On False Foundations: Inflated, Bogus Appraisals Burn Homebuyers

Denver Post ^ | 7/16/06 | David Olinger, Greg Griffin and Aldo Svaldi

[pageonetoo]

Martinsburg, WV

[jiggyboy]

I don't understand. Can you explain that a little more?

Sure. In "It's A Wonderful Life" days, each local bank would have a lot of deposits and loan them back out as house loans &c. Local loans for local people.

Nowadays, the overwhelming majority of banks (and places like DiTech or Ameriquest or "ABC Mortgage Loans") are just middlemen. They are still the people you deal with, but they're not putting up the money any more.

They have a deal with somebody further up the financial food chain to sell your mortgage loan -- think of it as an IOU or bond they have in their hand -- with a bunch of others that add up to, say, $10 million dollars. This magically becomes a kind of bond like a corporate bond or T-bond that is paying interest -- the mortgage interest you and the other fifty mortgage-payers are paying. Whoever takes over these mortgages and turns them into this bond pays the bank some fee. That's where the bank makes some of their money these days, in addition to the (mostly bogus) fees they charge you.

These bonds are sold on Wall Street as an alternative to corporate bonds. The selling point is that they pay higher interest than T-bonds and the number of foreclosures and defaults is pretty low.

So the bank has gotten that risk off their books ASAP. That's why you always get a letter within a month or two of signing your papers inexplicably announcing that now you have to write your mortgage check to somebody else.

[TinCan]

As an appraiser I run into homeowners all the time that want to do a refi and they practically beg me to hit a number.

[Jim Noble]

TANSTAAFL.

[Calpernia]

So the people you take a mortgage with, make money by selling your mortgage?

Does that mean the people that buy your mortgage can change the terms of contract? That doesn't seem right to the people that applied for the loan.

[GreenAccord]

Former appraiser to appraiser, have you ever come in lower than the agreed upon sales price? I did that once on a condo sale that had a contract price about $5K more than any other unit had ever seen in the development. When I came in at the historical high, the Realtor blew an ever-loving fit. I stayed the course, saying I was working on the bank's behalf, and if the borrower wanted to pay more than had ever been paid before, I suggested that they use their own money for the difference, not the banks.

I think they found another appraiser, but I did get paid.

[Petronski]

Nowadays, the overwhelming majority of banks (and places like DiTech or Ameriquest or "ABC Mortgage Loans") are just middlemen.

Overwhelming majority? No way. I'd like to see statistics for a claim like that, especially as concerns Ditech (which is GMAC and services the vast majority of its own loans). As I recall, Ameriquest's resale rate is pretty low too.

[wtc911]

The biggest fraud losses come when brokers, real estate agents and appraisers "are gathering in a conspiracy to inflate appraisals," said Andersen of the FBI.

-----------------------------------------

More BS. One of the licenses I hold is NYS Residential RE Appraiser. It's not how I make my living but I know a few folks who do pay the bills that way. The only, repeat only party in a house sale that requires or needs to see a certified appraisal is the 'bank'. It is they who pay the appraiser or have them on staff. And, conversely, it is the bank whom the appraiser has to satisfy - if he wants to keep getting jobs. It does a RE broker zero good to tout the value of the house as $X00,000 when the bank-hired appraiser comes back with an appraisal of 20% less.

[Paul Ross]

Bump!

[jiggyboy]

Yes, the mortgage company is making money at both ends.

But the people who buy your loan from your bank can't change your interest rates or anything like that.

[ex-Texan]

"His down payment was a beat-up car that wouldn't shift into reverse . . ."

Ain't nothing like a free lunch.

[TinCan]

Yes, it happens all the time. My license is worth more to me than the $300 fee.

[sully777]

The price of housing in NJ has skyrocketed because there is little land left (the state and feds have designated much of the remaining land as protected) and people are moving in.

The price of housing in CA has skyrocketed because of the same situation.

Meanwhile prices in Oklahoma have risen but at a normal rate. Why? Regulation is low, federal intrusion is minimal, and land availability is great...My house is valued below 100K but would be worth 450K in Jersey and 600K in CA.

BTW, the guy in the article lived in a MOBILE HOME. How could anyone think a mobile home would grow in value?

[Calpernia]

What can happen when the company that ends up buying your mortgage is under investigation for fraud?

Can they call in the loan? Or do they just sell you?

[Calpernia]

>>>>My house is valued below 100K but would be worth 450K

I guarentee you it is more than 450K in NJ.

450K is only a 100x50 patch of cement for land.

[GreenAccord]

I've never seen a movement to hold appraisers liable for the institutional overvaluing. I got out more than 6 years ago, and haven't regretted it. The lenders made it a pretty smarmy practice. (I'm talking the B & C residential market, income property always was a more legitimate process, IMO)

[moonman]

ditto!

[Robert A Cook PE]

Little south of Kennesaw, west of the mountain, north of Hwy 120.

(Actually, I'm expecting Marietta to try to annex us for the extra tax revenue. They already grabbed the country club (glof course) houses, figuring those would have LOTS of tax revenue, and very few kiddo's needing school money.)

[JWinNC]

yep

[Calpernia]

Oh, and thank you very much for this explanation!