Arithmetic of False Appraisals

Bad appraisals lie at the heart of the profit seeking bank plan which they called securitization. Since they were making money not from interest, but from fees and other trading profit and bonuses, the basic premise behind each loan “agreement” was changed without the lender (investors) or the borrower (homeowner) knowing anything about it.

Part of that undisclosed revenue came directly from granting a loan funded with only part of the dollars advanced by investors, while keeping the rest. It makes sense then that if the “intermediary” banks were making a trading profit of $300 on each $1,000 loaned that they would want to inflate the the amount of dollars being loaned without regard to the potential for repayment — since they were not retaining any risk of loss. (see end of this article for detailed explanation of how this works).

It wasn’t hard to do that. By keeping “in house” appraisal services and making them de facto mandatory, the appraisals were all coming in around $20,000 over the price of the house in a purchase or over the amount of the loan. All that was needed was to break from the centuries old tradition of analyzing sales of real property from comparable geography and time. So for example, if the developer raised prices 10% every two months then the appraisals would reflect a higher valuation than what would ordinarily apply.

In 2005 there were 8,000 certified real estate appraisers who petitioned Congress to stop the pressure on them to either comply with bank pressure or lose their business. These appraisers were certain that the appraisals being sought were fraudulent and could never be sustained — i.e., they were predicting the crash that eventually occurred in 2008. Of Course Congress did nothing and this chapter in history is mostly forgotten.

But the effect was that borrowers were relying upon appraisals that before this era of so-called securitization were reliable. The borrowers were relying upon the premise that the banks were making loans that were viable, as required by the truth in lending act. But the banks were relying upon their control of the marketplace instead of on the borrower’s ability to repay the loan.

They even made loans that appeared to comply with the laws  concerning     viability by simply allowing the borrower to NOT pay for actual interest and amortized principal for a period of time. These “teaser” rates resulted in a “reset” that increased the monthly payment to beyond the entire household income.

Such loans were doomed to fail and when a few borrowers spotted this anomaly they were assured, never in writing, that the pattern of increasing prices of homes would continue and that their ability to repay was tied to the ability to refinance the home for a higher amount thus freeing up more money with which they could pay the monthly payments.

Believing in such false representations of the current market and in the false representation that the lenders would not make a loan that could not be repaid, the borrowers entered into doomed transactions, causing them to lose homes that often had been in the family for generations. In losing their homes they also lost their credit reputations and suffered from vast consequences to their homelife, emotional stress, suicide, divorce etc.

For the banks the false appraisals resulted in pure profit and an opportunity for more profit. By disguising the fatally defective loans, they were able to obtain additional investments in which even more investors were assuming the risk of loss and would pay the banks (not the investors who advanced the original sums that covered the origination of the loan and the hefty profits of the banks in loaning out less than what they had received) if the loan portfolios presented went down in value. Hence the banks made more money as the loans failed. This also presented yet another opportunity for increased profit and revenue.

When the loans were deemed in “default” by parties who had no interest in the loan, the loans moved into foreclosure. Investors whose money was at risk received nothing from foreclosure. The banks received everything. And since the banks were not the owners of the debt and had no risk of loss from “non-payment” they took the money in as revenue and did not maintain the loans on their balance sheets as assets, because they were not assets of the bank.

None of this could have occurred without false appraisals. If the appraisals discarded evidence of higher demands from developers and such, the appraisals would have stayed in line with true valuation, to wit: using median income as the base line, the price runup that occurred because of false appraisals would never have happened. The incentives to push impossible loans would have vanished and the crash if it happend at all would have found people with property that was still worth something much closer to the amount owed.

No bailout would have been necessary because there would have been no excess.

Investors and borrowers alike would have found themselves in a better position.

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THIS ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.
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Hat tip to Summer chic.

So false appraisals were part of the reason for the 2008-2009 crash. And while statutes of limitations have run on collateral claims for damages in most instances, they can still be brought as affirmative defenses corroborating and supporting affirmative defenses for assumption of risk and recoupment. Defenses are not generally barred by the statute of limitations but there are limited to the amount that is claimed from the borrowers.

Summer chic in her never ending quest to dig up the truth of how this was all done writes as follows:

This Mafia is grown  around us like a black plague…

DocX became ServiceLink, they even have the same address in 3220 El Camino Real Irvine CA.

LPS became Black Knight, Inc. ALL use the SAME business address 601 Riverside Jacksonville, FL as Fidelity National Financial

ALL Appraisals are done by CoreLogic who owns Countyrwide’s LandSafe. Before that it was done by BOA who owned LandSafe.

From 2015 LandSafe is a mandatory appraisal service (fox in the hen house)  for  VA Appraisals….At the same time CoreLogic sells Veterans’ personal data to predatory lenders to push  vets into adjustable rate loans with huge cash outs…

I reviewed my Appraisal Report by Michigan Realty Counseling (MRC) which was done on June 30, 2016.

MRC incorporation date with the State of Michigan is July 15, 2016, or two weeks LATER.

All signatures of Mr. Smith who purportedly prepared Appraisal via A La Mode (now CoreLogic) are robo-signed signatures.

My original loan application was electronically signed by me and the lender, Alex,  on June 15, 2016 at around 10AM PACIFIC time (means California) while we both were in Chicago….

The Flood Map was ordered the SAME day, June 15, 2016 and completed around 20:00 PM…. FEMA’s offices are closed at this time. But CoreLogic owns Flood Zone Mapping company, Middletown, CT-based CDS Business mapping.

My Closing disclosures are different that Closing Disclosures sent to me by PennyMac…

In PM Closing Disclosures I electronically signed on 07 26 2016 at 14:16 PACIFIC Time.

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