Post submitted by Brian Davies. Thank You.

Editor’s Note: Lurking in the background of every loan product sold on new construction is a developer who was “playing ball” with the securitization infrastructure. It was the developer who setting the comparable pricing by raising prices every 2 months to create the illusion of a rapidly rising market. It was the developer who had the mortgage office on premises and screwed around the figures to get that mortgage done regardless of the viability of the deal. It was the developer who actually hired the drive by “appraiser” who contrary to industry rules was given the contract price, the target value and a higher fee for “playing ball.”

If they didn’t play they were out of the game they were left with nothing to do. Either lie or lose your livelihood.  Now they face administrative charges from their licensing boards, insurance claims for errors and omissions and possibly criminal charges. (This is also known as music to the ears of Plaintiffs’ lawyers).

It was the developer who was doing the selling of these absurd homes at false prices, giving cover to the mortgage originator which was often a developer related entity that did virtually no due diligence and therefore was not following industry standards for underwriting. The developer made money coming and going and now they want a piece of the action even after the deal if you sell your home — taking a fee or equity piece from the eventual sales price of the home when you re-sell it.

Now the ankle-biting has begun, and the buy-back provisions of the assignment and assumption agreement (see me on you-tube) are being used to make claims on the developers. The purpose though is two-fold: one is to get damages from developers, which is probably unlikely since the very same people who are suing were the ones directing the show. The other one is for the securitization intermediaries to execute their back-up plan of plausible deniability.

They will say they didn’t know or realize what the developer was doing. They didn’t know that the developer whose sales of homes at increasingly ridiculous prices might fudge the paperwork a little to make sure the paperwork went through. It never occurred to them there was a moral hazard in letting the developer set the terms, the prices and the appraisals. If you believe that please call Bernie Madoff immediately. He has an incredible deal for you.


Here is another issue. Builder originator (brokered) buyback for failure to comply with the agreements reps and warranties.

See buyback list for Hovanian—misrepresentations etc.


This is another part of the puzzle. The FDIC is aware of the fraud, but chooses to do nothing.

brian davies

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!

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