A Situation That Could Cause The Collapse Of Values
A report from the Arizona Republic. “A wave of mortgage fraud in the Valley has prompted state legislation that would define it as a crime punishable by up to 10 years in prison. A day after The Arizona Republic’s special investigation into cash-back mortgage deals, Sen. Jay Tibshraeny of Chandler introduced a bill that would make mortgage fraud a felony.”
“‘Mortgage fraud hurts everyone,’ said Tibshraeny, who has been working on the legislation for months. ‘Buyer, beware of a deal that seems too good. The strings your Realtor or mortgage broker pull may be illegal.’”
“Valley real estate investor and marketing executive Francine Hardaway said: ‘Thank God somebody finally blew the whistle on this. As an investor, I see it all over the place.’”
“Felecia Rotellini, superintendent of the Arizona Department of Financial Institutions, is leading a new mortgage fraud task force made up of state and federal agencies. Rotellini said her agency was deluged with calls Monday from people reporting cash-back deals and other potential mortgage fraud.”
“Valley appraiser Dennis McMillen said that mortgage fraud is an issue in the housing market but that it’s not always due to inflated appraisals. In some cases, he said, ‘real estate agents and mortgage brokers are withholding the cash-back agreements from the contract, thus the appraiser and title company does not know of these agreements.’”
“Valley attorney Michael Manning represents some groups that were sold ‘bad loans’ as part of the cash-back scheme. ‘Public awareness coupled with a little proactiveness by local prosecutors will help stem the practice and help prevent a meltdown in the market,’ he said.”
“(Realtor) Don Matheson of Scottsdale said: ‘This is a very big problem and very damaging to our real estate market. We need to catch these people and put them in jail.’”
“Several readers were alerted to the schemes when they saw homes sit unsold for months and their prices reduced. Then, as the housing market was slowing even more, those homes sold for tens of thousands of dollars more than the previous listed price. That is the No. 1 warning sign for cash-back deals, regulators say.”
“‘People have started to lose a little money in the Valley’s real estate market, but maybe when major money is being lost, lenders will get serious and do something to stop it,’ (said) Margie O’Campo de Castillo, Arizona Dream Realty.”
“‘Cash-back deals are a big problem. Our members started hollering about them a couple of months ago. Lenders are funding loans for more than properties are worth. Its inflating home prices. It is really scary. We need regulatory agencies to crack down on it. And we need consumers to know they shouldn’t do it,’ (said) Michelle Lind, General counsel for the Arizona Realtors Association.”
“‘If somebody wanted to stretch the value on a home, probably not difficult to find an appraiser out there willing do it. Cash-back sales are hurting comps in neighborhoods. Somebody overpays for a house with a cash back deal, and then somebody else comes in and wants to buy the house next door. The last buyer is making a major decision based on inaccurate market information,’ (said) Jay Luber, VP of First Horizon Home Loans of Phoenix.”
“The proposal by Sen. Tibshraeny would spell out in statute that it is illegal to deliberately misrepresent financial or other material information when buying a home and obtaining a mortgage. A single offense could result in a 2 1/2 year prison term. And those who are involved in multiple schemes could face five years behind bars.”
“Potentially more significant, Rotellini said the law spells out that home buyers involved in these kinds of frauds are equally culpable — and can be equally punished. ‘It will help to cover the gamut of players,’ she said.”
“Rotellini said her agency has broad powers over both mortgage bankers and mortgage brokers. But she said she has no authority over home buyers who in many cases may be the primary perpetrators of the fraud.”
“‘In fact the buyer in these cash-back schemes is the primary perpetrator,’ Rotellini said. ‘They’re the one that’s getting the loan that’s been misrepresenting the value of the property or other aspects of it.’”
“‘None of this was a problem when the real estate market was rising,’ said Tibshraeny. But he said there are many areas where loans on homes are far more than their worth, a situation he said that could cause the collapse of real estate values throughout entire neighborhoods.”
Yes, lets see, we throw these people in jail, probably after they run up 1000’s in legal fees. guess what, that means there is 3-4 more houses vacant now cos their residents are in the big house.
Cool.
Cow_tipping.
“a situation he said that could cause the collapse of real estate values throughout entire neighborhoods.”
Yep, they have found the bad guys. These cash back deals are the entire reason why there will be a “collapse of real estate values”
Case solved. How was anyone to know? These few “thieves” have ruined it for the rest. It had nothing to do with easy money lending, Real Estate cheerleading, Pie in the sky pronouncements, the whole kit and caboodle. A few bad apples, committing these cash back deals at the end of the cycle shall be responsible for the entire markets crashing.
Watch the Politicians, Newspapers, and Realtor/Mortgage Pros all get on board this fig leaf.
“A few bad apples, committing these cash back deals at the end of the cycle shall be responsible for the entire markets crashing.”
mortgage fraudsters = housing market Lynndie Englands
Thank God they found this in time for the Spring Bounce!
A fig leaf is exactly what it is. Whatever, if it gives them an out, it does a lot more for those of us waiting for housing to stop being treated as a market derivative. And I think you’re right that people will be jumping all over this, including the formerly smug homeowners who were telling us how much money they had made on paper a year or so ago.
Lucky for the country this was only happening in AZ. whew!!!!!
ha ha!
Better yet, convert flipper (preferably track) houses into jails, solving 2 problems at one time - Reducing prison overcrowding and filling flipper house vacancies.
We could also think of creative tasks/punishments for them to do on a daily basis. I’m sure, besides feeding squirrels, we all could come up with something.
Should all the people from individual crimes be housed together or should we house them together by their profession?
Let them turn on each other!
Does this mean the management of the homebuilders will all be going to prison? They are the biggest perps of these cashback deals.
Not to worry this only affects 3 of 5 houses sold nationwide in the last 3 years…..
“‘None of this was a problem when the real estate market was rising,’ said Tibshraeny.
Looks like the blame is only beginning.
You know the end is nigh when they start grumbling about rounding up some suspects. Before they can fully proclaim the complete implosion of this market, they need some “faces” to glue it to. I think mass media in Phoenix area is getting ready come over to the dark side.
Captain Renault: Round up the usual suspects.
Throw a net over someone, anyone, when confronted with a crime you don’t really want to solve. The criminal activity does not stop, but at least you look like you’re doing something.
Agreed.
This could have been the final leg, holding up the median (fraud). Kicking that leg out could be the catalyst to get the median to plunge…
“‘None of this was a problem when the real estate market was rising,’ said Tibshraeny.
What the hell! What BS!! This is what caused everything to start with and he says it wasn’t a problem. It damn well was a problem when the first Ponzi transaction (fraud) took place.
“The proposal by Sen. Tibshraeny would spell out in statute that it is illegal to deliberately misrepresent financial or other material information when buying a home and obtaining a mortgage. A single offense could result in a 2 1/2 year prison term. And those who are involved in multiple schemes could face five years behind bars.”
Excuse me, but isn’t mortgage fraud already illegal? If so, isn’t the problem really one of deliberate non-enforcement, not the lack of a law to begin with? Just wondering aloud…
I totally agree it is already illegal. They shouldn’t need new legislation to police and enforce it.
Pffffffftttttttt…Any legislation now, is too little, too late.
The Uniform Standards of Professional Appraisal Practice has been on the books now for like 15 years.
It hasn’t made a bit difference relative to competency the appraisal profession.
Just more worthless bureaucratic interference and extortion for continued ed fees to line some seminar hack’s pocket.
HARM posts ” Excuse me, but isn’t mortgage fraud already illegal? If so, isn’t the problem really one of deliberate non-enforcement, not the lack of a law to begin with? Just wondering aloud… ”
Very good point. Tooth paste out of tube….Barndoor long open all animals bye bye…
Yep, not to worry folks, cause; “We got got the band-aids, if you got the bullet wounds.”
Yep, This time we are passing laws so it will never ever ever happen again…Like LTCM,Enron, Michael Milken, Fastow, Ebbers
blah blah blah…
“Excuse me, but isn’t mortgage fraud already illegal? If so, isn’t the problem really one of deliberate non-enforcement, not the lack of a law to begin with? Just wondering aloud…”
I don’t know, is it illegal for a buyer to borrow more than the home is worth if the bank allows it? Is it a question of no disclosure to the banks (breach of contract)? Or a question of very poor underwriting on behalf of the lenders? Or a question of appraisers not following proper appraisal guidelines?
Seems like there were lots of accepted practices that people took advantage of, not necessarily sweeping laws prohibiting the taking advantage of those practices.
I’m sure certain mortgage fraud is illegal, just not all of it.
Like to see fake/phantom bids by realtors get equal prosecution under the law (their head on a spike!).
This market is tainted with crooks from one end to the other. You would think your average joe would wake up to all this mortgage fraud, inflated apprasials, fake biddors. This issue has made me realize there truly are ’sheeple’ out there.
How would you prove there was no phantom bid?
If anyone comes up with a good idea, perhaps Paladin has a cousin or sibling willing to try to nab these crooks…
“…a question of appraisers not following proper appraisal guidelines?”
Rant on!
Why don’t we just get rid of appraisers? These pathetic tripe have shown during this bubble that they are completely incompetent or corrupt, or both. I mean c’mon, check out the sac flippers in trouble website. Some of those tiny sh!tboxes were selling for several hundred thousand dollars more than they sold for less than a year earlier. No amount of improvements could justify that. I have more trust in a computer program at this point, than I do in some crooked hack hitting a fantasy number. These appraisers are as accountable as anyone for this bubble. They should have said no way no how on most of these sales. Instead, they got greedy just like everyone else, and pushed the stuff through. Well, last time I checked, that was NOT in their job description. A BS appraisal is basically saying “I will agree to not do my job”. A lot of these now sheepish stiffs should go straight to jail. I am all for a computer program taking over for them permanently. It’s cheaper and MUCH more reliable. Rot in your cell you fakes.
Why don’t we just get rid of appraisers? These pathetic tripe have shown during this bubble that they are completely incompetent or corrupt…
I used to ask that question myself as the profession got flushed into the toilet with the hordes of incompetants unleashed by federal licensing laws.
FB’ers were essentially payin’ $350. for the priviledge of have some newbie form-filler rubber stamp a number.
But…
Interestingly enough, the FB’er IS NOT the client unless he has originally retained the appraiser, and paid him per se.
In most situaions the FB’er pays an loan application fee which includes a charge for the appraisal. However, the the LENDER becomes the client because payment comes from them.
Many appraiser’s put in their limiting conditions statement that no reliance may be placed on the value by 3rd party interests, meaning the BORROWERS!!!
So the borrowers are essentially toast.
It’s why the rackeetering aspect of the mortgage loan biz should warrent prosecution under Federal RICO statutes.
posted ““Excuse me, but isn’t mortgage fraud already illegal?
So is crossing our border, without papers! But what the hell it is a Federal Law that is not enforced. I really don’t get it? Perhaps the Feds will have a Bank Robbery forgivness day? Why not… everybody that can rip-off a bank can get a walk… Who knows lets go for the Gold…. Murder Week???
He is proposing a law which would spell out in plain English that henceforth, mortgage fraudsters will be held accountable for disobeying the law.
If that’s the case, then O.K.
A bit superfluous, wouldn’t you say?
But he said there are many areas where loans on homes are far more than their worth, a situation he said that could cause the collapse of real estate values throughout entire neighborhoods.”
Ya think?
Look out below.
The implode-o-meter needs to be fed.
I’m thinking mortgage originations will be less than half of 2006 in 2008. Partially due to MBS buyers being much more aware (how couldn’t they be?).
We will only begin to see sanity when down payments are not just normal but required once again. I really think this could lead to a backlash where 20% downpayments are the normal but rather 25% for anything pricier than a starter home. I’m fine with FHA loans having minor minimum down payments; there is a purpose and a reason for those loans. But $1M+ homes with zero down? That insanity has to stop.
Got popcorn?
Neil
I hope they don’t get too strict on us first-time buyers. 20% on a home even in flyover country may not sound like much to the millionaires on this blog who sold out at peak, but it’s serious chump change for those of us with no equity, especially on one income.
As a first-time buyer, I’d welcome tougher standards to buy a home.
Once banks actually require people to prove their income, and underwrite based on what an actual loan payment will be, then the buying pool will dry up, and those left standing will be people like you and me, who have good income. Sellers will be forced to lower their prices to make the home we buy affordable.
Whether the down payment required will be 20% or 5% (or 0%) will depend on lots of factors. In 2006, a pulse would have gotten you a 100% loan–it needs to be harder than that to do so.
Indeed, do you want to compete in the open market with drunken clowns with no cash? Nope. Strict standards will cull the scum that single-handedly propped up 2005-2006.
“Sellers will be forced to lower their prices to make the home we buy affordable.”
True…but the Cling-on’s fingers well be numb and white knuckled before they let it go.
Agreed. The only neighbors I want are honest neighbors! Honesty, gold, and oil are getting scarcer and scarcer!
oxide,
The harsher the restrictions & documentation/down-payment requirements, the further housing prices will have to fall in order to become truly “affordable” to us peon-renters. This will actually be enormously beneficial to un-leveraged people like us, unlike today’s so-called “affordability” products: 50-year loans, neg-ams, etc. Those of us with ready cash & good credit will become highly prized and sought-after by lenders. A welcome change from the last few years, believe me.
My original post got stuck in moderation queue –ditto what Rental Watch said.
Isn’t serious chump change an oxymoron?
FHA programs Neil is referring to is for first time buyers and is less than 20% down. Either 10% or 6% as I recall.
You have to get rid of the Casey Serins to make it legitimate again; that’s going to thin the herd considerably, so you can go back to only competing against honest people like yourself. That in itself will start to bring prices back down to earth.
10% - 20% downstroke has been the “norm” up until the madness. If you don’t have at least 10% w/6+ months full reserves……you’ve got no business buying a house.
Why would anyone want to play russian roulette and be an illness/accident/job away from financial suicide?
Think of the effect on prices if only people with a reasonable chance to pay back the loan can buy a house. This system might even attract people who INTEND to pay back the loan. 20% of a lot smaller price, is, well, affordable.
When I first moved to SoCal I read a newspaper article that claimed 20% was only for conforming; jumbo loans on luxury housing typically required 30% or more.
Don’t sweat it, oxide. Reversion back to traditional standards will definitely make housing affordable again, even here in LaLa land.
As I was perusing Richard Russels latest entry he mentioned that a “reversion to the mean” in our financial economy would be utterly disasterous.
I love the smell of cascading defaults in the morning. It smells like…victory.
This is why I expect tremendous effort from those whose interests lie in maintaining appearances to continue hiding that stinkin’ elephant under the living room rug for as long as possible.
“I love the smell of cascading defaults in the morning. It smells like…victory.”
Perfect!
20% downpayments will make houses MUCH more affordable. Might as well do it now to find out what the REAL price of these houses are.
Neil,
I keep reading from you that you think the 0% down is the root of the problem. I do agree that there are problems associated with it and it is a contributing factor. Where I differ with you is that I think the interest only loans, ARM loans, and loans that don’t require people to even pay the interest for a number of years are the real problem with the extreme increase in prices.
Regardless of the reason though…..we could still share some popcorn together.
Doug
Doug and Neil,
I would argue that you are arguing about immaterial differences. The common denominator between zero down, interest only, ARMs, and option ARMs is that in each case, the buyer has to pay less now and more later, at least in expectation. Backloading principle repayments has three key effects:
1) Buyers need to bring less cashola over the first few years of ownership, making it easy for a household to get into a home they could not have qualified to buy under traditional downpayment and amortization requirements.
2) Backloading the principle repayments to make homes initially more affordable has the effect of increasing the eventual amount needed to amortize the debt relative to what it would have been with a traditional fixed rate loan. I/O loans eventually face a reset to a higher, amortizing rate over a shorter period than a traditional fixed rate loan, and in a rising rate environment like the current one, ARMs are likely to adjust to higher payments over time.
In all of these products, the initial chance to get into a larger, nicer home than the household can really afford comes at the price of increased risk of future foreclosure.
Well put.
I only want to know one thing: will the legislation be retroactive to crimes committed before it passes ? And yes, they are crimes.
Can you imagine how many people must be shaking in their boots today because of this ?
So when a homebuilding gave a car away as a kickback and didn’t include it on the mortgage doc, is that a crime too ?
“Can you imagine how many people must be shaking in their boots today because of this ?”
No, the brokers and realtors will go out today and buy a paper shreader for their home office and make shure no one has copies of agreements. Just business as usual! This wont stop them!
Unless someone was paid cash from a foreign bank and held it as cash, there will be a money trail. I’m sure it wouldn’t be hard to follow. As a starting point all you’d have to do is look at real estate valuations, listings and sales prices. From there, start asking questions.
Um, no. There is something called an ex post facto law. And it is prohibited by the Constitution.
Tell that to the IRS.
“The Constitution”.
That’s so 19th century.
This may be a nice loophole: instead of cash back, how about cars back?
What about gold coins back ? Euro back ?
Or buy 1 house full price get 1 house half off. Hows that for ‘legal’?
Well shoot,that’s novel …Hmmm, a legal transaction based on fundamentals that’s good for the consumer, our community,and country…Hmm let me think..Naw, not profitable enough. Let’s stick with the liar loans,and under the table deals….
Another ‘day late and a dollar short’ proposal. Everyone (Realtors, pols, etc.) looked the other way when this wasn’t as ‘obvious’…
…or when bucks were flowing freely enough that the graft didn’t hurt their sales numbers. Now that the tightening is widespread enough that even the blindest can see, a come to Jesus moment is upon them.
Gov’t didnt care much since it justified higher property tax.
Insurance carriers equally benefit since replacement costs are actually half of todays selling prices.
LOL!
“‘None of this was a problem when the real estate market was rising,’ said Tibshraeny. But he said there are many areas where loans on homes are far more than their worth, a situation he said that could cause the collapse of real estate values throughout entire neighborhoods.”
Huh? This isn’t a collapse in value, since the value wasn’t there in the first place. For those keeping a daily pulse on the value so they can make their monthly HOUSE-ATM withdrawl, too bad. Your account is overdrawn.
Hammer hits nail directly on the head. The vast majority of the public makes no differentiation between price and value. The use of the word value should not be used when talking about falling prices. A house has a certain fixed value in terms of shelter and a variable value in terms of personal gratification from home ownership.
“Value” is an ambiguous term.
Main Entry: 1val·ue
Pronunciation: ‘val-(”)yü
Function: noun
Etymology: Middle English, worth, high quality, from Anglo-French, from Vulgar Latin *valuta, from feminine of *valutus, past participle of Latin valEre to be of worth, be strong — more at WIELD
1 : a fair return or equivalent in goods, services, or money for something exchanged
2 : the monetary worth of something : MARKET PRICE
3 : relative worth, utility, or importance
aka - the value of something is only what someone is willing to pay for it.
“Cash-back sales are hurting comps in neighborhoods. Somebody overpays for a house with a cash back deal, and then somebody else comes in and wants to buy the house next door. The last buyer is making a major decision based on inaccurate market information”
He’s using the word hurting to mean artifically inflating? Bizarre choice. Helping is more like it.
I think his use of the word is actually better than the usual one. Perhaps the idea that comps accurately reflecting market price is a good thing will replace the idea that higher prices are always good. I for one am tired of the idea that the ultimate social good that all government decisions should be based upon is the maintenance of property values.
Righto.
Since the market really needs buyers right now, the State Senator is telling this from the buyer’s perspective. Fraudulently inflated comps “hurt” the buyers because they can’t buy. Sellers are a dime a dozen so they’re being hung out to dry.
“The last buyer is making a major decision based on inaccurate market information”
Last buyer = bagholder
Posted ” A Situation That Could Cause The Collapse Of Values ”
I know they don’t mean moral values. Pretty hard to jump out of a window when you live in a cellar.
Maybe it’s my libertarian leanings that are to blame, but I see no reason for this type of legislation. The market is already resolving the situation on its own as property values are falling back to earth. If someone buys a house they can’t afford because someone else in the neighborhood engaged in a cash-back scheme to inflate the value of their property, the blame still lies with the GF who bought too much home for himself.
Not only that, but how will law enforcement distinguish between those who were engaging in fraud as opposed to those who really did think a house was worth more than the market would bear? To reference Orwell, that borders on crimethink.
I’m LP , but fraud is theft
raod work and cottin picken
me too (”l”ibertarian) and me too - fraud is theft. Libertarianism theory has structures against fraud. You want to be free to do whatever you want? That is a lawless society. Libertarianism is not a lawless society. Read the books by Rothbard and the Tannehills, 85249!
“The market is already resolving the situation on its own as property values are falling back to earth.”
The irony is that the fraud crackdown will inadvertently hand a heavy metal anvil to the owners of falling knives.
http://www.amazon.com/exec/obidos/ASIN/6304214618/sorkcom
The picture of Roadrunners smile on his face as Wiley gets smashed… LMAO!
Very true. Nice image, LOL.
I disagree. IMO, it’s not the GF’s responsibility to know the true value of the home. That’s what appraisers are for. Even if the kick-back is legal, isn’t there fraud at least on the part of the appraiser? And you can’t count on the “the market” to do law enforcement’s job. And “the market” is not resovling the fraud. “The market” is actually responding to a dried-up buyer pool. Exposing the mortgage fraud is a side-effect, not active law enforcement. If we hadn’t run out of buyers, this fraud would go on unchecked by the market, as it did for the past 5 years.
I respectfully disagree with you, Oxide. It is the duty of someone who buys a home (or anything) to understand the value of what they are buying and determine if they can afford it. That’s why one goes house hunting: to see what’s available, what it costs and compare it to other homes. That’s why there are comps.
If a house was listed for $500,000 after being reduced from $575,000, but sells for $650,000, there’s something wrong. I as a buyer would be quite interested to know what.
The appraiser is there (in theory) for the benefit of the lender, not the buyer. Too often the appraisers can be bought, or are incompetent, or are afraid of losing business. You want a true appraisal of the value? Hire your own appraiser.
And I ask you, Mr. Backstage, just exactly how is a buyer supposed to do his own appraisal when those in the biz are working so hard to cover up any and all available evidence which would allow one to come up with an objective estimate? For starters, most home buyers would probably not even know how to use accurate recent sale price information on similar and dissimilar properties to the one they want to buy, even if the REIC handed out such information for free on a platter.
So, GS, stupidity and lack of due diligence is a good excuse for making poor financial decisions? Get real.
From the content and tone of your reply, it seems that you agree with Oxide: buyers have and should have no idea about what a property is worth. Do you really think that buyers should trust an appraiser selected by a person who has in interest in selling the home for as much as possible?
Sure, the market has a vested interest in making sure that houses always go up and trees grow to the sky. Sure lots of people are stupid. None the less it is the responsibility of the buyer to make sure that are paying what the property is worth, based on what other similar properties are worth. It is their responsibility whether they are stupid, lazy, or incompetent. They are going to be responsible for the loan, they sure should make sure thay are getting their money’s worth. But you know this.
Because of stupid buyers, corrupt RE perfesshunals (including appraisers), and loose lending standards we have a distorted market.
Why, if I paid an appraiser his $300, would he not provide me with a competitive analysis of the market that was distorted in MY favor? He would.
When I buy again, I intend on having my own inspector, appraiser, and buyer’s agent. It’s well worth the money.
“You want a true appraisal of the value? Hire your own appraiser.”
I talked my sister into doing this, and she did so. Trouble is, she ended up paying maybe 5% above the independent assessment, because the Realtor scared her into thinking that the seller would walk away from the deal if she did not pony up.
Actually, back when I was looking at buying in 99′, I hired my own appraiser and my own inspector since I was looking at homes built around 1910.
Absolutely not. An appraiser is a consultant, nothing more. An appraiser is no more responsible for defrauding lenders than a CPA is responsible for tax fraud if you pay less taxes than you owe. In the end it’s yours and the banks signature on the documentation. If an appraiser isn’t trustworthy (e.g. providing inflated values), then they shouldn’t be used, and eventually will go out of business. It’s the responsibility of the bank and the homeowner to hire a trustworthy appraiser.
When appraisers are told to “meet the mark” of a desired price, the responsibility lies with the lender and homeowner, who are the ones that are ultimately responsible for the “fraud”.
—————————–
If we hadn’t run out of buyers, this fraud would go on unchecked by the market, as it did for the past 5 years.
—————————–
That’s the whole point - the fact that we ran out of buys is the market, that’s now providing a check on the “fraud”. That’s why prices are now declining, before this legislation is being enacted, not after.
Caveat Emptor
Absolutely not. An appraiser is a consultant, nothing more. An appraiser is no more responsible for defrauding lenders than a CPA is responsible for tax fraud if you pay less taxes than you owe
If a CPA knowingly signs a form and passes along false information or helps falsify it they are criminally liable. They get charged with tax fraud. You not paying doesn’t mena its a crime either just you will get hit with penalties.
A lot of these FB are going to say the appraisers did things to make the deal work. Boom. Fraud.
They can look at the comps used and see if their is a trend tword inaccurate comps pretty easily. The bank has these for sure.
If an appraiser isn’t trustworthy (e.g. providing inflated values), then they shouldn’t be used, and eventually will go out of business.
Ummm… isn’t this exactly backwards of what’s happening in relaity? Weren’t lenders heavily favoring crooked “hit-the-number” appraisers and blacklisting honest ones for the last several years (at least)?
It’s the responsibility of the bank and the homeowner to hire a trustworthy appraiser.
Even though the buyer is ultimately forced to pay for appraisal, s/he has basically no say in who the lender actually hires. So how could the buyer be responsible?
Not letting greedy, ignorant FBs totally off the hook here, but I really don’t think they can be held responsible for crokked appraisals.
Gaack –must remember to spellcheck:
relaity = reality
crokked = crooked
Your right Harm , the bank or lender hires the appraiser ,but the lender often times charges the fee to the buyer . I really think alot of good buyers were expecting that they were getting a fair value estimate of market value because who would believe that banks would allow faulty appraisals . As far as the buyers/realtors /sellers/appraisers /mortgage agents that actually engaged in a scheme to inflate appraisals for the purpose of cash back ,this is a totally different buyer .
IMHO ,the lender is the party responable for making sure that they engage in solid underwriting ,as well as a solid appraisals . The lender has a obligation to not put deposits in the bank under undue risk . Also the lenders have a obligation to not sell fraud loans to the secondary market .The Lenders are obligated to check appraisals and appraisers are under alot of state regulations also .
The buyer is not expected to have the knowledge of market value and the lender is suppose to protect the loan for the sake of the banks risk .If a Lender is a agent for the secondary market ,they are under obligation to protect the risk of the MBS holder .
A borrower that engaged in fraud on their loan application has lost their right for complaint because they now have become party to the fraud ,unless the loan agent wrote up a fake loan application that the borrower didn’t see (and I wouldn’t put it pass these guys ).
But in the final analysis , a borrower that buys a property that they know they can’t afford ,based on the notion of a gamble on the market going up, created their own demise .
I do not believe that sellers or buyers have been getting proper advice out there from the REIC for a number of years now . The RE market just turned into myths and self-serving lies to keep the big bucks party going .
Lenders and RE agents telling people to buy now on bad loans and refinance out of bad loans later or be priced out forever were not considering that money might dry up and borrowers might get stuck with those rotten loans .
The housing boom started by the low interest rate but it moved into a false market of speculation and unqualified buyer mania that moved it into a false market .
It’s absurb that we have this much excess inventory,foreclosures , and thousands of houses and condos sitting vacant ,yet the REIC and the media has the nerve to say the market is now stable .
‘Public awareness coupled with a little proactiveness by local prosecutors will help stem the practice and help prevent a meltdown in the market,’
So, we need legislation to prevent a meltdown in the housing market? How about just let fundamentals be what they are? I guess it just shows that even Realtors (C) know how overinflated property values are, and will, once again, do anything possible to keep the party going as long as possible.
I don’t think they understand the situation. Enforcing legislation like that WILL bring the housing market to crisis, not prevent it. You can’t prevent what has already happened.
They just need to look like they’re going after “the bad guys”. You know the cat is out of the bag when they start doing this. In Phoenix the crash is in the process of becoming “officially” acknowledged.
Good point.
Oh, damn. As they wistfully long for the good old days of ‘honest’ 20% appreciation, built on the scam of ‘buy now or be priced out forever’ and ‘real estate only goes up’.
Reminds me of that line in the song…”Why can’t they be like we were, honest in every way”.
Read about Is your realtor on your side?.
“A new anti-Realtor article in Money Magazine by senior writer Stephen Gandel titled, “How to make your realtor work for you,” suggests that most agents work for sellers, that sellers pay both the seller’s and buyer’s agent, and that buyer’s agents incentified by higher commissions may show homes to buyers in their own interest, not in the buyer’s interest, and that the buyer’s agent does not have to disclose the extra incentive.
As usual, the financial press gets just enough right and wrong to be dangerous. “
‘Public awareness coupled with a little proactiveness by local prosecutors will help stem the practice and help prevent a meltdown in the market,’ he said.”
Uhh, too late to prevent a meltdown my friend. The window of opportunity to prevent that has long past. Any changes implemented will be to insure this doesn’t happen again in the future, after we sort through the financial rubble.
2 1/2 years in jail for mortgage fraud! Jeeeez. Added to that it’s a white collar crime so that 2 1/2 years will probably get cut to somewhere around 12 months. Remember Charles Keating of the S&L mess? He stayed in Camp Fed for a couple of years playing tennis and then someone (probably a politician he paid off with money he hid in off shore accounts) got him a get out of jail card. It’s back to the old Mario Puzo saying in “The Godfather”. “You can steal more money with a briefcase than you can with a gun”. Mario Puzo should have added, “And spend waaaaay less time in jail.” If they made it 10 to 15 years it might have an impact. 2 1/2 years doesn’t do it.
Well, if it was 2.5 years per count, I’d be happy with it. Mortgage brokers and appraisers would be in deep trouble, homebuyers less so unless their name is Casey Serin.
Hopefully they won’t be able to flip houses while in jail. That will give the market a few good months without the scum.
Yeah, but where you gonna put those people? Jails throughout the southwest are already beyond capacity. I guess you could put them on house arrest and force them to live in all the vacant stucco….
Nah, too easy. Sentence ‘em to five years in a house with linoelum countertops, a harvest gold refrigerator, dark brown paneling, and orange shag carpets.
There’s an interrogation job waiting for you at Gitmo.
It’s a start, but there has to be some appliance in there that’s avocado green.
With an analog clock that can’t keep time.
Damn, you just described my rental house! LOL.
In many circles in LA this design combo is considered Hip.
Don’t forget the jalousie windows looking out on nothing but the neighbor’s immediately proximate beige walls.
And only one TV show playing continuously: the Brady Bunch
They’re just white collar criminals so a high security prison would not be neccesary. They just need to do like Sheriff Joe does, set up a tent city prison for them all. One Arizona summer in tent city without AC would seem like an eternity.
What do you call 12 realtors buried up to their necks in sand?
Choose one of the following punchlines -
1. Not enough sand.
2. A good start.
Little to late. The big money has been made. It will take “years” to chase and get those responsible. Just to many players and with their lawyers in black lizard shoes they can mix it up and blame others with counter suits etc. It’s over for the home buyers as they will be tossed on the streets and the other players will run to mexico or wherever. Good luck on finding them!
Seems spot on. The effect will be to toss another log on the fire of housing’s meltdown - one more reason to further restrict exotic loans of all stripe. The homeowners caught in this debacle will not be well served to expect a bailout. Too much, too many.
(Formerly Auction Heaven in ‘07.)
(Soon, I am going to stop saying that, I swear.)
The sudden ‘discovery’ by the American public of how much FRAUD is actually happening will defeat any attempt on the part of politicians to bail out FB’s.
Any politician who attempts to send up a bail out bill will look like a criminal attemting to protect a drug cartel.
In other words, the public attitude will soon change from ‘oh, those poor flippers’ to ‘I CAN’T BELIEVE THEY WERE RIPPING US OFF!’ and the politicians will have NO CHOICE but to reflect the public mood.
For those of you who remember me talking about something new I had up my sleeve last year- you got it- this was it.
Any politician who attempts to bail out criminals will recieve the same fate as Gerald Ford pardoning Richard Nixon.
They won’t be asked back for another term, and believe you me, I’ll be the first to tell them so.
If the number of FB’s gets high enough….Congress will bail them out because millions of FB = millions of votes. Add the financial lobby into the mix and you’ve got the Great American Dream Rescue Bill. They will posture and pomp to the cameras telling the public they are doing it help the “poor victims” who were taken advantage of and a matter of “national urgency to save the social fabric of our country”.
Be patient. This giant hairball of ‘Fraud Discovery’ is just getting rolling.
As the MSM starts doing bigger and bigger stories about how the little old lady down the street was Fraudulent, the sense that any of these people were ‘victims’ will quickly evaporate, and the public will ask for that little old lady’s head on a silver platter.
This engine is just getting warmed up.
First things had to happen first, though, and they did, according to plan.
I agree. Besides, Millions of FB’s does not equal millions of votes, it equals about 250,000 votes at our poll turnout rates.
Previous bailouts have occurred because they’ve been local and easier to manage. This bubble is national. Not sure how the Feds could save all the FB’s without turning the country into a banana republic….
It cheers me to think of politicians calling fraudulent flippers a bunch of crooks. Good times are coming!
‘Fraudulent Flippers’
I like that.
Of course, as we dive into this, we’re going to find out it went deeper than just the flippers.
We’re talking entire COMPANIES- many setup as ‘Financial Advisors’ with NOTHING on their minds but FRAUD.
How deep has it gone?
Here’s an example:
Company A sets up shop as as ‘Financial Advisors’.
Inside local lending companies, they have people on the payroll. Inside local real estate companies, they have people on the payroll. Inside local appraisal shops they have people on the payroll.
The ‘Financial Advisor’ shell company goes out and talk to financially uneducated people in the nation about ‘investing their money’ so that that they might ‘never need to work again’.
Thus, straw buyers are created.
Then, with the connections established, the appraisals are inflated, the houses are sold, the market reports that the median is ‘holding up’, and you have a FRAUDULENT MARKET.
It’s not that the lenders are being ‘taken advantage of’, it’s that some of them are willingly participating in this scheme.
Or- the heads of the lending companies are simply unaware of large numbers of employees engaging in this.
Whatever the case, this FRAUD is so prevalent, and being done by soooo many people that the coverage on this by the MSM is literally going to shake the nation.
Rampant Fraud. Not just flippers.
Institutionalized Fraud.
Big, big, problem.
It’s good to see you here
Good to see you, too.
I’m always here, just lurking, mostly.
I only step back in when a new phase needs to be entered.
Phase 1: Inform the Public that the Bubble will burst, has burst.
Phase 2: Inform the Public how the Bubble was mostly Fraudulent, and show the Public how the damage will effect them.
Phase 3: (To begin next year)
Inform the Public about the stupidity of letting jobs go overseas, when all they really had to do was get more creative, be a bit more humble, and work harder. General idea: BRING THE JOBS BACK TO AMERICA, AND WORK TO CREATE NEW MANUFACTURING BASE IN AMERICA.
Couple of other things I’ll be pushing, but for the moment, I’ll keep those to myself.
Element of Surprise is a tactical advantage, you know.
We should all feel blessed to have a know it all here to tell us the obvious and pat himself on the back.
I like your post, but come on keep it humble superhero or show us a picture of you flying
Surprise, fear, and a fanatical devotion to the Pope!
Anti-Fraud Superhero : you are so right.
The problems are … american companies waste money, lots and lots of money, and when they run out of ways to waste it, they hire other companies (like Accenture, deliotte and what not) to waste even more. Then they claim it was a success and they move operations to China.
They think of Budget as a target they need to hit. We certainly need to start doing some of our own dirty work and paying millions for a house far away from jobs and any facilities what so ever is the worst case of budget=target. Remember that your employer pays for your house eventually and People in India and china are dying to do your jobs for 1/10 the money cos they have houses that cost 1/100th your McMansion. Now back to reality (or is it Realty) … its going to happen only when The dems take the white house and slap the blame on the republicans. Never mind that the dems started it all.
Cool.
Cow_tipping.
A Situation That Could Cause The Collapse Of Values
I for one, trace this back to Janet’s bossom flop. The values of this country have been on a linear dissent ever since she decided to show us what a boob looks like. And the fact the it had a piercing makes it even worse. What kind of values does a person have when they mutilate their nipple…..
/ goes back reads article
Opps never mind i thought they were talking about something else.
“Never mind……b!tch.”
LOL
Read about Report Foresees 2.2 Million Families Foreclosed.
“As this year ends, 2.2 million households in the subprime market either have lost their homes to foreclosure, or hold subprime mortgages that will fail over the next several years.” The study also shows that the worst failure rates (21-24%) will occur in the states which experienced the highest rates of apreciation, such as California, New York, Maryland, and Virginia.”
This doesn’t even include all the fraud cases.
I’m quite shocked to not see Florida on that list.
“Valley real estate investor and marketing executive Francine Hardaway said: ‘Thank God somebody finally blew the whistle on this. As an investor, I see it all over the place.’”
Thank God somebody finally blew the whistle on fraud, so this fool’s Trumporium can come crashing down to earth…
Bankruptcies in the US
1st quarter 2006 116,771
2nd quarter 2006 155,833
3rd quarter 2006 171,146
“‘None of this was a problem when the real estate market was rising,’ said Tibshraeny. But he said there are many areas where loans on homes are far more than their worth, a situation he said that could cause the collapse of real estate values throughout entire neighborhoods.”
Normally, if you take an axe to one leg of a chair, the whole thing collapses, especially when it is weighted down by a bloated occupant (overpriced McMansions in this case).
“Potentially more significant, Rotellini said the law spells out that home buyers involved in these kinds of frauds are equally culpable — and can be equally punished. ‘It will help to cover the gamut of players,’ she said. Rotellini said her agency has broad powers over both mortgage bankers and mortgage brokers. But she said she has no authority over home buyers who in many cases may be the primary perpetrators of the fraud. ‘In fact the buyer in these cash-back schemes is the primary perpetrator,’ Rotellini said. ‘They’re the one that’s getting the loan that’s been misrepresenting the value of the property or other aspects of it.’”
I am glad Rotellini is doing all she can to take the onus of responsibility away from financial services professionals and place it squarely in the laps of gullible buyers who only buy a home once every few years or so and only learn about alternative terms of purchase through Realtors and lenders. It is the buyers’ duty to make sure they don’t cheat the unsuspecting lenders by tricking them into setting up these fraudulent schemes.
“Valley appraiser Dennis McMillen said that mortgage fraud is an issue in the housing market but that it’s not always due to inflated appraisals. In some cases, he said, ‘real estate agents and mortgage brokers are withholding the cash-back agreements from the contract, thus the appraiser and title company does not know of these agreements.’”
What a crock of crap….spoken like a true number hitter.
If the subject is priced to include big time kickback cash, and/or concessions like a car, furnishings etc..,the use of legit comp’s and the application of various statistically modelling, i.e., regression analysis, will expose the differential between contract price and fair market value.
Any experienced appraiser worth his salt operating in his own demographic territory can usually smell a bad deal from a mile away.
Unfortunately they’ve all been run out business.
It’s the reason the RE agents and loan schmucks luv the easily bullied and intimidated newbie trainees from the hack shops.
So much said about this problem. A few observations, intermingled with the thread about corruption on this blog a few days ago.
-Already too late for FBs. as mentioned, the big money is gone.
-Even millions of FBs, I don’t think a bailout can occur. Too many, too much money. Savers, conservatives, libertarians, etc. aren’t going to go for billions of relief to Joe6Pack, esp. if he got a kickback deal and blew the load on the Queen Mary II, a super sweet 16 for his daughter, and the 90 inch HD TV flat panel.
-Larger scope is that greed in this country knows no bounds. Corruption is alive and well in the US. Reminds me of my FOL who is Philipino. We were talking years ago and I said the only differnce between the US and most other countries is that we hide our corruption better. We are not as open about it.
-Sadly, the sheeple once again have been fleeced. They thought they were getting something, a giant home, $200K back, but in the end, they will pay with home loss, credit wiped out, no money in the bank, and a big fat tax bill. Don’t forget that difference on the mortgage forgiven is income and Uncle Sam will get his ton of flesh.
Lastly, even if there is no second depression, but, rather, a deep recession, many are going to be really leary of this country and economy in the future. There will be no safe havens anywhere. You will have to look out for your friends and family that WILL listen. You will have to diversify like never before because you won’t be able to trust anyone or any investment. I know many of us on this board have CDs locked up, me included. However, how many of us now the amount of toxic loan money our bank has lent out. I don’t know about anyone else, but if my credit union goes belly up, standing in line for a year waiting for an insurance check written against a currency that is now valueless doesn’t really appeal to me.
In conclusion, as this thing starts to snowball a lot of grandstanding is going to take place. Many are going to get wiped out and many will feel the aftershocks, as well. No one will escape this mess. Sure, many will come out unscathed and even make more money. However, what about ma and pa in Iowa who have $100s of K in the bank and are wiped out when Joe’s savings and loan, which was AA rated still managed to go belly up?
Needless to say, my rant is over. However, I am pissed. I feel like Diogenes. Where is the honest man? Where is the man truly looking out for this country and its people? No Bill O’Reilly jokes please! I am serious. I know there a few, but not enough and they don’t get the coverage. Hey, I realize money makes the world go round, as they say. But when is moderation and honesty going to come back?
I welcome a return to “money makes the world go round” — we are currently in “easy credit makes the world upside down” mode.
we are currently in “easy credit makes the world upside down” mode
Otherwise known as the J. Wellington Wimpy economy.
“I will gladly pay you Tuesday for a hamburger today.”
Grub(™)
OC Dan …good post .
As I see it ,the regular lenders have to simply stop lending until this appraisal mess can be sorted out because of the comps based on fraud , short term speculators ,and the unqualified sub-prime low down liar loans .
The cash back /incentive situation is the new fraud also . Someone posted yesterday that a RE agent came to the door offering a cash back situation of 80k if they would become a buyer . How do you thing alot of sales were made in 2006 .
Were the MBS buyers in the secondary maket advised that they were making 130% loan to value loans on some of these sales .
We keep wondering why people are buying in a inflated market and you have to ask the question “what are the buyers getting over and above what is being disclosed “?
When you see what the REIC has resorted to in recent years it doesn’t surprise me that fraud/shady deals kept the market from crashing more in 2006 . The myth that real estate will rally again and all evil will be covered up is not going to happen .
The current market is a very serious problem and I for one feel it has to be addressed because the market can’t get the end-user buyers that it would need to buy at inflated prices to bail out the fraud , short -term speculators and unqualified buyers .
The damage has already been done ,but the lenders need to stop additional damage NOW.
“standing in line for a year waiting for an insurance check written against a currency that is now valueless doesn’t really appeal to me.”
If that happens, the youth of today will experience a “New America”
OCDAN-I know it seems very frustrating. I am disgusted by some of the behavior I have seen by reading this blog. However, I do believe most people try to live an honest and moral life.
In my experience most people will try to make the right decision if they are confronted with a clear choice. But most people will do everything in their power to avoid facing a clear choice so they can make the decision that is easier or feels better.
$100s of K in the bank and are wiped out when Joe’s savings and loan, which was AA rated still managed to go belly up?
OCDan,
how do you check your bank’s loan portfolio? Is it in the 10K? Any pointers or info would be appreciated.
I’ve been thinking that I need to do this with my bank, too. I was actually planning to check out their investor relations part of their web site to see if it was there. I’d appreciate any pointers, too.
You can request data be made available to you due to the HMDA(Home Mortgage Disclosure Act)
The data should show geographic distribution of loans and applications; race, gender, and income of applicants and borrowers; and information about loan approvals and denials.
Write your Financial institution a letter requesting this.
SKB
Hey Paladin, they’re singing your song!!!
BTW, just thought of a new angle on this one (or at least one I’ve not yet read about). Get the IRS involved! Wouldn’t they consider cash-back deals unreported income? That’s tax fraud. Nobody — repeat, nobody — wants the IRS after their a$$.
Paladin, have you tried calling them??
TJ, see the bits buckets for today. Search under IRS. You will like my plan.
Paladin
Have Gun Will Travel
Does anyone know how Paladin’s plan is going? They need his expertise…
The web site is almost ready. I hope all of you can help and contribute suspect deals to the site. Beta testing now.
Paladin
Make it available, even if it is in beta mode at the moment.
Your website will be very beneficial. I am learning so much from you in this regards.
I’m ready to learn how. Right now I know to look for homes sold that have to be over market value, but I need more information on how to see where the financing came from.
I can hardly wait Paladin.
What’s the difference between cash back and incentives? They both misrepresent the value of the home to the lender don’t they?
IMHO incentives and cash backs are just about the same . Regular lenders will allow some incentives such as paying for loan costs ,or paying to a repair of the property as long as it doesn’t exceed a certain amount and it’s disclosed to the lender . I think FHA and VA limit it at 3% of the loan amount can be paid by the seller . I don’t think lenders use to ever allowed things like a car incentive or tons or expensive improvements ,or cash back .
The whole can of worms is totally bogus regarding incentives and kickbacks because it’s fraud to the lender because it forces the lenders without them knowing it to make a higher loan amount than the property warrants .
Really , many realtors are sitting up these shady deals to keep the party going along with the NAR/Realtors pushing this ad campaign about it being a good time to buy . It’s not a good time to buy becuase the market is not stable regarding the appraisals/fraud and the market has to many foreclosures coming down the line and there is just to much inventory .
When this all comes out in the wash ,what has really been happening ,the good public is not going to be pleased . Everybody will try to blame everybody else , but everybody knew what they were doing was wrong .I have never seen so much fraud on this massive of a scale .
hey maybe its just me, but the rate and pace of these ’sky is falling’ articles in the msm is just exploding . hmmmm … is this just the on ramp to a ‘bail me out’ campaign??? … why after all, the builders and lenders have been victimized by those fraudster flippers who are just hanging out down in ipanema …
Yea … mortgage fraud also known as … the last car that runs into a 100 car pile up. Its all his fault … that stupid little bicycle ran into the back of this car, causing it to careen into the car in front and that car hit the car in front and so on until it all covered 5 miles of the highway. Yup …
Cool.
Cow_tipping.
“a situation he said that could cause the collapse of real estate values throughout entire neighborhoods.”
We heard this from Enron losers a few years back about how they had lost bucket loads of money. The truth is that you lose what you bring to the table - not a dollar more or less. Same with real estate. Prices spiked to an abnormal amount and are now simply correcting, not collapsing. Yeah, I know tell that to some poor shmuk that bought 5 last year thinking nothing could possibly go wrong…
And mortgage fraud? What fraud? They ask me how much I make in a year and I think $250K would be sweet so I tell them that’t what I make folding tacos…