January 23, 2007

The key to the out of control housing ponzi scheme: The Corrupt Appraiser and Quid Pro Quo

The Senate 2008 Housing Crash investigation will no doubt focus on this key piece of the puzzle - corrupt appraisers and the disappearance of a crucial check and balance.

See this quote first for some context:

"Every day I would get calls that I needed to do an appraisal for X amount," Wallen said. "There are so many appraisers out there willing to give out whatever value a client wants. That makes it tough for the honest appraisers to compete."

Now ask yourself, what percent of the appraisals done over the past few years were legit? Single digits?

If someone wants to be honest and moral in the appraisal business, well, they're no longer in business. Appraisers were bought and sold by the REIC - corrupt real estate clerks desperate to earn their commission and "make the numbers work" and mortgage brokers earning slam-dunk bonuses for writing up those no-doc, no-down, cash-back, negative-am loans on the inflated amounts.

If you were an appraiser who could make the numbers work, heck, you didn't even need to work anymore. Just go to Zillow.com, do a drive-by to shoot some photos, and you're good to go! I also have to believe there was a lot of cash exchanged under the table between mortgage brokers, appraisers and real estate clerks.

Bottom Line: Millions of homes during the Great Housing Ponzi Scheme sold these past few years an now-wildly-overvalued prices, based on wildly-overvalued-appraisals. But the true appraisal is the simplest one - WHAT WILL THE MARKET BEAR?

I think many a homedebtor and flipper will now find out that that simple number is nowhere close to the bogus appraisal number.

Welcome to the housing meltdown. And you can thank the corrupted appraisers and a quid pro quo system run amok.

There were 22,000 mortgage fraud reports nationwide in 2005, according to the FBI. Appraisal fraud has been involved in up to 40 percent of fraudulent mortgage reports in the past five years, according to the Mortgage Asset Research Institute.

But those numbers may be understated, the institute says, because appraisers aren't typically caught unless the loan goes into default. That typically happens four to five years after the loan is made.


Florida Looneyland said...

My husband has an uncle who is a real estate appraiser in Ft. Myers, FL. He refused to fraudulently appraise houses and he almost lost his business because of it. He said he would get calls daily asking him to artificially inflate the appraisal on a house and when he would refuse, the realtor or mortgage broker would threaten him. Pretty soon, word travelled around that he was "uncooperative" and his phone stopped ringing. By mid-2005 he went from working 5 days a week and making 6 figures a year to laying off his secretary and working 2 days a week. He said he believes that about 75-80% of houses around the Ft. Myers/Cape Coral area had false estimates. Apparently, his phone is ringing again and many of the calls are from the slimy realtors who blew him off 1.5 years ago. They are sucking up now but a lot are still asking for inflated estimates because the market has slowed down to a crawl but sellers are refusing to lower their artificially inflated prices so they want another fake estimate so they can justify their inflated asking price. He's planning to retire and get out while he can. What a scam

keith said...

great insight looneyland - thanks!

Anonymous said...

The answer is simple:

Neither, buyer, nor seller, nor mortgage broker are allowed to hire the appraiser.

They all potentially have an interest in a fradulent appraisal.

The one party who does not?

The eventual buyer of the loan.

The one with the money makes the appraisals.

socalappraiser said...

In SoCal there are a lot of these jokers that were running around. Cherry picking comps and hitting the number is what they did. It wasn't a problem and banks looked the other way as values were rising as they'd eventually hit the inflated appraisal number soon.

Guess what? Values are headed in the toilet. While appraisal fraud certainly helped I'd say the loan / documentation / falsification is going to turn out to be the 800 lb gorilla in this crash. I personally did 500k homes that appraised (6 to 8 comparables within the same neighborhood within 3 month sales window) for McDonald's asst. mngr.'s. Now I'm no rocket scientist but I do not think the McDonald's asst. mngr. compensation package justifies a 500k house? I'd say there was some cooking of the books somewhere and it wasn't in my appraisal report as I need to hold my license longer than any boom / crash cycle.

Instead of more BS regulation, all offenders need to be prosecuted and thrown in jail. Nothing would clean it up more than seeing a documentary about these real estate sh*tbags (loan officers, appraisers, agents, etc.) being traded for a candy bar in Pelican Bay from the Cholos to the Arians to the Brothers as a butt rape toy.

If the banks are made to take the hit this time, not the taxpayers it'll get cleaned up right quick.

Anonymous said...

He said he believes that about 75-80% of houses around the Ft. Myers/Cape Coral area had false estimates.
OMG! I wonder if this will be the same for other major "bubble" areas, like California, Arizona, Nevada, etc.

Anonymous said...

Anyone who did not blow all their money on overpriced housing will be made to pay for this mess

Anonymous said...

"Anyone who did not blow all their money on overpriced housing will be made to pay for this mess"

That's right, to Nancy Pelosi and Harry Reid, anyone who saved money and avoided debt is a greedy hoarder. You will be taxed for your foolish behavior so they can buy more votes from the "less fortunate".