First a little background. On February 6, 2018 a California federal judge certified a nationwide class of borrowers accusing Countrywide Financial Corporation of using inflated real estate appraisals to inflate its loan origination business from 2003 to 2008, overturning successor Bank of America’s claims that borrowers won’t be able to back up their racketeering claims with proof.
The class-action covers borrowers who received an appraisal from LandSafe Inc. between 2003 to 2008 in connection with a loan that was originated by Countrywide. Countrywide, that owned LandSafe, was acquired by Bank of America in July 2008. LandSafe was sold and is now owned by CoreLogic Inc.
The Plaintiffs have submitted substantial evidence that could be used to prove an alleged RICO scheme existed. The lead attorney is Roland Tellis who believes the class-action reflects the fact that borrowers were scammed by phony appraisals but never received a refund, despite the fact that there have been massive settlements with regulators and investors.
The suit states that prior to the financial crisis, Countrywide and LandSafe “knowingly, fraudulently, systematically and uniformly” generated false appraisals so Countrywide could close as many home loans as possible. Borrowers were required to use LandSafe to close, but thought they were paying for an independent, objective appraisal service when the appraisals had a “predetermined value” to ensure the loans would close rapidly.
The plaintiffs claim they were charged between $300 and $600 each for allegedly corrupt appraisals. While it is great news that the courts are starting to recognize that a mass-fraud was perpetrated on homeowners, it is unlikely the Appellate court will see the situation the same way as the lower court. There is also the fact that most class-members receive much in the way of compensation. The cases typically settle once the numbers get high enough to satisfy the class-action attorneys.
However, there is still a lot of proof that will come out if the case is isn’t settled quickly — damaging proof. And it is worth noting that the Judge is giving at least some credence to the idea that the entire mortgage meltdown was based upon multiple frauds perpetrated by the banks — not 30 million people waking up one morning and deciding to borrow more than they could afford. I might add that affordability is the responsibility of the lender, not the borrower. See TILA. It is presumed by all lending laws that borrowers lack the sophistication to understand the deal they are signing.
Matt Taibbi likened securitization and Goldman Sachs in particular to a vapid squid with many tentacles reaching into the pockets and lives of millions of people. I would extend the analogy further if memory serves, to wit: the squid has three hearts. Appraisal fraud at the instigation of the banks was one of the hearts of the illegal securitization fail scheme — a plan that was, at its heart, nothing more than a Ponzi scheme. They could mollify investors by having them receive monthly payments and even encourage the investors to buy more “mortgage bonds.”
It was the purchases of those bogus securities that fueled everything. When that stopped the entire system collapsed — the hallmark of every Ponzi scheme. And it all happened because of the revolving door between Wall Street and regulators who quickly discovered that by accepting placement inside a regulatory agency, they could emerge within 2 years and take jobs at salaries that were geometrically higher than where they started.
So the people who were working as regulators didn’t want to kill the golden goose, much the same as the appraisers who ultimately caved under pressure from the banks. Of all people the appraisals and the banks knew exactly what was happening. And people who worked in the agencies were loathe to restrain or punish the banks because the banks were their next employer. It was no accident that so many agencies and even the Fed were asleep at the wheel. They were not asleep. They were just biding their time until they left the agency and took a job with the perpetrator of the scheme that they were charged with monitoring.
The banks were flooding the market with money — other people’s money, not their own. I personally witnessed the appraisal fraud in Arizona on several closings where in each case the appraiser came back with an appraisal that pegged the value of the property $20,000 higher than the contract price. In each case the appraiser was given the contract or at least the contract price and the direct or tacit instruction to come back with an appraisal that made the deal appear viable. It wasn’t. Looking at the Case-Schiller Index it is easy at a glance to see how PRICE was driven far above VALUE of property. All housing prices and values were closely related to household income. There was no spike in income for household, but prices were moved ever higher by the banks who were manipulating appraisers.
In 2005 8,000 appraisers petitioned Congress saying that they were being coerced into false appraisals. They either did the appraisal as instructed or they would never see another appraisal job. Congress ignored it. Many appraisers dropped out of the market. The rest were tempted by oversize fees (that in many cases were partially kicked back to the loan originator) or felt compelled to stay in the market because they had nowhere else to go.
The banks were trying all sorts of ways to maximize the amounts of money being moved from the investment sector to the benefit, as it turned out, of themselves and nobody else. The entire time they were driving demand up for loans sold by fraudulent promises from mortgage brokers, who in some cases were convicted felons who had been found guilty of economic crimes. At one point there were 10,000 felons who were registered as salesman for loan products that had no possibility of being sustained.
And it wasn’t that the banks were unaware of the defective loans that violated TILA in multiple ways. They were counting on it. On the way up they sold defective loan products that were never subjected to due diligence by anyone. They, above all others, knew the loans would fail; in fact they were counting on it. They were betting against the performance of the loans by negotiating insurance contracts for either the loans or the “mortgage bonds” or both and selling derivative futures that in many cases were disguised sales of entire loan portfolios that were never owned by the “Seller.”
The big payoff came when the loans and the “mortgage bonds” failed and all sorts of people and entities were caught having to either cough up money or declaring bankruptcy. The AIG insurance [packages were specifically written such that AIG would NOT be subrogated and be able to make claims on the underlying loans nor the “mortgage bonds”]. For a few dollars in premiums the suckers on Wall Street had bought themselves a world of trouble.
Appraisal fraud lies at the heart of the scheme. The illusion of an ever-climbing market kept people refinancing their property, buying overpriced property, and, most importantly buying bogus “mortgage bonds” issued by the underwriter of the bonds utilizing the fictitious name of a REMIC Trust. This was the holy grail of securities underwriting: what if you could sell shares of a nonexistent entity, keep the proceeds, and then sell securities and contracts that derived from the nonexistent value of the Trust?
The average homeowner knows nothing of any of this and reasonably relied upon the representations by sellers of defective loan products; besides reposing trust in such entities just because they appeared to be an institutional lender, borrowers believed the rationale that banks would not lend money they knew they would never collect. That would be true if the banks were making loans. In truth, they were intermediaries with contractual and legal duties to everyone with whom they did business. They breached those duties to everyone in multiple ways but none so glaring as appraisal fraud and kickbacks on fraudulent appraisal fees.
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Filed under: foreclosure | Tagged: appraisal fraud, Bank of America, class action, countrywide, Landsafe | 11 Comments »
Insider Confirms Builder Complicity in Appraisal Fraud
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!
Spread the word
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Filed under: bubble, CASES, CORRUPTION, Eviction, expert witness, foreclosure, foreclosure mill, GTC | Honor, HERS, MODIFICATION, Mortgage, Motion Practice and Discovery, STATUTES | Tagged: Appraisal, appraisal fraud, appraiser’s comments section, builders, comparable property, comparable sales, Condo, countrywide, early transfers, fraud, HERS, HOA, incentives, independent loan brokers, inflated values, Landsafe, loan officer, mortgage fraud, occupancy ratios, property management company, upgrade sheet, upgrades | 4 Comments »