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Thursday, December 20, 2007

Massive Appraisal Fraud

Nov 20, 2007
as reported in Lender as reprinted from Mortgage Daily

In an article written and posted in in November, 07, it was reported that New York State has filed suit against Washington Mutual, First American Title and eAppraiselIT.

"The State of New York has filed a lawsuit against eAppraiseIT alleging the
company conspired with Washington Mutual Inc. to produce fraudulent appraisals.
But the accusations are primarily based on just a few e-mails that marginally
support the state's case."

While the outcome of this suit and its merits are to be determined by the courts sometime in the future, the fact that the State of New York has probable cause to initiate this action is important and interesting.

“New York Attorney General Andrew M. Cuomo announced today that the lawsuit,
filed in the Supreme Court of New York, New York County, against eAppraiseIT and
its parent, the First American Corp., seeks to end the illegal relationship. In
addition, penalties and disgorgement are also sought.”

First American Corp had the following to say about the suit.

"The complaint filed today by the New York Attorney General against First
American and our eAppraiseIT subsidiary has no foundation in fact or law," First
American said in a written statement."

While not the judge and jury, what I see is significant here is that I have seen over the years, the retail mortgage origination units of the major lenders have approved deals that we, the mortgage broker, could not get approved by these same lenders. This is even truer today. In an attempt to capture the mortgage loan origination business for themselves, the effort is underway to eliminate the mortgage broker which in the long run will be to the disadvantage of the consumer.

These major lenders, such as Washington Mutual, Wells Fargo, Bank of America to name a few, have openly admitted that an average of 68% of all mortgage originations came to them via the mortgage broker industry.

Now in turn, to attempt to capture ALL the business for themselves, they have publically announced that they will either no longer offer certain mortgage programs through mortgage brokers or they will offer them at rates much higher then they are quoting themselves, discrediting the broker and showing that the broker is not competitive at all in the market place. Prior to the current crisis, the opposite was always true, the broker had better rates then quoted by the banks. The reason was simple; they needed our business and did not want to compete with us on their products as we brought them the majority of their business.

In addition to this, banks have never had to disclose their Yield Spread Premium (YSP) while brokers have always had to do so. When a broker closes a loan, the settlement statement the borrower receives will show the YSP while the banks will not. Most people do not understand that the banks can mark up their rates and do get a premium for that rate when they sell the loan. Theirs is sometimes called Service Release Premium (SRP) but a rose by any other name is still a rose. Just another way of making the broker non competative. In fact, Federal legislation is calling for this disclosure but only from mortgage brokers.

Bank of America as of today offers loan programs that are not offered through the broker network. Some of these loans, in my opinion, are more dangerous then some of the subprime loans blamed on this meltdown. An example would be a STATED/STATED loan they offer at 95% Loan to Value (LTV). A stated loan, now called a “liars” loan, requires NO VERIFICATION of income, the second STATED means that there is NO VERIFICATION of assets or funds to close AND they will do multiple loans to one borrower meaning that they are loaning to investors under this program.

They also do loans to illegal aliens. This I have first hand knowledge of. I had a client referred to me who was here on an expired tourist Visa. He wanted to purchase a home and came to me to shop a better rate. You see, he had already been pre approved by Bank of America. Once learning that he did not have legal status here, I told him that no one in the mortgage industry will do a loan for an illegal resident and that I could not help him. He then went to his car and got his pre approval from BofA and asked why they could do it. Short of the loan officer not knowing all the facts (as he did have a federal ID number which looks very similar to a Social Security number), I said they must have been mistaken or just plain lied to him.

I picked up the phone and called my Wholesale Account Exec from BofA to inquire. Maybe something changed that I was not aware of (not likely, as mortgage 101 teaches you this). She told me that they could not and never could do loans for individuals like this. I then called a retail office of BofA and asked to speak to a loan officer. The retail loan officer told me, “of course we can do that, we do them all the time”.

So with egg on my face, after telling him of all the years of experience I had coupled with the knowledge, he left. Of course, I am sure he called the person who referred him (a realtor) and told them that I was not that good. (I never got another referral from that realtor).

So, do I believe there could be some wrong doing at WaMu as well as other bank lenders? YES, I DO.

When it comes to appraisals, those coming from us are reviewed by independent or so called "independent" appraisers picked by the bank. Often these reviews come in lower and we lose the deal. Who reviews appraisals on bank originated deals. They don't review appraisals they order and it appears that maybe, just maybe, they control the appraisal process in order to get the value in order to package the loan and sell it to the secondary market. Is this a form of fraud or is it just plain fraud? The outcome of this case will tell us.

Seems like there is a lot more to this story then we know while in the meantime over the past few months it has been the mortgage broker that has been blamed for this crisis and labeled as dishonest, worse yet, labeled as the “greedy crooks” who forced all of the borrowers to take out loans they could not afford but DID qualify for according to the guidelines and the underwriting that was done BY the LENDER.

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