Please help get this info to people fighting for their homes.
FLASH: Many homes were underwater the minute the homebuyer signed the closing papers. Was yours?
Collusion by the real estate professionals and banks involved w/home sales set the stage. Charts, reports, and quotes from appraisers prove this below the fold.
Appraisal fraud explains why homes went underwater and why banks refused to refinance those crazy sub-prime, high interest loans.
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."
- The Banner Year of the Housing Bubble!
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.
Before we begin: The scope of mortgage and appraisal fraud is so vast, that it is almost impossible to grasp. It's hard to wrap your mind around, because there are so many twists and turns that were taken in the last decade when a home was sold and/or refinanced.
I have found that, as I approach the Foreclosure Crisis issue hoping to help you and others understand and find resolutions, that every door that opens, leads to another door, and another door, then a hatch with a hitch.
The Housing Bubble Fraud isn't a rabbit hole. It's the moon made out of swiss cheese! Disgusting, rotten cheese!
This diary looks at two things:
- Appraisal Fraud which is the crux* of the quick and high rise in property values we witnessed in the past decade; and
- The neglect of those charged to protect the people. State and Federal officials knew about the fraud as reports below demonstrate. They chose not to fund the FBI and they chose to let the Housing Bubble run at full speed with no one at the steering wheel. Sheriffs were quick to throw people out of their homes but no one tried to protect people from being defrauded.
I am going to risk a conclusion. which may be full of holes, no pun. But don't let the conclusion keep you from learning the facts about the appraisal fraud you or someone you care about may easily have been a victim to, k?
In short, don't let your sense of moral hazard/outrage about the solutions to the foreclosure disaster discount the entire diary.
There is a huge amount of empirical evidence, complete with maps and charts, to back up the assertion that many home buyers were underwater when they signed their mortgage. And NO ONE is reporting this loudly enough.
I would suspect that the Masters of the Universe have worked very hard to keep this all hush, hush. But THIS IS THE STUFF BLOGGERS ARE MADE FOR.
We care and we share with no thought of personal gain. We are driven to help.
My conclusion: Tens of Thousands made fortunes fraudulently. Tens of Millions of ordinary citizens and their families were harmed. Trillions of investments were based on fraudulent valuations. It's time for some serious claw back!
And it's time to stop this agonizing game of Musical Homes now.
Whoever is in a home needs to stay there until the history of each home is cleared up. That is finally being done, or so the air waves report.
People need to return to and occupy empty homes as well. Empty homes are not helping anyone, including the investors.
And then reset the median home value based on the facts on the ground: Median Income for the area.
The homes are there.
Put aside the issue of moral hazard. That horse won't fly after the lack of regard for the moral hazard to protect the people for nearly a decade KNOWING they were being defrauded.
To further this moral hazard argument, where's the ire and outrage now? No one is yelling about the moral hazard of the very same people who were enriched fraudulently sweeping the country like blood thirsty vultures ready to use their ill begotten gains to buy the homes back for $.10 on the $1.00?
No one is yelling about the insensitive, crazy making TV ads that run 24/7 inviting ordinary citizens to get on board, buy foreclosed properties for $5,000! or $9,000! Get Rich, Have That Life You Have Always Dreamed About, and that runs on the very same news programs that are announcing the Foreclosure Freeze because the banks lost the notes and titles to the properties.
Where are the warnings to beware of buying any foreclosed and/or short sell properties until things settle down? Where is the national campaign directing people to go over their paper work with a fine tooth comb so that, when/if they try to sell their homes, they aren't surprised to find that they can't grant a clear title.
Good grief, it's October, 2010, five years after the appraiser Rang the Alarm and the wolves are still free to have their way with the sheep. Shameful.
Why enable these same people who defrauded homeowners the freedom to churn the same bubble again? That is much more immoral than allowing people who were hoodwinked to stay in or return to their only home.
Once people are in homes, and empty homes have residents, the money clawed back from the fraudsters, who made billions, can be used to help the home buyers.
There is even a chance that the MBS investors will be whole, over time, IF the mortgage is paid and has a reasonable relationship to wages in each area.
And if HUD can sell foreclosed homes to towns and faith-based initiatives for $1.00 then surely HUD can afford to help people stay and get back into their homes. I think this scheme needs to be investigated, btw, and used to help existing distressed homebuyers. Pronto.
In April, 2005
Referring back to the Appraisers Petition Petition written and sent to alert State and Federal Agencies about the problem referenced in the Intro above:
The petition was directed to the Executive Director of the Appraisal Subcommittee of the Federal Financial Institutions Examinations Course (who was that in 2005?) with copies to be sent to an unspecified list of "other state or federal agencies with authority in the following matter." (where is the list of who received the petition?)
The petition states in part
"Lenders have individuals within their ranks who, as a normal course of business, apply pressure on appraisers to hit or exceed a predetermined value,"
and lists six of what it terms "many types of pressures" that are brought to bear on appraisers:
The withholding of business if we refuse to inflate values;
The withholding of business if we refuse to guarantee a predetermined value;
The withholding of business if we refuse to ignore deficiencies in the property;
Refusing to pay for an appraisal that does not give them what they want;
"Black listing" honest appraisers in order to use "rubber stamp" appraisals, etc.
The petition requests that
"action be taken to hold lenders responsible and provide for a penalty on anyone who engages in the practice of pressuring appraisers to do dishonest appraisals that do not provide for independent judgments."
As of April 21, 2005 the petition had 8,326 signatures.
And from the same source, these comments submitted by appraisers in 2005:
"This continues unabated after the S+L debacle of the 1980s.
It requires both perpetrators (lenders) and willing accomplices (appraisers).
State regulators were purportedly established, in part, to control both.
It hasn't and will not happen.
Take Illinois for example:
2002 - 36 appraiser disciplines;
2003 - same number.
Then, new governor and political assignments.
2004 - 18 disciplines.
First quarter 2005 - 1 discipline.
The wolves are on the sheep with no shepherd in sight.".
"The article is a good, if abreviated, statement of the problem. The traditional relationships that existed between lenders and appraisers (as well as other service providers) have been seriously eroded in a lending environment that views loans as a commodity and values loan volume above the quality of the underlying security."
"I volunteer for a consumer org, hadd.com and see the complaints about seriously defective construction in new homes every day.
Increasingly, we're seeing complaints that include lending irregularities, and inflated appraisals.
Many don't meet building code minimum standards.
The code is rarely enforced.
What will happen to all these overpriced disposable houses and the people that invested so much into them!?"
When lenders made their orginators go to straight commission in lieu of a salary, and demanded X amount of business per month, the whole industry went to the dogs.
I have been appraising single family residences for 17 years, and have been pressured to inflate values many times.
Needless to say due to my honesty, my income has suffered.
It is my opinion that about 60% + of the paper ( mortgage notes ) that is sold in this country is JUNK.
These Alarms went off in April, 2005. In 2006? Nothing/crickets. 2007? Nothing/Crickets
Three years later, in 2008, Freddie Mac f i n a l l y addressed the problem:
AND NO ONE PROTECTED THE BUYERS from commissioned agents of Country Wide or any of the other large Mortgage Brokers, or addressed the issue in any meaningful manner until 2008!
I hope readers are shaking their heads by now. And please get this message out there as this story needs to come out NOW, not two years from now.
It appears that everyone BUT the average John and Jane Doe home owner enabled and/or participated in this fraud, this criminality, either overtly or covertly, by either knowingly participating or willfully neglecting their duty.
Congress failed it's number one duty to their constituents: To do no harm.
AMERICA IS A CRIME SCENE
And how did those new rules work out? Not so well: Appraisal Fraud continued to spiral upward.
*Value inflation, subdivided into three categories, is also a large portion of reported appraisal fraud and misrepresentation:
18% of loans in this category reported inflated values under 15%;
40% had inflated values between 15% and 30%; and
17% had inflated values over 30%.
In short, 57% of appraisal fraud cases (those reported) in 2008 and 2009 were overvalued by more than 15% and many over 30% overvalued.
This is an astounding revelation. Let's bring that reality home (no pun).
Mortgage Fraud Prevelance Map, FBI 2006:
2006 - The most common form of mortgage fraud is illegal property flipping which entails false appraisals and other fraudulent loan documents (see figure 1). Combating mortgage fraud effectively requires the cooperation of law enforcement and industry entities. No single regulatory agency is charged with monitoring this crime.
And the states with the most reported incidents of all mortgage fraud reported for the year 2009:
And the worst areas of the country for appraisal fraud in 2009 are:
Let's look at a real case scenario from 2002 as reported in a 2004 New York Times report
Here are a couple of examples, from a 2004 NYTimes article, of one of the ways appraisal fraud was used to defraud new home buyers:
Finally, she discovered that her house had been
sold for $180,000 in August 2002,
and then resold to United Homes three weeks later for $230,000.
Three months later, after a quick renovation, she purchased it for $399,000.
An appraisal commissioned at the time found this value fair, but a second appraisal commissioned later by Ms. Wragg's lawyers found that the value at the time was only $250,000.
Barkley, for example, claims the United Homes salesman didn't tell her until the day of the closing, even though she repeatedly asked him, the actual price of her new home.
The price turned out to be $359,000 for a home United had purchased for $153,000 - less than three months earlier.
Not a bad days pay! United Homes L.L.C., of Briarwood, Queens made out like bandits! As did their cohort, Olympia Mortgage Corporation. Actually, everyone thereafter made more money on the value inflated deal except, of course, the homeowner and the investors that bought those Mortgage Backed Securities.
Again, many homeowners of properties purchased in 2002 through 2009 were underwater on their mortgage instantly, at the closing of their mortgage signing!
DO NOT LET THE MEDIA AND POLITICIANS GET AWAY WITH TRYING TO CONVINCE US THAT HOMES ARE UNDERWATER JUST BECAUSE THE MARKET IS ADJUSTING DOWNWARDS !!!!
Again, the Mortgage Backed Securities were attached to these properties valued at less than the mortgage; therefore, the MBS' real property values were also less than the investors thought they were.
Are we all supposed to believe that none of the Masters of the Universe had a clue? If you do, I have some property to sell you (snark).
One-Stop-Buy-A-Home-Shops: The Fraud Collusion Team
A BIG common denominator in mortgage/appraisal fraud are those One-Stop-Buy-A-Home-Shops. They provide all the services you will need to buy a home: The realtor, the appraiser, the mortgage broker, and the electronic means to apply for/receive the mortgage. Once the deal is closed, another electronic system, MERS, took over. You see, MERS made thousands of people their 'agents'.
So, if you bought from a One-Stop-Buy-A-Home-Shop, do your research. Your property should have a transaction record of purchases and sales. Check it out. Go to the place where your property transactions are recorded. You will need to look at your paperwork to find the indentification of your property, often a Lot Number, Name of Subdivision. Find out if your house passed hands several times in the short time before you bought the house. If so, you could be a victim of appraisal fraud.
Can we assume that NO ONE in the secondary mortgage industry was checking the facts for each home? And how about the rating agencies? Is there no Due Diligence Law to require all involved in the mortgage industry to check for fraudulent behavior?
Two other factors to keep in mind to help explain the huge volume of fraudulent mortgages processed during the Housing boom are:
- The ability for mortgages to be sold, sometimes instantly, to the secondary market
Definition: The secondary mortgage market allows banks (and others, my addition) to sell mortgages, giving them new funds to offer more mortgages to new borrowers...
Many of the mortgages on the secondary market are bought by Fannie Mae. Other are packaged into mortgage-backed securities, and sold to investors.
- And this is the key: An electronic highway was invented to whiz the mortgages from one place to another, sight unseen: Mortgage Electronic Registration Systems (MERS). I have written exhaustively about MERS since the fall of 2008. MERS, created by the Mortgage Bankers Association, Freddie Mac, Fannie Mae, and almost all of the TBTF banks, was the kingpin needed to handle the volume of mortgages processed and made into MBS during the Housing Boom. It is also the kingpin in the disaster of missing notes and title deeds which, ironically, may save people from foreclosure.
From the advantage point of the real estate professionals, MERS, and the financial players, houses were just a tool used for all to make fortunes in commissions, fees, and kickbacks at the expense of victimized and average, John and Jane Doe home buyers and MBS investors.
AMERICA IS A CRIME SCENE
We also know that the TBTFs bought the mortgages and created MBS bundles. The appraisal fraud explains, in large part, why the Mortgage Backed Securities were worth far less than the amount of the mortgages written.
Who owns the MBSs today?
What I find disheartening, and maybe shocking is that none of the mortgage/appraisal fraud was happening in a secretive vacuum.
In this 2008 article by Digital Journal, the truth is that the Bush Administration and Congress wouldn't fund the FBI,whose resources were mostly shifted from white collar crime to the War on Terror:
From 2001 to 2007, the F.B.I. sought an increase of more than 1,100 agents for criminal investigations apart from national security.
Instead, it suffered a decrease of 132 agents, according to internal F.B.I. figures obtained by The New York Times.
During these years, the bureau asked for an increase of $800 million, but received only $50 million more.
In the 2007 budget cycle, the F.B.I. obtained money for a total of one new agent for criminal investigations.
I hope you find this as shocking as I do. One.new.agent in 2007.
In other words, while the people were being hammered by ads on the airwaves and promptings from the President to 'buy a home', it seems everyone but the uneducated home buyers and investors were aware that they were sitting ducks to be used for profit and gain in a market that was known to be hugely fraudulent.
Our Congress did not protect the people sufficiently. On the contrary, it appears they actually shackled the very people who could have intervened.
Will Congress call hearings to investigate itself? There's an SNL skit to be written that would be quite funny as we watch Representatives run from their seats on the dias to the table to answer their own questions.
And who, at the FCC, is responsible to protect us from airway advertisements that are presently running, inviting us all to get rich and have the lives we have always dreamed of having via purchasing FORECLOSED HOMES? Why is this allowed when it is obvious that bogus home valuations caused people to lose those homes?
And why is HUD allowing towns and faith-based initiatives to buy foreclosed homes for $1.00? I see "rerun" all over this scheme.
Back to the under/defunding and FBI shackling:
From the same article discussing the underfunding of the FBI White Collar Crime Division:
It's so bad people have been hiring private investigators to do the legwork. The NYT piece is full of grim facts, but this is the one that stands out as most indicative of real need:
In 2004, one senior F.B.I. official, Chris Swecker, warned publicly that a flood of fraudulent mortgage deals had the potential to become “an epidemic.”
Yet the next year, as public warnings about fraud (really, public warnings? Do you remember public warnings in 2004?) in the subprime lending markets began to approach their height, the F.B.I. had the equivalent of only 15 full-time agents devoted to mortgage fraud out of a total of some 13,000 agents in the bureau.
That number has grown to 177 agents, who have opened 1,522 cases.
If you want to see the FBI charts that show the number of cases, etc, they worked on from 2003-2005 go here.
Is there a move to privatize the FBI? That cannot happen, for the same reason that banks allowed to hire their own appraisers was a really bad idea. But without the FBI to help homeowners who were defrauded, who will pay to have their case examined?
It is a modern scandal, imo, that ordinary people can't afford to litigate their cases. Why should a citizen have to pay $30K-$40K to prove they were defrauded?
Another victim's story:
Mr. Fayez-Olabi said that at first he found almost no one, including a lawyer he hired early on, to believe his story, which he said required the cooperation of almost everyone in the room that day: the lawyer, the buyer, the mortgage broker and the closing agent, all named in his lawsuit.
Then he found that Ms. Cromer, the lawyer at the closing, was indicted and accused of being a ringleader of a group of 17 people including lawyers, a broker and a title closer, in a scheme to defraud mortgage banks by holding sham closings. Charges against her are still pending, and she and her lawyer did not return telephone calls for comment.
Now, as his family lives in a basement of the home of a member of his church, Mr. Fayez-Olabi is pursuing litigation in State Supreme Court in Queens trying to win back his house on the grounds of fraud.
He has so far found several mysterious documents in the court papers to support his allegations. He has received nearly identical photocopies of the same sales contract he was supposed to have signed, one provided by Mr. Mayfield, the other by Mr. Mayfield's bank, with different signatures for him and his wife.
And he has found copies of two bank checks in closing documents provided by the bank, showing payments of $75,000 to him at the closing, which he said he never received. He said that a bank manager at a Fleet Bank, which issued the checks, gave him a printout suggesting that the checks were forgeries, since the same check numbers were used in smaller money orders. A spokesman for Fleet said that the bank was attempting to assess whether the checks were legitimate.
So far, Mr. Fayez-Olabi said, he has spent $30,000 and owes $50,000 more in legal fees. His lawyer withdrew from the case, and he is searching for a new one.
He said that no judge has ever ruled on the merits of his fraud complaints, and that his case was in jeopardy because he failed to respond to court papers which he says were sent to an incorrect address after his eviction.
The 2006 FBI report and map seen above clearly indicates that Congress was aware of the mortgage/appraisal fraud citizens were unprotected from.
Where were the WARNINGS?
Instead, the airways were riddled with advertisements luring in new customers to be, essentially, defrauded. And now, good people have lost homes that were used simply to make money for the defrauders. And the secondary market made this all possible:
Again, check the 2006 FBI map above.
The defrauding simply continued and, if loans can still be sold to secondary markets, still may be continuing.
One more time: The homeowners of many properties purchased between 2002 and 2009 were underwater the minute they signed the closing papers.
Home buyers were hoodwinked, even though this crime was blatant and known about for years by the FED/States. Where was the consumer protection? MIA!
Here's a look at housing valuations from 2001-Jan, 2010. Nothing really justified the dramatic increases in valuation. If it hadn't been for the ginning up of the market by the players, some very clever MERS software, and the Masters of Sales on Wall Street homeowners and investors wouldn't have been victimized. Wages were stagnant. Layoffs were wide spread.
It is worth noting that value inflation is almost always a direct consequence of incorrect, fabricated or omitted comparables and other information.
EXCUSE ME? You did not just admit that openly? But you did! For all to see. Thank you!!!!
The report is highly worth reading, albeit a bit wonky.
It would appear that the Housing Boom/Bubble was a Fraudulent Bubble on many, many levels.
However, none of the fraud incentives could have been realized without property values appraised for higher and higher home valuations.
The blame certainly doesn't belong to all the appraisers. They were manipulated and/or ostrasized. However, those that played along are culpable. And, to be sure, we can reasonably suspect that the players picked people, educated them as appraisers, and used them for their fraudulent deals.
From an April, 2010 Mortgage Asset Research Institute TWELFTH PERIODIC MORTGAGE FRAUD CASE REPORT
I'm going to dare, once again, to speculate on this chart and make some assertions.
Although it is clearly stated that the appraisal fraud and other mortgage frauds were alive, well, and even expanding in 2009, most of the homes were purchased before 2006.
Many if not most with adjustable rates that wouldn't change for a few years. I think, when homebuyers interest was about to rise and they found that no one would lend to them (now we know why), that they began doing some research and found fraud which didn't begin to be measurably reported until 2006. This assertion might explain the huge spikes in appraisal fraud reports going up thereafter. How many homes financed in 2004/5 were set to reset in 2009?
And lastly, it is important to see the huge increase in overall real estate fraud peaking in 2009 reported in the above referenced April, 2010 report.
Mortgage Fraud Indicators
• Exclusive use of one appraiser
Increased Commissions/Bonuses - Brokers and Appraisers
• Bonuses paid (outside or at settlement) for fee-based services
• Higher than customary fees
Falsifications on Loan Applications
• Buyers told/explained how to falsify the mortgage application
• Requested to sign blank application
Fake Supporting Loan Documentation
• Requested to sign blank employee or bank forms
• Requested to sign other types of blank forms
Purchase Loans Disguised as Refinance
• Purchase loans that are disguised as refinances
requires less documentation/lender scrutiny
Investors-Short Term Investments with Guaranteed Re-Purchase
• Investors used to flip property prices for fixed percentage
• Multiple "Holding Companies" utilized to increase
A great history for understanding how "Mortgage Brokers" were unleashed:
A great case study: The Largest Mortgage/Appraisal Fraud Case in Alaskan History
Will Short-Sale Appraisal Fraud Become the Big Story for 2010?
BEWARE OF SHORT-SALE APPRAISAL FRAUD.
Personally, I am tired of our tax dollars being used to enrich the few, who don't even want to pay a fair tax on their ill begotten gains. What socially unacceptable behavior!
WHERE THE HECK ARE THE KIDS GOING TO LIVE SOMEDAY? CAVES?