24th July 2013

Why did the Fed Refuse to Heed the Appraisers, Prosecutors, and Industry’s Fraud Warnings?

Reposted article from:
William K. Black

The Appraisers’ Warning of the Lenders’ Fraud Epidemic

Two of my recent columns have explained the effort by a very large number of appraisers to combat the “Gresham’s” dynamic that home lenders and their agents were deliberately generating by extorting appraisers to inflate appraisals. A “Gresham’s” dynamics perverts market forces. When cheaters prosper the markets drive honest firms and professionals out of business. Honest appraisers tried to block this dynamic.

“From 2000 to 2007, [appraisers] ultimately delivered to Washington officials a petition; signed by 11,000 appraisers…it charged that lenders were pressuring appraisers to place artificially high prices on properties. According to the petition, lenders were ‘blacklisting honest appraisers’ and instead assigning business only to appraisers who would hit the desired price targets” (FCIC 2011: 18).

I explained the “recipe” by which fraudulent mortgage lenders (purchasers) optimize their reported (albeit fictional income); promptly making their controlling officers wealthy through modern executive compensation. That recipe requires the massive origination (purchase) of bad loans, and inflating appraisals makes bad loans appear to be good loans and helps hyper-inflate bubbles.

…continue reading the rest of this post: Why did the Fed Refuse to Heed the Appraisers, Prosecutors, and Industry’s Fraud Warnings?

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24th July 2013

Revealed: Banks Rewarded and Blacklisted Appraisers to Artificially Inflate Real Estate Prices [VIDEO]

Wow, you have to watch this video!

Bio

William K. Black, author of THE BEST WAY TO ROB A BANK IS TO OWN ONE, teaches economics and law at the University of Missouri Kansas City (UMKC). He was the Executive Director of the Institute for Fraud Prevention from 2005-2007. He has taught previously at the LBJ School of Public Affairs at the University of Texas at Austin and at Santa Clara University, where he was also the distinguished scholar in residence for insurance law and a visiting scholar at the Markkula Center for Applied Ethics. Black was litigation director of the Federal Home Loan Bank Board, deputy director of the FSLIC, SVP and general counsel of the Federal Home Loan Bank of San Francisco, and senior deputy chief counsel, Office of Thrift Supervision. He was deputy director of the National Commission on Financial Institution Reform, Recovery and Enforcement. Black developed the concept of “control fraud” frauds in which the CEO or head of state uses the entity as a “weapon.” Control frauds cause greater financial losses than all other forms of property crime combined. He recently helped the World Bank develop anti-corruption initiatives and served as an expert for OFHEO in its enforcement action against Fannie Mae’s former senior management.

…continue reading the rest of this post: Revealed: Banks Rewarded and Blacklisted Appraisers to Artificially Inflate Real Estate Prices [VIDEO]

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17th July 2013

The housing appraisers warned us about the crisis but we didn’t listen

The housing appraisers warned us about the crisis but we didn’t listen

By William K. Black

On July 9, 2013 I participated in a radio interview with a lobbyist for the 100 largest financial firms. The San Francisco radio program host asked me what question I would ask the lobbyist and I said that any discussion should begin with allowing him to state his view of what caused the crisis. In the course of his explanation, he bemoaned the fact that there was no warning about the crisis.

I found this ironic because I had just published that morning an article about how the appraisal profession warned us that the senior officers controlling the mortgage lending firms were engaged in pervasive “accounting control fraud.” …continue reading the rest of this post: The housing appraisers warned us about the crisis but we didn’t listen

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17th July 2013

Eighty percent of residential appraisers and 78 percent of commercial appraisers said they are upbeat about their future

AI: Appraisers Optimistic About Future

More than three-fourths of U.S. real estate appraisers are very or somewhat positive about the demand for valuation services over the next one to two years, according to an Appraisal Institute survey released July 17.

Eighty percent of residential appraisers and 78 percent of commercial appraisers said they are upbeat about their future, according to the survey of 591 valuation professionals conducted between May 31 and June 17. The survey had a margin of error of +/- 4 percent.

“Appraisers have faced a challenging real estate market in recent years, and it’s great to see that so many valuation professionals are feeling optimistic about the future,” said Appraisal Institute President Richard L. Borges II, MAI, SRA.

The survey noted that 95 percent of residential appraisers and 49 percent of commercial appraisers said that there is more demand for their services now than just a year ago.

Additional survey results:

• Eighty-four percent of residential appraisers said their local residential real estate market is strong, and 46 percent of commercial appraisers had the same opinion about their local commercial market.
• Eighty-six percent of residential appraisers and 55 percent of commercial appraisers said demand for their services is strong.
• Thirty-two percent of residential appraisers and 45 percent of commercial appraisers said they anticipate more demand for their services during the next 12 to 24 months.

“Real estate trends are typically local in nature, and it’s a positive sign for the nation’s economy that appraisers around the country reported increased demand for their services,” Borges said.

View highlights of the survey.

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3rd July 2013

Bankruptcy Court Absolves Chase of All Liability

by Isaac Peck, Associate Editor – WorkingRE.com

An alarming precedent has just been set for real estate appraisers in the bankruptcy case of Evaluation Solutions/ES Appraisal Services (ESA). Despite numerous objections from appraisers and agent/brokers alike, a Florida bankruptcy judge has ruled in favor of JPMorgan Chase in granting a Bar Order which absolves Chase of any liability on future claims from appraisers, agents, and brokers for unpaid fees for valuation services that were delivered to Chase through ESA. …continue reading the rest of this post: Bankruptcy Court Absolves Chase of All Liability

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3rd July 2013

BofA Reportedly Sending Property Reviews to India

BofA Reportedly Sending Property Reviews to India

Bank of America reportedly opened a unit in India to review valuation reports in an effort to boost its share of the U.S. mortgage market at a lower cost, Bloomberg reported June 28.

Workers in the new Bangalore office use checklists to decide if appraisals are complete, according to people who talked to Bloomberg on the condition of anonymity. Bank of America also eliminated positions at its Plano, Texas-based LandSafe appraisal division, which made $78.8 billion in loans in 2012.

“One of the biggest problems in the mortgage business is all the paperwork involved, and how do you engineer it to reduce the bottlenecks,” Bert Ely, an independent banking consultant in Alexandria, Va., told Bloomberg. “With offshoring, the potential for problems is always there, but it’s hard to be critical for trying to minimize costs.”

Like many lenders, Bank of America needs to increase revenue and cut spending in order to compensate for sub-par loan growth and new government regulations. The bank spent in excess of $45 billion to settle disputes related to faulty mortgages and foreclosures and is among the most aggressive cost-cutters with Chief Executive Officer Brian T. Moynihan looking to save $8 billion per year, Bloomberg reported.

The bank was the fourth largest mortgage lender in 2012 — claiming roughly 4 percent of the market; in 2008 it made $315 billion and accounted for more than 20 percent of the market, Bloomberg reported.

According to LandSafe’s website, the company employs more than 2,000 U.S.-based associates. Along with appraisals for new home loans, the unit also conducts valuations of the bank’s portfolio of delinquent loans — 667,000 as of March 31. The lender eliminated nearly 5 percent of LandSafe employees February 25, saying they weren’t needed because the number of delinquent loans had dropped.

Bank of America spokesman Terry Francisco told Bloomberg that the lender’s program prevents paperwork errors from delaying loan applications and that the overseas completeness checks don’t replace in-depth reviews done by licensed U.S. staff.

“The overall consideration isn’t necessarily cost, although cost can be an element,” Francisco told Bloomberg. “What we’re looking for is if there are patterns in certain areas where it looks like the reviews aren’t necessarily needed anymore.”

The U.S.-based reviewers usually have at least five years of experience as appraisers and are required to verify accuracy by conducting independent reviews that align with industry standards, Bloomberg reported. The checklists in India cover a total of 17 items, including whether the appraiser signed the report and included photos.

Relying more heavily on checklists could increase the possibility that inaccurate reports will go unnoticed, according to Karen Mann, SRA, a Discovery Bay, Calif., appraiser who provided testimony in 2011 for the Financial Crisis Inquiry Commission’s report, which investigated the reasons behind the housing bubble and subsequent credit crunch.

“Experienced, licensed appraisers know the shortcuts people take, so those reviewers can be invaluable,” Mann testified, Bloomberg reported. “With the checkboxes, they’re looking for things that don’t really have anything to do with values.”

LandSafe workers complained last year about a reduction in review work and its impact on their compensation and job security, an individual with direct knowledge of the internal discussions told Bloomberg. At the time, LandSafe executive Tracy Sanderson said that management couldn’t expand the number of reviews due to cost; this time Sanderson didn’t return Bloomberg’s requests for comment.

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