendants publicly claimed on their eAppraiseIT website that eAppraiseIT provides a firewall between lenders and appraisers so that customers can be assured that USPAP and FIRREA guidelines are followed and that each appraisal is being audited for compliance. The Attorney General charges that defendants deceived borrowers and investors who relied on their proclaimed independence by allowing WaMu’s loan production staff to select the appraiser based upon whether they would provide high values.

We find defendants’ assertions that the Attorney General lacks standing under General Business Law § 349 and that his complaint fails to state a cause of action are without merit. Indeed, the Attorney General’s complaint references misrepresentations and other deceptive conduct allegedly perpetrated on the consuming public within the State of New York, and “[a]s shown by its language and background, section 349 is directed at wrongs against the consuming public” (Oswego Laborers’ Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 24 [1995]). Therefore, we find that the Attorney General’s complaint articulates a viable cause of action under General Business Law § 349, and that this statute provides him with standing.

Consequently, we conclude that defendants have failed to demonstrate that HOLA, FIRREA or the OTS’s regulations and guidelines preempt or preclude the Attorney General from pursuing the causes of action articulated in his complaint. We additionally find that the Attorney General has standing under General Business Law § 349. We have reviewed defendants’ remaining contentions and we find them without merit.

Accordingly, the order of the Supreme Court, New York County (Charles Edward Ramos, J.), entered April 8, 2009, which, insofar as appealed from as limited by the briefs, [*13]denied defendants’ motion to dismiss the complaint on the ground of federal preemption, should be affirmed, without costs.

All concur.
Order, Supreme Court, New York County (Charles Edward Ramos, J.), entered April 8, 2009, affirmed, without costs.

Opinion by Gonzalez, P.J. All concur.
Gonzalez, P.J., Saxe, Catterson, Acosta, JJ.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: JUNE 8, 2010

CLERK

Footnotes

Footnote 1: USPAP is incorporated into New York law and it prohibits a State-certified or State licensed appraiser from accepting a fee for an appraisal assignment “that is contingent upon the appraiser reporting a predetermined estimate, analysis, or opinion or is contingent upon the opinion, conclusion or valuation reached, or upon the consequences resulting from the appraisal assignment” (NY Exec Law § 160-y; 19 NYCRR 1106.1).

Footnote 2: 12 USC § 3350(4) states that “[t]he term federally related transaction’ means any real estate-related financial transaction which—(A) a federal financial institutions regulatory agency or the Resolution Trust Corporation engages in, contracts for, or regulates; and (B) requires the services of an appraiser.”

Footnote 3: Executive Law § 63(12) states, in pertinent part, that “[w]henever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply, in the name of the people of the state of New York . . . for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages. . .”

Footnote 4: General Business Law § 349(b) states, in pertinent part, that “[w]henever the attorney general shall believe from evidence satisfactory to him that any person, firm, corporation or association or agent or employee thereof has engaged in or is about to engage in any of the acts or practices stated to be unlawful he may bring an action in the name and on behalf of the people of the state of New York to enjoin such unlawful acts or practices and to obtain restitution of any moneys or property obtained directly or indirectly by any such unlawful acts or practices.”

Bank of America to Pay $108 Million in Countrywide Case

GET LOAN SPECIFIC RECORDS PROPERTY SEARCH AND SECURITIZATION SUMMARY

FTC v Countrywide Home Loans Incand BAC Home Loans ServicingConsent Judgment Order 20100607

Editor’s Comment: This “tip of the iceberg”  is important for a number of reasons. You should be alerted to the fact that this was an industry-wide practice. The fees tacked on illegally during delinquency or foreclosure make the notice of default, notice of sale, foreclosure all predicated upon fatally defective information. It also shows one of the many ways the investors in MBS are being routinely ripped off, penny by penny, so that there “investment” is reduced to zero.
There also were many “feeder” loan originators that were really fronts for Countrywide. I think Quicken Loans for example was one of them. Quicken is very difficult to trace down on securitization information although we have some info on it. In this context, what is important, is that Quicken, like other feeder originators was following the template and methods of procedure given to them by CW.Of course Countrywide was a feeder to many securities underwriters including Merrill Lynch which is also now Bank of America.

Sometimes they got a little creative on their own. Quicken for example adds an appraisal fee to a SECOND APPRAISAL COMPANY which just happens to be owned by them. Besides the probability of a TILA violation, this specifically makes the named lender at closing responsible for the bad appraisal. It’s not a matter for legal argument. It is factual. So if you bought a house for $650,000, the appraisal which you relied upon was $670,000 and the house was really worth under $500,000 they could be liable for not only fraudulent appraisal but also for the “benefit of the bargain” in contract.

Among the excessive fees that were charged were the points and interest rates charged for “no-doc” loans. The premise is that they had a greater risk for a no-doc loan but that they were still using underwriting procedures that conformed to industry standards. In fact, the loans were being automatically set up for approval in accordance with the requirements of the underwriter of Mortgage Backed Securities which had already been sold to investors. So there was no underwriting process and they would have approved the same loan with a full doc loan (the contents of which would have been ignored). Thus thee extra points and higher interest rate paid were exorbitant because you were being charged for something that didn’t exist, to wit: underwriting.
June 7, 2010

Bank of America to Pay $108 Million in Countrywide Case

By THE ASSOCIATED PRESS

WASHINGTON (AP) — Bank of America will pay $108 million to settle federal charges that Countrywide Financial Corporation, which it acquired nearly two years ago, collected outsized fees from about 200,000 borrowers facing foreclosure.

The Federal Trade Commission announced the settlement Monday and said the money would be used to reimburse borrowers.

Bank of America purchased Countrywide in July 2008. FTC officials emphasized the actions in the case took place before the acquisition.

The bank said it agreed to the settlement “to avoid the expense and distraction associated with litigating the case,” which also resolves litigation by bankruptcy trustees. “The settlement allows us to put all of these matters behind us,” the company said.

Countrywide hit the borrowers who were behind on their mortgages with fees of several thousand dollars at times, the agency said. The fees were for services like property inspections and landscaping.

Countrywide created subsidiaries to hire vendors, which marked up the price for such services, the agency said. The company “earned substantial profits by funneling default-related services through subsidiaries that it created solely to generate revenue,” the agency said in a news release.

The agency also alleged that Countrywide made false claims to borrowers in bankruptcy about the amount owed or the size of their loans and failed to tell those borrowers about fees or other charges.

APPRAISAL FRAUD IN DETAIL

APPRAISAL FRAUD IS THE ACT OF GIVING A RATING OR VALUE TO A HOME THAT IS WRONG — AND THE APPRAISER KNOWS IT IS WRONG. This can’t be performed in a vacuum because there are so many players who are involved. They ALL must be complicit in the deceit leading to the homeowner signing on the the bottom line and advancing his home as collateral on a loan which at the very beginning is theft of most of the value of the home. It’s like those credit cards they send to people who are financially challenged. $300 credit, no questions asked. And then you get a bill for $297 including fees and insurance. So you end up not with a credit line of $300, but a liability of $300 just for signing your name. It’s a game to the “lenders” because they are not using their own money.

And remember, the legal responsibility for the appraisal is directly with the appraiser, the appraisal company (which usually has errors and omissions insurance) and the named lender in your closing documents. The named “lender” is, according to Federal Law, required to verify the value of the property.

How many of them , if they were using their own money, would blithely accept a $300,000 appraisal on a home that was worth $200,000 last month and will be worth $200,000 next month? You are entitled to rely on the appraisal and the “verification” by the “lender” (see Truth in Lending Act and Reg Z). The whole reason the law is structured that way is because THEY know and YOU don’t. THEY have access to the information and YOU don’t. This is a complex transaction that THEY understand and YOU don’t.

A false appraisal steals money from you because you rely on it to make the deal for refinancing or for the purchase. You think the home is worth $300,000 and so you agree to buy a loan product that puts you in debt for $290,000. But the house is worth $200,000. You just lost $90,000 plus closing costs and a variety of other expenses, especially if you are moving into anew home that requires all kinds of additions like window treatments etc. But the “lender” who is really just a front for the Wall Street and the investor pool that funded the loan, made out like bandits. Yield spread premiums, extra fees, profits, rebates, kickbacks to the developer, the appraiser, the mortgage broker, the title agency, the closing agent, the real estate broker, trustee(s) the investment banking entities that were used in the securitization of your loan, amount in some cases to MORE THAN YOUR LOAN. No wonder they are so anxious to get your signature.

“Comparable” means reference to time, nearby geography, and physical attributes of the home and lot. Here are SOME of the more obvious indicators of appraisal fraud:

  1. Your home is worth 40% of the appraisal amount.
  2. The appraisal used add-ons from the developer that were marked up for the home buyer but which nobody in the secondary market will pay. That kitchen you paid an extra $10,000 for “extras” is included in your appraisal but has no value to anyone else. That’s not an appraisal and it isn’t collateral or fair market value.
  3. The homes in the immediate vicinity of your home were selling for less than your home appraisal when they had the same attributes.
  4. The homes in the immediate vicinity of your home were selling for less than your home appraisal just a few weeks or months before.
  5. The value of your home was significantly less just a  few weeks or months after the closing.
  6. You are underwater: this means you owe more on your obligation than your house is worth. Current estimates are that it might take 20 years or more for home prices to reach the level of mortgages, and that is WITH inflation.
  7. Negative amortization loans usually allow the principal to rise even above the falsely inflated appraisal amount. If that happened, then they knew at the time of the loan that even if the appraisal was not inflated, it still would not be worth the amount of the principal due on the obligation. For example, if your loan is $290,000 and the interest is $25,000 per year, but you were only required to pay $1,000 per month for the first three years, then your Principal was going up by $13,000 per year compounded. So that $300,000 appraisal doesn’t cover the $39,000+ that would be added to your principal balance. The balance at the end of 3 years will be over $330,000 on property APPRAISED at $300,000. No honest appraiser, mortgage broker, or lender, would be complicit in such an arrangement unless they were paid handsomely to do it and they had no risk because they were not using their own money for the loan.

Insider Confirms Builder Complicity in Appraisal Fraud

Editor’s Comment: Appraisal fraud, ratings fraud, misrepresentation, steering investors and borrowers in the wrong direction — all of these amount to the same thing: DECEIT. And as everyone knows, when someone is bilked out of money or value through deceit, they are entitled to made whole — as close as possible, and probably entitled to punitive, exemplary or treble damages. This is no theory. This is hundreds of years of common law a statutes.

So why is the media narrative and the courtroom argument centered on whether the homeowner made payments on a loan that was sold to him under false pretenses? Why is the focus on the homeowner when the real creditor is not in the room? Why are they demanding so much money when part or all of the obligation has been paid (satisfied) through credit enhancements, credit default swaps, insurance and federal bailouts?

The reason why the narrative is on the wrong subject is because you let them take over the narrative. In our course coming up on Discovery and Motion Practice we’ll be talking about how to take control of the narrative. But for now, the message is this is an obligation in search of a creditor and the people who are collecting and enforcing the payments of principal and interest are ignoring the fact that payments were made by third parties, sending out statements that are incorrect or just plain lies, and sending out notices of default and notices of sale on mortgages that are paid off in whole or in part by third parties. STAY ON YOUR MESSAGE.

From Comment on Blog: May 8. 2010

Neidermeyer finds it hard to believe that Builders participated in the mortgage fraud because he has not seen it first hand like I have.

I have been in the real estate business since 1993 during that time I was a loan officer for various independent loan brokers. ( no I did not fund ANY preditory loans, option arms, 3 year pre-pay penalties..etc. and my clients were forced to read their paperwork because I was at the closing table with them)

The first fraud I was witness to was borrower steering. The builder would offer incentives to buyers for financing if only the borrower would use the builders in-house lender directly. The incentives on average would be around $3000.00 toward closing costs. At the beginning of the application buyers would be quoted a rate about 1/8 below market so it appeared that the Builders lender would give them a good deal. When the home was finished 6 months later, 9 times out of 10 the rate had risen and the rate at closing was actually 1/8 to 1/4 percent higher than the buyer could have gotten with their original broker.. So the incentive for closing costs was a sham to steer clients to in house banks.. aka Countrywide on many occasions..So new home buyers check the comparative rates the day you closed and you will see the builders lender saved you no money.

2. Appraisal fraud was rampant. New homes always cost more than comparable resale because the prices for upgrades are added into the loan at retail..

What has to be investigated are the first 3-4 sales in the development or nearby developments..who are those parties and what is their relation to the builder? And how was the comparable property purchased? Cash? Deed Transfer of some sort etc.. often employees or relatives of the builder would” buy”” a home and close on it to create a comp.. perhaps 2 and then the appraiser could go outside the development for 3rd comparable sale at another builders development.

Voila they now have comps and they just turned $200k houses into $300k houses!

Condo Developments/ condo conversions: the HOA and property management company will often still be owned by the developer under another LLC.. look for the same officers..the hoa will be asked to certify certain information about the development on the appraisal..such as owner occupancy ratios, number sold etc. And the HOA cert will lie about the ratios to get the appraisal approved in underwriting.

I just had a client win a settlement due to my research..The appraisal was one of the worst I had seen and ordered the Landsafe and Countrywide in house..The comps used were 5 miles away and 2 times the sq ft and bedrooms.. completely uncomparible properties to start with and the adjustments down for sq ft and bedrooms was laughably small..the HOA cert( by the developers other llc) stated 175 owner occupied when there were only 3 mailing addresses in the development in public records for owners that were not in another state! I also found that one of the signatories for the builder had her own LLC’s and one of her business addresses was the one comparable sale within the development included on my clients appraisal and “owned by an entirely different individual!

And the worst thing I found on this appraisal was the appraiser’s comments section where he admitted the unit had not yet been renovated and that the builder intended to do so after the next tenant changeover..NOT RENOVATED YET! and yet still he appraised the unit as/if it was renovated..the targeted client lived out of state and never saw the property he purchased..

I also looked at the early transfers..of course there were 2 that were sold at 160K when nothing prior had sold over 64k..interestingly after the initial inflated transfers there were several deeds recorded by the officers of the builder llc and friends for the same units at 48-68K done quietly so as not to hurt their comparable sales.

Check the upgrade sheets and what you were charged for certain upgrades… a client of mine was charged over $30,000 for paint upgrades! I am not talking murals here.. a sponged hallway and 2 tones for moldings and walls..

So yes the builders are more than responsible for the inflated values..the partnered with the banks to create this market..It is all in the research!

Berating the Raters and Appraisers

“of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.”

Editor’s Note: What homeowners and their lawyers, forensic analysts, and experts need to realize is that the ratings scam on Wall street was only one-half of the equation in a scheme to defraud homeowners. If you don’t understand how an appraisal of a home is the same thing as the rating of the security that was sold to fund the home, then you are missing the point and the opportunity to do something meaningful for borrowers.

TILA and Reg Z make it clear that the LENDER is responsible for verification of the appraisal. The LENDER is responsible for viability of the loan, NOT THE BORROWER. IT’S THE LAW! Instead the media and Wall Street PR and lobbyists are drumming a myth into our heads — that 20 million homeowners with securitized loans cooked up a scheme to get a free house. Where did they meet?

We have ample evidence that the entire scheme depended upon reasonable reliance upon those who were in fact not reliable and who were lying to us. If you bought a house for $600,000, the odds are:

  • the house was actually worth less than $400,000
  • the appraiser put the value at $620,000
  • the rating agency called it a triple AAA loan
  • you thought the house was worth what you were paying
  • the house is now worth $300,000
  • your mortgage is at least $500,000
  • Even if you can afford the payments, you will not be able to sell your home for more than the amount owed on it until at least 15-18 years have passed.
  • You will not be able to sell your home for what you paid for at least another 25-30 years, and that is only with the help of inflation
  • Counting inflation, you will never sell your home for what you paid for it or the amount you thought it was worth when you refinanced it

Besides obvious violations of federal and state lending statutes it is pure common law fraud. You are now faced with options that go from bad to worse, UNLESS you sue the people who caused this and your lawyer understands the basic economics of securitization. Your opposition knows all of this. That is why the cases, for the most part ,never get to trial. These cases are won or lost in demanding discovery, enforcing your demands, and relentless pursuit of the truth.

REGISTER NOW FOR DISCOVERY AND MOTION PRACTICE WORKSHOP MAY 23-24

April 26, 2010
Op-Ed Columnist

Berating the Raters

Let’s hear it for the Senate’s Permanent Subcommittee on Investigations. Its work on the financial crisis is increasingly looking like the 21st-century version of the Pecora hearings, which helped usher in New Deal-era financial regulation. In the past few days scandalous Wall Street e-mail messages released by the subcommittee have made headlines.

That’s the good news. The bad news is that most of the headlines were about the wrong e-mails. When Goldman Sachs employees bragged about the money they had made by shorting the housing market, it was ugly, but that didn’t amount to wrongdoing.

No, the e-mail messages you should be focusing on are the ones from employees at the credit rating agencies, which bestowed AAA ratings on hundreds of billions of dollars’ worth of dubious assets, nearly all of which have since turned out to be toxic waste. And no, that’s not hyperbole: of AAA-rated subprime-mortgage-backed securities issued in 2006, 93 percent — 93 percent! — have now been downgraded to junk status.

What those e-mails reveal is a deeply corrupt system. And it’s a system that financial reform, as currently proposed, wouldn’t fix.

The rating agencies began as market researchers, selling assessments of corporate debt to people considering whether to buy that debt. Eventually, however, they morphed into something quite different: companies that were hired by the people selling debt to give that debt a seal of approval.

Those seals of approval came to play a central role in our whole financial system, especially for institutional investors like pension funds, which would buy your bonds if and only if they received that coveted AAA rating.

It was a system that looked dignified and respectable on the surface. Yet it produced huge conflicts of interest. Issuers of debt — which increasingly meant Wall Street firms selling securities they created by slicing and dicing claims on things like subprime mortgages — could choose among several rating agencies. So they could direct their business to whichever agency was most likely to give a favorable verdict, and threaten to pull business from an agency that tried too hard to do its job. It’s all too obvious, in retrospect, how this could have corrupted the process.

And it did. The Senate subcommittee has focused its investigations on the two biggest credit rating agencies, Moody’s and Standard & Poor’s; what it has found confirms our worst suspicions. In one e-mail message, an S.& P. employee explains that a meeting is necessary to “discuss adjusting criteria” for assessing housing-backed securities “because of the ongoing threat of losing deals.” Another message complains of having to use resources “to massage the sub-prime and alt-A numbers to preserve market share.” Clearly, the rating agencies skewed their assessments to please their clients.

These skewed assessments, in turn, helped the financial system take on far more risk than it could safely handle. Paul McCulley of Pimco, the bond investor (who coined the term “shadow banks” for the unregulated institutions at the heart of the crisis), recently described it this way: “explosive growth of shadow banking was about the invisible hand having a party, a non-regulated drinking party, with rating agencies handing out fake IDs.”

So what can be done to keep it from happening again?

The bill now before the Senate tries to do something about the rating agencies, but all in all it’s pretty weak on the subject. The only provision that might have teeth is one that would make it easier to sue rating agencies if they engaged in “knowing or reckless failure” to do the right thing. But that surely isn’t enough, given the money at stake — and the fact that Wall Street can afford to hire very, very good lawyers.

What we really need is a fundamental change in the raters’ incentives. We can’t go back to the days when rating agencies made their money by selling big books of statistics; information flows too freely in the Internet age, so nobody would buy the books. Yet something must be done to end the fundamentally corrupt nature of the the issuer-pays system.

An example of what might work is a proposal by Matthew Richardson and Lawrence White of New York University. They suggest a system in which firms issuing bonds continue paying rating agencies to assess those bonds — but in which the Securities and Exchange Commission, not the issuing firm, determines which rating agency gets the business.

I’m not wedded to that particular proposal. But doing nothing isn’t an option. It’s comforting to pretend that the financial crisis was caused by nothing more than honest errors. But it wasn’t; it was, in large part, the result of a corrupt system. And the rating agencies were a big part of that corruption.

Foreclosure Prevention 1.1

Nobody ever thought that returning a lady’s purse to her after a purse snatcher ran away with it was a gift. So why is anyone contesting returning the purse to homeowners who had their lives snatched from them?

The baby steps of the Obama administration are frustrating. Larry Summers, Tim Geithner and those who walk with Wall Street are using ideology and assumptions instead of reality and facts.

First they started with the idea of modifications. That would do it. Just change the terms a little, have the homeowner release rights and defenses to what was a completely fraudulent and deceptive loan transaction (and a violation of securities regulations) and the foreclosure mess would end. No, it doesn’t work that way.

The reality is that these homeowners are being drained every day and displaced from their lives and homes by the consequences of a scheme that depended upon fooling people into signing mortgages under the false assumption that the appraisal had been verified and that the loan product was viable. All sorts of tricks were used to make borrowers think that an underwriting process was under way when in fact, it was only a checklist, they were even doing title checks (using credit reports instead), and the viability of the loan was antithetical to their goals, to wit: to have the loans fail, collect on the insurance and get the house too without ever reporting a loss.

Then it went to modification through interest rate reduction and adding the unpaid monthly payments to the end of the mortgage. Brilliant idea. The experts decided that an interest rate reduction was the equivalent of a principal reduction and that everything would even out over time.

Adding ANYTHING to principal due on the note only put these people further under water and reduced any incentive they had to maintain their payments or the property. Reducing the interest was only the equivalent of principal reduction when you looked at the monthly payments; the homeowner was still buried forever, without hope of recovery, under a mountain of debt based upon a false value associated with the property and a false rating of the loan product.

Adding insult to injury, the Obama administration gave $10 billion to servicing companies to do modifications — not even realizing that servicers have no authority to modify and might not even have the authority to service. Anyone who received such a modification (a) got a temporary modification called a “trial” (b) ended up back in foreclosure anyway (c) was used once again for unworthy unauthorized companies to collect even more illegal fees and (d) was part of a gift to servicers who were getting a house on which they had invested nothing, while the real source of funds was already paid in whole or in part by insurance, credit default swaps or federal bailout.

Now the Obama administration is “encouraging” modifications with reductions in principal of perhaps 30%. But the industry is pushing back because they don’t want to report the loss that would appear on their books now, if a modification occurred, when they could delay reporting the “loss” indefinitely by continuing the foreclosure process. The “loss” is fictitious and the push-back is an illusion. There is no loss from non-performance of these mortgages on the part of lending banks because they never lent any money other than the money of investors who purchased mortgage-backed bonds.

You want to stop the foreclosures. It really is very simple. Stop lying to the American people whether it is intentional or not. Admit that the homes they bought were not worth the amount set forth in the appraisal and not worth what the “lender” (who was no lender) “verified.” Through criminal, civil and/or administrative proceedings, get the facts and change the deals like any other fraud case. Nobody ever thought that returning a lady’s purse to her after a purse snatcher ran away with it was a gift. So why is anyone contesting returning the purse to homeowners who had their lives snatched from them?

Sample Interrogatories

SUPERIOR COURT OF NEW JERSEY

CHANCERY DIVISION – ESSEX VICINAGE

——————————————————————X                Civil Action

Deutsche Bank National Trust Company, As Trustee Of

Argent Securities, Inc. Asset Backed Pass Through Certificates, Series 2004-PW1

Docket Number: XXX

REQUEST FOR

INTERROGATORIES

Plaintiff(s),

vs.

XXX; John Doe,

Husband Of XXX                                                                            XXX Avenue

Rosedale, NY 11422

Defendant(s)/Pro Se ——————————————————————X

REQUEST FOR DISCOVERY: INTERROGATORIES

i). Defendant, XXX, serves these interrogatories on Deutsche Bank National Trust Company, as authorized by Case Management Order dated September 30, 2009, and by the Federal Rule of Civil Procedure 33. Deutsche Bank National Trust Company must serve an answer to each interrogatory separately and fully, in writing and under oath within 30 days after service to: XXX, XXX Ave., Rosedale, NY 11422.

INSTRUCTIONS

ii). These requests for interrogatories are directed toward all information known or available to Deutsche Bank National Trust Company – not its lawyer, Ralph F. Casale, Esq. – including information contained in the records and documents in Deutsche Bank National Trust Company’s custody or control or available to Deutsche Bank National Trust Company upon reasonable inquiry.

iii). Each request for interrogatory is to be deemed a continuing one. If, after serving an answer, you obtain or become aware of any further information pertaining to that request, you are requested to serve a supplemental answer setting forth such information.

iv). As to every request for interrogatory which an authorized officer of Deutsche Bank National Trust Company fails to answer in whole or in part, the subject matter of that request will be deemed confessed and stipulated as fact to the Court.

v). Kindly attach additional sheets as required identifying the Interrogatory being answered.  You have a continuing obligation to update the information in these Interrogatories as you acquire new information. If no such update is provided in a reasonable period of time that you acquired such information, it may be excluded at trial or hearing.

DEFINITIONS

vi). “You” and “your” include Deutsche Bank National Trust Company and any and all persons acting for or in concert with Deutsche Bank National Trust Company.

vii). “Document” is synonymous in meaning and equal in scope to the usage of this term in Federal Rule of Civil Procedure 34(a) and includes computer records in any format. A draft or non-identical copy is a separate document within the meaning of this term. The term “document” also includes any “tangible things” as that term is used in Rule 34(a).

viii). Parties. The term “plaintiff” or “defendant”, as well as a party’s full or abbreviated name or a pronoun referring to a party, means the party and, where applicable, (his/her/its) agents, representatives, officers, directors, employees, partners, corporate parent, subsidiaries, or affiliates.

ix). Identify (person). When referring to a person, “identify” means to give, to the extent known, the person’s full name, present or last known address, telephone number, and when referring to a natural person, the present or last known place of employment. Once a person has been identified in compliance with this paragraph, only the name of that person needs to be listed in response to later discovery requesting the identification of that person.

x). Identify (document). When referring to a document, “identify” means to give, to the extent known, the following information: (a) the type of document; (b) the general subject matter of the document; (c) the date of the document; (d) the authors, address, and recipients of the document; (e) the location of the document; (f) the identity of the person who has custody of the document; and (g) whether the document has been destroyed, and if so, (i) the date of its destruction, (ii) the reason for its destruction, and (iii) the identity of the person who destroyed it.

xi). Relating. The term “relating” means concerning, referring, describing, evidencing, or constituting, directly or indirectly.

xii). Any. The term “any” should be understood in either its most or its least inclusive sense as necessary to bring within the scope of the discovery request all reasons that might otherwise be construed to be outside of its scope.

REQUEST FOR INTERROGATORIES

1. Please identify each person who answer these interrogatories and each person (attach pages if necessary) who assisted, including attorneys, accountants, employees of third party entities, or any other person consulted, however briefly, on the content of any answer to these interrogatories.

ANSWER:

2. For each of the above persons please state whether they have personal knowledge regarding the subject loan transaction.

ANSWER:

3. Please state the date of the first contact between Deutsche Bank National Trust Company and the borrower in the subject loan transaction, the name, address and telephone number of the person(s) in your company who was/were involved in that contact.

ANSWER:

4. Please identify every potential party to this lawsuit.

ANSWER:

5. Please identify the person(s) involved in the underwriting of the subject loan. “Underwriting” refers to any person who made representations, evaluations or appraisals of value of the home, value of the security instruments, and ability of the borrower to pay.

ANSWER:

6. Please identify any person(s) who had any contact with any third party regarding the securitization, sale, transfer, assignment, hypothecation or any document or agreement, oral, written or otherwise, that would effect the funding, closing, or the receipt of money from a third party in a transaction that referred to the subject loan.

ANSWER:

7. Please identify any person(s) known or believed by anyone at Deutsche Bank National Trust Company who had received physical possession of the note and allonges, the mortgage, or any document (including but not limited to assignment, endorsement, allonges, Pooling and Servicing Agreement, Assignment and Assumption Agreement, Trust Agreement,  letters or email or faxes of transmittals  including attachments) that refers to or incorporates terms regarding the securitization, sale, transfer, assignment, hypothecation or any document or agreement, oral, written or otherwise, that would effect the funding, or the receipt of money from a third party in a transaction, and whether such money was allocated to principal, interest or other obligation related to the subject loan.

ANSWER:

8. Please identify all persons known or believed by anyone in Deutsche Bank National Trust Company or any affiliate to have participated in the securitization of the subject loan including but not limited to mortgage aggregators, mortgage brokers, financial institutions, Structured Investment Vehicles, Special Purpose Vehicles, Trustees, Managers of derivative securities, managers of the company that issued an Asset-backed security, Underwriters, Rating Agency, Credit Enhancement Provider.

ANSWER:

9. Please identify the person(s) or entities that are entitled, directly or indirectly to the stream of revenue from the borrower in the subject loan.

ANSWER:

10 Please identify the person(s) in custody of any document that identifies the loan servicer(s) in the subject loan transaction.

ANSWER:

11. Please identify any person(s) in custody of any document which refers to any instruction or authority to enforce the note or mortgage in the subject loan transaction.

ANSWER:

12. Other than people identified above, identify any and all persons who have or had personal knowledge of the subject loan transaction, underwriting of the subject loan transaction, securitization, sale, transfer, assignment or hypothecation of the subject loan transaction, or the decision to enforce the note or mortgage in the subject loan transaction.

ANSWER:

13. Please state address, phone number, and employment history for the past 3 years of Tamara Price, Vice President, Argent Mortgage Company, LLC, “designated as the Assignor” of the mortgage loan to Deutsche Bank National Trust Company (Assignment of Mortgage recorded in Essex County Register’s Office on June 25, 2008).

ANSWER:

14. Please state the date on which Argent Mortgage Company, LLC (originator) sold the mortgage loan to Ameriquest Mortgage Company (Seller and Master Servicer).

ANSWER:

15. Please state the date on which Ameriquest Mortgage Company (Seller and Master Servicer) sold the mortgage loan to Argent Securities, Inc. (Depositor).

ANSWER:

16. Did Argent Mortgage Company, LLC (originator) or previous servicers of this account receive any compensation, fee, commission, payment, rebate or other financial considerations from Ameriquest Mortgage Company (Seller and Master Servicer) or any affiliate or from the trust funds, for handling, processing, originating or administering this loan?

ANSWER:

17. If yes, please describe and itemize each and every form of compensation, fee, commission, payment, rebate or other financial consideration paid to Argent Mortgage Company, LLC, the originator or previous servicers of this account by Ameriquest or any affiliate, or from the trust fund.

ANSWER:

18. Please identify any party, person or entity known or suspected by Deutsche Bank National Trust Company or any of your officers, employees, independent contractors or other agents, or servants of your company who might possess or claim rights under the subject loan or mortgage and/or note.

ANSWER:

19. Please identify the custodian of the records that would show all entries regarding the flow of funds for the subject loan transaction prior to and after closing of the loan. (Flow of funds, means any record of money received, any record of money paid out and any bookkeeping or accounting entry, general ledger and accounting treatment of the subject loan transaction at your company or any affiliate including but not limited to whether the subject loan transaction was ever entered into any category on the balance sheet at any time or times, whether any reserve for default was ever entered on the balance sheet, and whether any entry, report or calculation was made regarding the effect of this loan transaction on the capital reserve requirements of your company or any affiliate.)

ANSWER:

20. Please identify the auditor and/or accountant of your financial statements or tax returns.

ANSWER:

21. Please identify any attorney with whom you consulted or who rendered an opinion regarding the subject loan transaction or any pattern of securitization that may have effected the subject loan transaction directly or indirectly.

ANSWER:

22. Please identify any person who served as an officer or director with Deutsche Bank National Company or Argent Mortgage Company LLC commencing with 6 months prior to closing of the subject loan transaction through the present. (This interrogatory is limited only to those people who had knowledge, responsibility, or otherwise made or received reports regarding information that included the subject loan transaction, and/or the process by which solicitation, underwriting and closing of residential mortgage loans, or the securitization, sale, transfer or assignment or hypothecation of residential mortgage loans to third parties.)

ANSWER:

23. Did any investor/certificate holder approve or authorize foreclosure proceedings on XXX’s property?

ANSWER:

24. Please identify the person(s) involved or having knowledge of any insurance policy or product, plan or instrument describing over-collateralization, cross-collateralization or guarantee or other instrument hedging the risk of default as to any person or entity acting as an issuer of any securities or certificates. (Such instrument(s) relate to the composition of a pool, tranche or other aggregation of assets that was created, included or referred to the subject loan and the pool or aggregation was transmitted, transferred, assigned, pledged or hypothecated to any entity or buyer. A person who “transmitted, transferred, assigned, pledged or hypothecated” refers to any person who suggested, approved, received or accepted the composition of the pool or aggregation made or confirmed representations, evaluations or appraisals of value of the home, value of the security instruments, ability of the borrower to pay.)

ANSWER:

25. Please identify the person(s) involved or having knowledge of any credit default swap or other instrument hedging the risk of default as to any person or entity acting as an issuer of any securities or certificates. (Such instrument(s) relate to the composition of a pool, tranche or other aggregation of assets that was created, included or referred to the subject loan.)

ANSWER:

Submitted by:  XXX

XXX  Ave

Rosedale, NY 11422

CERTIFICATE OF SERVICE

I, I, XXX certify that on this 29th day of the month of October, 2009.

1. A true copy of the 10-page Request for Interrogatories was served on The New Superior Court of New Jersey, Chancery Division – Essex Vincinage, at 212 Wasington Street, Eighth Floor, Newark, New Jersey.

2. A copy of the foregoing was mailed on October 28, 2009 to

Dated: Queens New York

This _________ day of ___________ 2009    XXX

XXX Ave

Rosedale, NY 11422

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.

Train wreck waiting to happen: Appraisal fraud

more than 8,000 appraisers – roughly 10 percent of the industry – have signed a petition asking the federal government to take action.

“There are a lot of people who have refinanced for more than their homes are actually worth and they’re effectively already upside down even without a real estate bubble bursting,” said Callahan. Down the road if they have to sell or decide to refinance, a more accurate appraisal might show that they owe more than the house is worth.

Note the date on this….Nothing happened……. Except that homeowners got screwed……..

Appraisal fraud: your home at risk
Appraisers say they’re being pressured by lenders to inflate their estimates of home values.
June 2, 2005: 9:56 AM EDT
By Sarah Max, CNN/Money senior writer

SALEM, Ore. (CNN/Money) – Anyone who’s ever bought or refinanced a home knows the sense of relief when the appraisal comes in with high marks.

The appraisal tells bankers, brokers and, ultimately, investors whether a house is a sound investment.

But, as the Appraisal Institute recently testified to Congress, appraisers are under increasing pressure from lenders, mortgage bankers and real estate agents to “hit their number” when appraising property.

Rather than come up with an independent estimate of a home’s value, appraisers — who are typically independent contractors — say they are being told to base their estimate on a predetermined value.

Alan Zielinski, owner of FAST Appraisals in Lake Barrington, Ill., said he’s surprised if he doesn’t get a call questioning his estimate.

“All [lenders and brokers] want to do is hit the number because if they don’t hit the number the deal doesn’t go through and if the deal doesn’t go through they don’t get the commission,” said Zielinski.

In theory, it’s in a bank’s best interest to make sure its loans are based on accurate appraisals, said M. Thomas Martin, of the National Mortgage Complaint Center in Seattle. “But if you’re selling the loans to the secondary market, you really don’t care,” he said. “The higher the value, the better.”

(In the secondary market for mortgages, primary lenders sell off the loans they originate to other institutions, including Fannie Mae and Freddie Mac.)

If a lender sells a loan to the secondary market knowing that the appraisal is inaccurate, said Tim Doyle, director in government affairs with the Mortgage Bankers Association, the lender is held accountable.

“Our position is that we have the same concern with inaccurate appraisal as does the conscientious homebuyer,” he said.

Trouble is, pressure on appraisers is often subtle and not easy to prove, said Don Kelly, vice president of public affairs for the Appraisal Institute, which is calling for stronger regulation at the state level and legislation prohibiting lenders from meddling with the process.

The problem is so widespread, that more than 8,000 appraisers – roughly 10 percent of the industry – have signed a petition asking the federal government to take action.

Appraisers, like auditors, are supposed to follow a strict standard of professional behavior, said David Callahan, senior fellow at the public policy organization Demos and author of a recent report about appraisal fraud. “What is actually happening is lenders and brokers are telling them what value they want,” he said. “If [appraisers] don’t play ball, they don’t get paid or don’t get work again.”

Inflated valuesA puffed up appraisal can have serious consequences for a homeowner down the road.

“There are a lot of people who have refinanced for more than their homes are actually worth and they’re effectively already upside down even without a real estate bubble bursting,” said Callahan. Down the road if they have to sell or decide to refinance, a more accurate appraisal might show that they owe more than the house is worth.

“The real issue is on the refinance side where people are cashing out of their equity on the basis of higher and higher values,” said Zielinski, who before accepting a job e-mails lenders and brokers to remind them that he is obligated to appraise property based on market conditions, not a predetermined value. “Conservatively, I’d say that 10 percent of the houses I appraise are worth less than the mortgage on them.”

One overvalued appraisal can skew home prices throughout a neighborhood, according to the Appraisal Institute’s Kelly. “If a house is appraised for 10 percent or 15 percent more than it’s actually worth and the sale closes, it may be used by another appraiser as a comparable sale the very next day,” he said. “It has a ripple effect.”

That could have even greater implications, said Martin. “The cumulative effect of appraisal fraud is you may have investors holding mortgage debt that’s backed by real estate worth less than they think it is,” said Martin. “It’s a train wreck waiting to happen.”

Michigan, Ohio, Texas Lawyers Wanted: We Know You’re Out There

The business case for taking, handling and litigating residential “mortgage” cases has been proven over and over again. Unfortunately most lawyers are ignoring this opportunity.

The latest estimates are that it will take 6-12 years to clean up this mess and I think that is very conservative. My analysis shows that it will take the better part of 30 years, and even then there will be cases that are still outstanding. One case, just filed, involves a mere $500,000 mortgage but alleges more than $27 million in damages (which could end up north of $81 million), credibly, the proximate cause of which was the eggregious, tortious behavior of loan originators and investment banks who gave the impression that normal underwriting standards and procedures were in place. The complaint alleges breach of Federal Statutes, State Statutes and common law including identity theft, slander of title, and fraudulent or negligent appraisal.

Lawyers who were starving are getting to understand that monthly payments from the client will cover them until the contingency fee kicks in and that there are clear ways to collect damage judgments. Some lawyers we know have $50,000 per month or more coming in from clients.

Let me spell it out for you. Most analysts agree with my estimate from 2 years ago: $13 trillion in erroneous, fraudulent paper was floated producing some $25 trillion in profits that was sequestered off shore. There appears to be some 60 million loans affected by this massive scheme. If your contingency fee is only 20% that means that around $5 trillion in contingency fees is sitting out there waiting to be pocketed. If every lawyer in America took these cases, they would each have around 40-50 cases involving title claims, securities claims defenses. But we all know that only a fraction of the 1 million lawyers are even doing trial practice. The short story is that for every lawyer there are hundreds if not thousands of cases that can be handled each averaging fees in excess of $100,000 per case.

We know there are lawyers out there some of whom are taking a few but not many of these cases. Livinglies takes in requests for services at the rate of 15-20 per day. And THAT is without any promotion. We don’t do any promotion because we have an insufficient number of lawyers to refer these prospective clients. WAKE UP LAWYERS! We have referrals for you and we require NO COMPENSATION for the referral and no co-counsel fee.

Send your resume:

eFAX: 772-594-6244

eMail: ngarfield@msn.com


How to Negotiate a Modification

See how-to-negotiate-a-short-sale

See Michael Moore — Modifications

See Template-Lawsuit-STOP-foreclosure-TILA-Mortgage-Fraud-predatory-lending-Set-Aside-Illegal-Trustee-Sale-Civil-Rico-Etc Includes QUIET TITLE and MOST FEDERAL STATUTES — CALIFORNIA COMPLAINT

See how-to-buy-a-foreclosed-house-its-a-business-its-an-opportunity-its-a-risk

My statements here relate to general information and not legal advice. Generally we are of the opinion that the loan modification programs are a farce. First they end up in foreclosure in 6-7 months — more than 50-60% of the time. Then you have the problem that you signed new papers that will at least attempt to waive the rights and defenses you have now. A trial program is a trial program — it is not permanent. It is usually a smokescreen for the “lenders” (actually pretender lenders) to appear to comply with the federal mandate and thus collect the bonus from the Federal government for entering into a modification agreement. And let’s not forget that the entities with whom you would enter into this “new” agreement probably have no rights, ownership or authority over your mortgage — they are only pretending. Their game plan is that they have nothing to lose and everything to gain because they never advanced any money on the funding of your mortgage.

So the very first thing you want to do is ask for proof of real documents that can be reviewed by a forensic analyst which will demonstrate they have the power to change the terms, and assuming they can’t produce that, their agreement that any deal you enter into with them will be taken to court in a Quiet Title Action in which they will allow you to get a judgment that says you own the house free and clear except for whatever the new deal is with the new lender. The New Lender is necessary because the REAL Lender is quite gone and possibly unidentifiable.

Any failure to agree to such terms is a clear signal you are wasting your time and they are jockeying you into default, which is the only way they collect insurance on your mortgage through the credit default swaps purchased on the pool containing your mortgage. They actually make money if you default because they were allowed to buy insurance many times over on the same debt. So on your $300,000 mortgage they might actually receive (no joke) $9 million if you default. That means they have far more incentive to trick you into default than to REALLY modify your mortgage terms. and THAT means you need to be careful about what they are REALLY doing — a modification or deception. If it’s deception don’t fall into self deception and wish it weren’t so. Go after them with whatever you can. The law is on your side as to title, terms and predatory and fraudulent loan practices.

Your strategy is simple: (1) present a credible threat and (2) demonstrate that you have knowledgeable people (forensic analyst, expert witness, lawyer).

Your tactics are equally simple: (1) Present an expert declaration or affidavit that raises issues of fact regarding the representations of counsel or the pleadings of your opposition, (2) Pursue expedited discovery (ask for things that they should have had before they started the foreclosure process — a full accounting from the real creditor/lender, documentation showing chain of title/possession, documentation regarding the money that exchanged hands from the bond investor all the way down the securitization chain to the homeowner) and (3) ask for an evidentiary hearing on the factual issues.

It would probably be a good idea if you went through a local licensed attorney who really knows this stuff — like a graduate of Max Gardner’s seminars or a graduate of the Garfield Continuum. This attorney can create some credible threats like the fact that youa re claiming, under TILA, your right to undisclosed fees on your mortgage, including the SECOND yield spread premium paid in the securitization chain when the pool aggregator sold the “assets” to the SPV pool that sold bonds to investors — investors who were the the sole source of cash advanced to make this nightmare come true. Picking the right lawyer is critical. Anyone who has not studied securitization, anyone who has not been working hard in the area of foreclosure defense AND offense, should not be used because they simply don’t know enough to achieve a satisfactory result.

My rule of thumb is that I don’t like any modification unless it has the following attributes:

1. Forgiveness of all late fees, late payments etc. No tacking on fees, payments, interest or anything else to the end of the loan.
2. Removal of all negative comments from your credit rating.
3. Reduction of the principal due on your obligation in the form of a new note or an amendment executed by all relevant parties. The amount of the reduction should be no less than 30%, probably no more than 75% and should average across the board something like 40%-60%. So if your mortgage was $300,000 your reduction should be between $90,000 (leaving you with a $210,000 obligation) and $225,000 (leaving you with a $75,000 obligation).
a. How do you know what to ask for? First step is on the appraisal. Had you known that the appraisal used in your deal was unsustainable, you probably would have taken a different attitude toward the deal and would have insisted on other terms. Assuming you had a zero-down mortgage loan(s) [i.e., including 1st and 2nd mortgage] then you probably, on average have spent some $15,000-$20,000 in household improvements that cannot be recouped, but which were also spent based upon the apparent value of the house.
b. So you look at the current appraisal and let’s say in your community the actual sales prices of homes closest to you are down by 50% from what they were in 2007 or when you went to the “closing” on your loan.
(1) Write down the purchase price of your home or the original appraisal when you closed the “loan.”
(2) Deduct the Decline in Appraised Value, which in our example is a decline of 50%. If you had a zero down payment loan, this would translate as the original amount of the note minus the 50% $150,000-$160,000) reduction in value. This leaves $140,000-$150,000.
(3) Deduct the $15,000-$20,000 you spent on household improvements. This leaves $120,000 to $135,000.
(4) Deduct your attorney’s fees which will probably be around $15,000, hopefully on contingency at least in part. This leaves $105,000 to $120,000.
(5) Deduct any other related expenses such as the cost of a forensic audit (which INCLUDES TILA, RESPA, Securities, Title, Appraisal, Chain of Possession, and other factors like fabrication and forgery) that should cost around $2500, and any expense incurred retaining an expert to prepare and execute an expert declaration or expert affidavit that should cost around $1000-$1500. [Caution a declaration from someone who has no idea what is in the document, or who has very little exposure to discovery, depositions, court testimony etc. could be less than worthless. Your credibility will be diminished unless you pick the right forensic analyst and the right expert]. This leaves a balance of $101,000 to $116,000.
(6) If you did make a down payment or cash payments for “non-standard” options then you should deduct that too. So if you made a 20% down payment ($60,000, in our example) that would be a deduction too so you can recover that loss which resulted from the false appraisal and false presentation of the appraisal by the “lender” who was paid undisclosed fees to lie to you. In our example here I am going to assume you have a zero down payment. But if we used the example in this paragraph there would be an additional $60,000 deduction that could reduce your initial demand for modification to a principal reduction of $40,000.
(7) So your opening demand should be a note with a principal balance of $101,000 with a settlement probably no higher than $150,000. I would recommend a 15 year fixed rate mortgage because you will be done with it a lot sooner and convert you from debt to wealth. But a mortgage of up to 40 years is acceptable in order to keep your payments to a minimum if that is a critical issue.
4. Interest rate of 3%-4% FIXED.
5. Judge’s execution of final judgment ratifying the deal and quieting title against he world except for you as the owner of the property and the new lender who might have a new note and a new mortgage or who might just walk away completely when you present these terms. There are tens of thousands of homes in a grey area where they have not made a payment in years, the “lender” has not foreclosed, or the “lender” initiated foreclosure and then abandoned it. These people should be filing quiet title actions of their own and finish the job of getting the home free and clear from an encumbrance procured by fraud.

If you want to “up the stakes” then add the damages and rebates recoverable for TILA violations for predatory lending, undisclosed fees etc. That will ordinarily take you into negative territory where the “lender” owes you money and not vica versa. In that case your lawyer woudl write a demand letter for damages instead of an offer of modification. The other thing here is the typical demand for your current financial information. My position would be that this modification or settlement is not based upon NEED but rather, it is based upon LENDER LIABILITY. And if they are asking for proof of your financial condition on a SISA (stated income, stated asset) or NINJA (No Income, No Job, NO Assets) loan then the mere request for financial information is a request for modification. That triggers your unconditional right to ask “who are you and why are you the entity that is attempting to modify or settle this claim?”

By the way the “rule of thumb” came from the old common law doctrine that one could beat his wife and children with a stick no greater in diameter than the size of your thumb. In this case don’t let my use of the “rule of thumb” restrain you from using a bigger stick.

Neil F. Garfield, Esq.
ngarfield@msn.com

Greenspan: If you can’t blame the borrowers, blame the investor — anyone but the real culprits

October 23, 2008

Alan Greenspan was wrong today when he said that investors did not look critically enough at the ratings. Finance is based upon trust, and these companies had been trustworthy for many decades. Here is the real story.

The very notion of pooling is and was illegal. Allocation of payments, recording statutes, recording fees, non-disclosure of lender (interfering with QWR and Rescission), non-disclosure of fees (TILA), non-disclosure of profits, non-disclosure of insurance (AIG), non-disclosure of Credit default swaps, uncertainty of possession, control and ownership of note, changing terms of note severing security instrument etc.

Why would you need all these insurance, cross collateralization, overcollateralization, and reserves if the mortgages were good paper? Because they didn’t have good paper. They dressed it up in a ballet costume, put some lipstick on it, got some judge to say it was the winner of a beauty contest and everyone (purchasers of mortgages and purchasers of mortgage backed securities) bought in reliance on the misrepresentations, fraud, non–disclosure etc. when if they had the true facts nobody would have bought.

To cover up the obvious illegality of pooling notes where the payments were mandated to be applied to the note obligation, they inserted buy-back arrangements that everyone understood would never be used and could not be used. It could not be used because the buy-back was between the mortgage aggregator, who no longer had possession, control or ownership of the note, and the lender who had already been paid. When it came to foreclosure and collection, whoever got the money either kept it or gave it someone else who kept it and used the same theory we are using — we’ll just keep this until we know who to pay.

Thus either the pretender lender or the mortgage aggregator or the investment banker KEPT the proceeds of the foreclosure without paying the only parties that MIGHT have had a claim to status of holder in due course. In plain words, they got paid twice over and perhaps more. The terms of the SPV provided for markdown of assets for an excess of non-performing assets. After the markdown, the investor was NOT entitled to any more of the actual proceeds than the markdown which was strictly within the sole discretion of the investment banker or the mortgage aggregator.

Add to this the fact that the economics of the finance market was turned on its head. REAL loans with REAL borrowers and REAL terms that were likely to remain in the status of performing loans had the least value in this securitization scheme.

For example: borrower has 800 FICO, $1 million in the bank, and an income of $5 million per year confirmed by income tax returns, the fact that he is the CEO of a public company where his income is disclosed, and through bank references in the usual manner of the usual loan. The loan is for $1,000,000, fixed rate at 6%. Title insurance, and property insurance included at closing and there is an escrow for taxes and insurance in the monthly payment. The interest income is $60,000 per year for 30 years. An investor might be willing to pay something close to $1 million for the $1 million loan. The lender makes sure it has one reliable honest appraisal which comes in at $1,200,000, and the due diligence review committee at the bank confirms the value of the house. Under normal circumstances, the parties in between would be getting a commission at the rate of some basis points on the deal, which is the way it always worked until the great mortgage meltdown of 2001-2008.

Now let’s look at what really happened. The borrower is a NINJA — no income, no job, no assets. First payment is $450, without any escrow for taxes or insurance, with the balance of the interest added to the principal as negative amortization. Title insurance, taxes and property insurance are in place for the first month. The loan is an option ARM, with resets eventually taking the loan up to an interest rate of 16.5% (this is a real case). Thus the interest income on the loan is stated as $165,000 despite the fact that the actual payments are at an annual rate of $5400, with no insurance payment and no guarantee the taxes will be paid. An investor knowing these facts would probably not be inclined to buy this loan at all.

It is obvious that somewhere in the first reset or second reset of payment the loan will become non-performing. Any person with a passing familiarity with mortgage loans would know that. If the investor was a risk-taker he would buy the loan at a deep discount, probably a few cents on the dollar. But if the investor did not know that this was a 16.5% NINJA loan and instead was presented with a purchase share in a pool of loans where the stated income was 6%, he would still pay full value.

Boiling the actual effect of this down to real dollars and cents, here is what happened inside the pool, unknown to the investor: they sold the 16.5% loan but they were only offering 6%. By doing that, they were able to sell the $100,000 loan to three groups of investors at full value pocketing nearly $300,000. This is only possible where the loan is “toxic waste” and the interest rate is therefore sky high. By hiding the loan in the pool, it looks to the investor as though he is buying the first loan in our example, but in fact he is buying worthless securities that are priced 100 times over market. This extra money made it possible to pay intermediaries 4-5 times their normal compensation and to press property appraisers into delivering appraisals that spiraled upward at the direction of the investment banker.

At the other end, the same thing was happening to the purchaser of the loan package — i.e., the borrower. Misled into thinking that the appraisal was a fair estimate of market value and misled into believing that the “lender” had a plan to refinance the loan every year or two, he came to reasonably believe that the finance people knew more than he did and took a loan that he would never have taken had he known the true facts. So you have two purchasers — a the borrower and the investor who would never have made the deal but for the outright criminal fraud of the intermediaries who cooked up the scheme to illegally issue unregulated securities.

Foreclosure Defense: Over-Appraisal Rampant– IndyMac Insider

Here is a good resource for any legal attack based upon the loss to the homeowner derived from property that was over-appraised. It was a systemic symptom the the Mortgage Meltdown. Nearly every deal was appraised over the purchase price. But the purchase price is the first indicator of the fair market value arrived at arm’s length bargaining. Was everyone getting the deal of a lifetime?

Join Date: Jun 2005
Location: Los Angeles, CA
State: California
Professional Status: Certified General Appraiser
Vernon Martin
My experience at IndyMac
INDYMAC: MY EXPERIENCE

I’ve shared some tidbits with you in the last month about my experience at IndyMac as their chief commercial appraiser from October 2001 to the end of March 2002. Now that IndyMac has been seized by FDIC and their legal staff presumably unemployed, I will tell the rest of the story. Some people tell me that it must have been hell for me, but I look back on it as an adventure, like sailing into the “Perfect Storm”, a perfect storm of corruption and incompetence, and living to tell about it.

I first became acquainted with IndyMac through OTS appraisal examiner Darryl Washington, MAI. Darryl used to examine my appraisal department each year when at Home Savings of America, which was acquired by WAMU in 1998. During the summer of 2001, I had a chance encounter with him at a jazz concert. I asked him what he had been up to, and he told me that he had just completed the first examination of IndyMac Bank, which had just received its savings and loan charter only a year before. He said, “Vern, they could use a guy like you.”

Several weeks later I saw the chief commercial appraiser position for IndyMac Bank posted on Monster.com. I responded with a cover letter that started with “Darryl Washington of the OTS suggested that I contact you….” Apparently, that was the right way to start the letter. IMB’s chief credit officer called me soon, asking “do you know Darryl Washington?’ I said “Yes, he examined my department annually at Home Savings.” His next question was “Do you know how to deal with him?” I assured the chief credit officer that I was used to dealing with the OTS and Darryl and that I could get IMB into compliance with OTS appraisal regulations.

After 3 interviews, IMB wanted me to start right away, because the OTS was returning in November. I started on 10/15/01 and had a month to familiarize myself with their commercial lending practices until the OTS showed up.

At the end of my first week, there was an urgent need to field review an appraisal of a subdivision in the Sacramento area. I went up there on the weekend, but also took along some other recent appraisal reports from the Sacramento area. One of the other appraisal reports concerned me. A residential subdivision had been appraised as “80% complete”, but when I visited it, it had only been rough-graded, probably no more than 15% complete. When I returned to the office on Monday I asked who the construction inspector was for that region. I was told that there were two inspectors for the Sacramento area; one was CEO Mike Perry’s father and the other one was Mike Perry’s father-in-law. The loan officer on the deal was Mike Perry’s younger brother, Roger, who had recently been hired. His previous experience had been as a cop. Thereafter I heard of favoritism towards relatives of Mike Perry and “FOMs”, and the chief credit officer advised me to take special care of Mike Perry’s brother. (“FOM” was IndyMac jargon for “Friend of Mike”.)

I reported my Sacramento findings in a private memo to the chief credit officer, who then distributed it to the senior managers at the construction lending subsidiary known as the Construction Lending Corporation of America (CLCA). The senior credit officer from CLCA, the manager who most resembled Tony Soprano, was the one to call me. He asked “Are you sure you saw what you said you saw?” in a rather chilling manner. He said he had been on site with Roger Perry and had seen things differently. After that call, I asked the chief credit officer why CLCA’s senior credit officer would want me to recant my report. He told me that the senior credit officer received sales commissions for every loan made, which seemed to me like a blatant conflict of interest.

All appraisals were ordered by the loan officers from a list of approved appraisers maintained by LandAmerica. I was not allowed to order appraisals, but I recognized many names on the LandAmerica list as well known, reputable appraisers. What I began to observe, however, was that loan officers were learning which appraisers were more “flexible” than others. My areas of concern were extraordinary assumptions, lack of feasibility analysis, and false information given to appraisers.

As an example, I read an appraisal of a vacant, former Costco warehouse which had been purchased for $2 million several months before, but was appraised for $17 million based on a fabricated rent roll composed of tenants that had never signed a lease or a letter of intent. Only one tenant actually moved in. I told the loan officer that I could not accept the appraisal report, as it was hypothetical. He wanted me to approve it, any way, with the understanding that no funds would be disbursed until the prospective tenants could be verified. I told him that I wasn’t going to approve a hypothetical appraisal. The loan was funded, any way.

My only substantive encounter with CEO Mike Perry was in November 2001. I was summoned late to an impromptu meeting of senior executives in the board room. When I arrived, the meeting was already underway. The tone of the meeting was very different than senior executive meetings at other companies I had worked for. Mr. Perry, a man in his thirties, was spinning ideas and executives who were 10 or 20 years his senior were behaving like “yes men”, competing to agree with his ideas. There were lots of raised hands and enthusiastic participation. He seemed to be enjoying this, in an immature, megalomaniacal way.

Then he turned to me with an idea. He asked me if I, as the chief commercial appraiser, had the regulatory authority to change the discounted cash flow models in each subdivision appraisal, which might have the effect of changing appraised values. I said that I could possibly do it, but why? He smiled and said “Don’t housing prices always go up?” (Was he really too young to remember the early 1990s?)

I told him that it wasn’t a good idea, because we were already hiring competent appraisers who had more local knowledge than I had. Unless I could show that their analysis was flawed, it would be inappropriate for me to change the appraisals. That answer seemed to anger him. At the end of the meeting, the chief credit officer tried to introduce me to him, but he turned his back on me.

I later learned that Mike Perry was hired as CEO of IndyMac at the age of 30 when it was spun off by Countrywide. He had been an accountant at Countrywide and a protégé of Countrywide founders David Loeb and Angelo Mozilo.

When the OTS arrived mid-November, my review duties were handed over to LandAmerica. I was to spend full time responding to findings from OTS examiner Darryl Washington. In the ensuing month it became increasingly obvious that the main reason I was there was to refute OTS findings and serve as window dressing for an institution that scoffed at or was wholly ignorant of federal regulations. Many, if not most, of the senior executives had come over from Countrywide, which was an unregulated mortgage bank.

One of the craziest violations of OTS regulations was underwriting loans based on appraised values well above purchase prices. For example, a prominent Sacramento developer purchased a piece of land for $18 million, a price most reasonably supported by the comps, but it was appraised and underwritten at a value above $30 million, the rationale being that this developer added value to the property just by buying it. This does not satisfy the USPAP and federally accepted definition of market value, however. The appraisal firm was the same one used for the supposedly 80% complete subdivision.

I was present at several confrontational meetings between the OTS and FDIC examiners and CLCA executives. It seemed that IMB was intent on refuting every finding and using me towards that end. I was criticized for not arguing enough with the examiners.

After the examination was over, there was an unsolicited appraisal report waiting for me on my desk. A piece of land next to an airport had recently been purchased for $24,375,000 and was almost immediately appraised for more than $65 million based on the owner’s plans to build an airport parking lot. This was three months after September 11th, 2001 and average parking lot occupancy at this airport had declined from 73% to about the low fifties. The appraisal lacked a sales comparison approach and its feasibility analysis was based on pre-September 11th data. The feasibility analysis was done by the same consultant who caused the city of Los Angeles to lose millions on the parking garage at Hollywood and Highland. The appraisal was done by an unapproved appraiser who had previously caused my previous employer, Home Savings, to set up a $17 million loan loss reserve on a hotel he appraised for $450 million and the loan defaulted within a year. The report was delivered less than a week after it was ordered by the IMB loan officer, leading me to suspect that it had already been completed for someone else, most likely the borrower. I told CLCA executives that I could not accept the report and that I considered it to be biased. I tried to get the appraiser to change the report, but he immediately called the chief lending officer, who must have then instructed him to ignore my request.

Despite my stated objections to the appraisal report, the chief lending officer told the Loan Committee that I had ordered and approved the appraisal, and they funded a $30 million loan. Thereafter, there was sustained pressure on me to approve the report. I responded that I would have to write my own report, since the original appraiser would not make changes. This bought me time. Meanwhile, the airport, who had previously owned 80% of the parking spaces in the area, was suing the developer and erected a fence to keep people from walking from the parking lot to the terminals.

The chief lending officer also pressured me to accept another unsolicited appraisal of a Sacramento-area subdivision. This report was based on an “extraordinary assumption” that a road led to the subject property. When I went up to Sacramento to see the property, there was no road.

In January I went to Sparks, Nevada, to review an appraisal of the last phase of a condominium project. The first phase, with condos on the golf course, was a success, but the last phase was on the opposite side from the golf course and actually sloped below grade. The appraiser made an $8000 downward adjustment for each unit, and I questioned whether $8000 was adjusting enough. That provoked warnings from several executives, including the chief credit officer. The developer was buying the land from David Loeb, IndyMac’s Chairman of the Board (and co-founder of Countrywide), and I was warned that challenging this deal could get me fired. Soon after, the chief credit officer came to my office with a representative from human resources to announce that my initial 90-day probation would be extended for another 90 days, as CLCA executives had complained about my lack of cooperation with them. The HR rep had a look of horror on her face the whole time he delivered this message.

I finally finished my own airport parking lot appraisal report in late March, the same week that the Bush Administration laid off most of the OTS examiners. I don’t know which event precipitated my termination. My appraisal of the airport parking lot estimated the stabilized value at $37 million in year 2003 and the value upon completion as $31 million in 2002. These appraised values were considered insufficient to support the $30 million loan.

IMB gave me two weeks’ notice of my impending termination and offered me $25,000 severance pay if I turned over all documents and signed a non-disclosure agreement. I told them that state law required me to keep records of all of my appraisals and reviews, and that $25,000 was not enough. After a few days of seeing that I was not cooperating, I was summoned to a final meeting with the chief legal officer and “chief people officer”. A written statement indicated that I was being terminated for having a “communication problem”. I asked for examples of my communication problem, but none were presented. (I later recounted, during a deposition, that I was left alone with the chief legal officer for a few minutes of awkward silence. I then asked him, “Doesn’t it bother you that I am being fired for a communication problem without any evidence against me?” He said, “Not at all.” This cracked up my attorney.) After the meeting, I was escorted back to my office by a large security guard to collect my personal belongings, and then I was escorted out of the building, with my toothbrush in my left hand and my toothpaste in my right hand.

During these last days I contacted OTS about the abuses going on at IMB and said I had documentary evidence. They flew in to Burbank to meet me and they debriefed me for a couple of hours. They were upfront about how the flow of information had to be one way, from me to them, and not vice versa. I had to call my friends at IMB to find out how OTS was responding. The OTS paid a special visit to IMB and called for an internal audit to investigate my allegations. The first audit was considered a whitewash, and the OTS called for a re-audit. Interestingly enough, there was even a document produced that supposedly indicated my approval of the appraisal of the “80% complete subdivision”.

The second audit corroborated most of my allegations and the OTS called for certain personnel changes. The president and senior credit officer of CLCA were ousted; the chief lending officer had his loan approval privileges removed. Chairman of the Board David Loeb suddenly and coincidentally retired at the same time. He died 5 months later.

Interestingly enough, at about this same time, I read in the press of IMB receiving a “corporate governance” award from some organization, for having an impartial and effective board of directors.

I had an excellent attorney. Besides suing for wrongful termination, he showed me that I could actually sue for discrimination. Many states, including California, have laws that prevent discrimination against employees who are upholding public policy, which was the very reason that got me fired. Other bank appraisers should take note of this. USPAP and OTS appraisal regulations are public policy.

In interrogatories sent to IndyMac during the litigation, they were once again asked to demonstrate evidence of my “communication problem”. The only evidence provided was a memo from me about a borrower “trying to deceive us” and a memo from a loan officer complaining that I actually called Union Pacific Railroad concerning one of his deals, a subdivision being built close to a railroad right-of-way. I was told by the loan officer that the track was no longer used, but Union Pacific disclosed to me that it was still being used once a day during the evening hours.

Interestingly enough, in the six months of unemployment and underemployment which followed my termination, I rented many videos, one of which was “The Insider”, the real-life story of Dr. Jeffrey Wygand, who blew the whistle on the tobacco industry to Sixty Minutes and was also fired, coincidentally, for having a “communication problem.”

Most of this information is already publicly disclosed in my lawsuit, filed 7/15/02 in Los Angeles Superior Court, Case Number BC277619, for anyone wanting further details. As for the results of that lawsuit, the only thing I can legally say is that “the matter has been resolved to the mutual satisfaction of both parties”.

Foreclosure Defense: Pay Attention to the Ankle Biting For Really Good Inside Information


LITIGATORS AND LITIGANTS WHO ARE FIGHTING FORECLOSURE AND USING OFFENSIVE STRATEGIES TO RECOVER REFUNDS, REBATES AND DAMAGES FROM THE COLLECTION OF COMPANIES THAT RAN UPLINE AND DOWNLINE FROM THE LENDER SHOUDL TRACK THESE LAWSUITS AND EVERY FIILNG — THERE IS A LOT OF GOLD IN THOSE PLEADINGS AND A LOT OF WORK YOU WON’T BE REQUIRED TO DO ESPECIALLY WHEN YOU FIND A LAWSUIT AGAINST SOME OF THE SAME PARTIES YOU HAVE IN YOUR CASE. 

THE FRAUDULENT ACTS COMMITTED IN VIOLATION OF MULTIPLE STATUTES AT THE SECURITIES END OF THIS SINGLE TRANSACTION IS A MIRROR IMAGE OF THE FRAUDULENT ACTS AT THE REAL ESTATE END OF THE TRANSACTION. THE SIGNATURE IS THE SAME. INFLATED APPRAISALS AND RATINGS WERE AT THE ROOT OF COVERING UP INTENTIONAL DISREGARD AND DEGREDATION OF UNDERWRITING STANDARDS.

IN ALL CASES UP AND DOWN THE LINE, UNDER FASB ACCOUNTING STANDARDS, THE LOAN WAS NOT ON THE BALANCE SHEET OF ANY ENTITY, WHICH IS WHY WE SAY THAT THE SECURITY WAS SEPARATED FROM THE SECURITY INSTRUMENT AND THE OBLIGATION TO PAY WAS SEPARATED FROM THE NOTE. 

IN ALL CASES WHERE WE HAVE BEEN PRIVY TO THE DETAILS, WE HAVE FOUND NO ENTITY THAT CAN PROVE IT IS OR WAS THE ACTUAL LENDER IN THE REAL ESTATE TRANSACTION AND WE HAVE FOUND NO ENTITY THAT CAN PRODUCE THE ORIGINAL NOTE OR EVEN THE ASSIGNMENTS THAT TOOK PLACE SHORTLY AFTER THE REAL ESTATE TRANSACTION. THIS IS WHY WE SAY THAT THE REAL ESTATE TRANSACTION WAS IN ACTUALITY A SECURITIES TRANSACTION WHERE THE BORROWER WAS PROMISED HIGH RETURNS ON HIS PASSIVE INVESTMENT IN A HYPER-INFLATED APPRAISAL (RATING) OF REAL ESTATE.

Now that things are falling apart, the banks are suing each other, the investors are suing the investment banks, everyone is suing everyone. A lot of what has been reported here and theorized in this site is now supported by the allegations of dozens of lawsuits and changes being made in regulations, accounting standards, and licensing of professionals in securities, real estate and related areas to the Mortgage Meltdown. 

The Buffalo case reported below clearly shows the inside scoop on how the fraud occurred, how clear it is, and how the financial shake-up is not ending but rather just starting a new chapter. The fraud alleged is precisely what has been reported and predicted by this site for months. Deutsch Bank is at the center of this one, but don’t be fooled. They all did it, some more than others. 

New reports from the Financial Accounting Standards Board indicate a long overdue correction in reporting standards for off balance sheet transactions. Until now, incredibly, financial firms were allowed to conduct business “off balance sheet”, reporting the income but NOT the liability.

Firms like Lehman are now going to be required to take all those transactions back onto their balance sheet. This will reveal the 25+ ratio typically used by all investment banking firms for leverage which every investor knows is stupidly suicidal. Their plan was to report the income on the way up and get bailed out by government if everything went to hell.

We also have information on a case that proves our point beyond a reasonable doubt: Wells Fargo was selling (assigning) various aspects of its residential real estate loans as soon as the application was filled out. Which means that at NO time were they ever using their own money. The case involved property in Michigan and will shortly be filed there.

M&T sues German bank

Deutsche Bank AGaccused of impropriety

By Jonathan D. Epstein NEWS BUSINESS REPORTER
Updated: 06/17/08 7:10 AM

M&T Bank Corp. sued German banking giant Deutsche Bank AG Monday evening, accusing the global investment banking powerhouse of knowingly selling M&T unsafe mortgage investments. M&T is seeking to recover $182 million in losses and punitive damages.

The legal action represents an attempt by Buffalo-based M&T to recoup most of the damage it suffered on a trio of mortgage-backed securities in the fourth quarter of last year. That’s when mortgage delinquencies and foreclosures were soaring nationwide, causing vast losses not only for lenders but also for the holders of investments.

The fraud lawsuit, filed Monday in State Supreme Court in Erie County, concerns two investment securities M&T purchased from Deutsche Bank in February 2007. At the time, M&T had hoped to earn higher returns than it could on U. S. Treasury bills and high-grade commercial debt issued by a company like General Electric Co.

Known as “collateralized debt obligations,” the complex layered securities were ultimately backed by “subprime mortgages,” which are loans to borrowers with bad credit. But the investments were highly rated by two of the nation’s major debt-ratings agencies, Standard & Poor’s and Moody’s Corp., giving the bank some comfort.

In its lawsuit, M&T claims Deutsche Bank deceived M&T by claiming the two securities it sold were “safe, secure, and nearly risk-free” — even safer than corporate debt and nearly as safe as Treasury bills.

In fact, the suit says, Deutsche Bank knew that its underwriting standards and due diligence had deteriorated, and bank officials were already experiencing problems with subprime loans and collateral “under their control” in 2006 and early 2007.

Also, M&T claims the ratings from Moody’s and S&P were also “fraudulent and false” because Deutsche Bank allegedly withheld information from the ratings firms, including about fraud with some of the loans and the refusal by the loan originators to stand behind them.

In the end, M&T cut the value of all three investments from $132 million to just $4.4 million less than a year after buying them.

“If M&T had been aware of the true facts . . . M&T would not have purchased the notes,” the bank said in the 51-page suit.

The bank is seeking to recover the original cost of the two Deutsche Bank securities, about $82 million, plus interest and $100 million in damages. The lawsuit does not cover the third security investment, originally valued at $50 million and sold to M&T by another party.

“We think that we have an incredibly strong case on the facts,” said Robert Lane, partner and head of the litigation department for Buffalo law firm Hodgson Russ LLP, which is handling the bank’s case.

The action by M&T represents the latest effort by an investor that purchased mortgage- backed securities and related bonds to go after the lender or brokerage that sold the investments in the first place.

Several such investor lawsuits have been filed by unions, pension funds, hospitals and municipalities such as Springfield, Mass., alleging they were sold inappropriate investments.

All of those suits are still in the early stages of litigation, with no sign of immediate resolution. But Lane said M&T was confident because its case is based on “very basic, accepted legal theories of fraud and negligent misrepresentation.”

The lawsuit also shines a light into the inner workings of “securitizations,” in which a multitude of loans are packaged by an investment bank into a legal trust, whose cash flow from the loans is then broken into pieces and sold to investors. Ratings agencies bestow their blessings in the form of evaluations such as “AAA,” which Wall Street then touts to sell the securities.

The two securities M&T purchased were “collateralized debt obligations,” which are pieces of debt that in turn are backed by other debt, such as mortgage-backed securities. Cash flow from one is used to repay the debt from the next higher level. And investors can buy into different levels of risk, accepting a bigger chance of default for higher returns. Many CDOs also have used derivatives known as “credit default swaps” to supplement loans.

M&T historically stuck to conservative investments, but opted to buy CDOs for the first time in February 2007. Relying on Deutsche Bank’s marketing, it chose two bonds from the Gemstone VII trust, which Deutsche Bank put together, sold, and administered, with Texas-based HBK Investments LP as collateral manager, the lawsuit said.

The first security, for $42 million, was rated AAA by S&P, while the second, for $40 million, was AA. The Gemstone marketing materials touted HBK’s experience and record, and the historically stable performance of similar investments, while a Deutsche Bank salesman repeatedly reassured M&T.

But within months after the purchase, the loans deteriorated, defaults soared, the bonds behind the CDOs were downgraded, and Gemstone itself was up for downgrade. M&T also learned for the first time that HBK had had claims against one of its biggest lenders, and was fighting with five over loans in default since 2006.

By October, half the bonds in Gemstone were downgraded, and one-fourth were in default. Gemstone itself was next.

Ultimately, M&T cut the Gemstone bonds to just under $2 million. They’re now $1 million.

jepstein@buffnews.com


Foreclosure Defense: False Appraisal Creates APR Disclosure Violation

The inflated appraisals that run at the core of the mortgage meltdown context and crisis results in a number of claims against the lender, the appraiser, the mortgage broker, the real estate broker, the developer, and entities upline in the securitization process, plus the insurance companies carrying errors and omissions and other assurance on those participants.

Salient among these is the effect that the appraisal, known by those participants to have been inflated. Thus the borrower was taking a loss at closing without knowing it. This loss, while also considered damages if one is pleading fraud, produces a distortion of the annual percentage rate (APR) disclosure in the good faith estimate. Thus if the GFE states the APR at 6%, and the buyer loses $100,000 like a new car buyer driving off the lot, the interest rate on a 30 year mortgage would be at least 3% at variance with the disclosed APR.

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