Posted in the Think Tank you will find a fascinating lawsuit filed by the FDIC.

The Federal Deposit Insurance Corp. has accused Lender Processing Services Inc. of Jacksonville, Fla., and CoreLogic Inc. of Santa Ana, Calif., of causing $283.5 million of damages to the former Washington Mutual Inc. for failing to provide oversight of appraisal.

Below you will find the 118-page filing of the lawsuit that was commenced against LPS for $154.5 million. It states 220 appraisals performed between 2006 and 2008 contained “multiple egregious violations” of industry standards.

Less than 4%of LPS’s appraisals conformed with professional appraisal standards.

The FDIC filed a separate suit seeking $129 million from CoreLogic, claiming it found negligence in Corelogic’s eAppraiseIT unit after a review of 194 appraisals performed in 2006 and 2007.

CoreLogic’s defense? 85% of the loans involved “desk reviews” — no interior or exterior inspection. Perhaps someone in Corelogic’s crack legal team can explain how on earth that qualifies as an appraisal?

Appraisal Fraud: FDIC/WAMU vs LPS, CoreLogic

Category: Legal, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “FDIC Challenges LPS, Corelogic “Appraisal Fraud””

  1. The Window Washer says:

    The IRS has higher legal requirements for valuations and they just flat out fabricate them. So there’s one area they could use as a defense.
    “We did better than government work.”

  2. louis says:

    Any new devolopment built during the fraud should be reappraised. All appraisal standards were waived. What do you think the value is Linda Green?

  3. rktbrkr says:

    I heard the terms “ZIP code” and “drive by” appraisals. If I knew about lax appraisals how could the banks not know?

    If the banks feel they were screwed by the lax appraisal standards at the time what about the buyers? The buyers are amateurs, buy a couple of homes in their lifetime, the banks are the pros, they knew, or should have known, what was going on. Not that the appraisers were faultless but it’s the homebuyers who got caught in the cross currents of professional malfeasance and misfeasance surrounding them – bankers, brokers and appraisers filling in the blanks to make deals “work”. A pox upon all their houses (pun intended)

  4. formerlawyer says:

    I can sorta see it. New subdivision with cookie-cutter houses all aimed at a certain price point. As to drive by appraisals, often and indeed quite often in foreclosure cases the home-owner will refuse permission to even step onto the land to a bank appraiser. Nonetheless any appraisal needs to be qualified as how it was conducted.

  5. Fred C Dobbs says:

    Fred Balderston was a UC Berkeley professor who was made California Savings and Loan Commissioner in the early 1960s, and died four years ago at 84. When he took office as Commissioner, State-chartered and Federally-chartered banks and savings and loans were required to make loans that conformed to State and Federal law. And, real estate appraisals were not required, almost 30 years after the establishment of the Congressional legislation of the 1930s that was designed to prevent the repetition of, among other things, the real estate Depression of 30s, because the commonly-accepted wisdom of the times believed appraisals were unnecessary or more or less useless. The best evidence of value, it was believed, was the honest, arms-length, fair market price at which the parties agreed to sell and buy.

    Professor Balderston changed all of that. He required California Savings and Loan corporations to appraise their real estate security, before funding a loan. The lenders grumbled, but complied with the law, with the letter of the law. A standardized form for the appraisal was slowly developed, and lenders either hired employees to fill out and sign the form or went outside to independent contractors, whose product was reviewed internally by the lender. Regulatory appraiser classifications were instituted. Those with little or no experience or study were allowed to sign appraisals of simple, lower value security properties, and those with more credentials appraised bigger and more complex properties.

    The lenders that relied on their in-house appraisers experienced fewer and lower losses for they tended to value holding on to their job more than justifying a dubious loan. They usually appraised the property at a lower value than an independent appraiser, which meant the borrower paid more down and borrowed less to buy the property and had a greater interest in defending his ‘equity,’ or the borrower, if dissatisfied, went elsewhere where appraisals were more liberal, competitive, and ‘enlightened.’ But only a few lenders relied on employees, for lending volume is boom and bust, and in bust times the appraiser would have little to do, and in boom times too much to do. Most lenders went ‘outside’ to independent appraisers because it was cheaper and eventually cost nothing, since they were soon able to force the buyer to pay the independent appraiser’s fee. As most residential real estate lending innovation arose in California in the 1960s, the new, improved outlook toward appraising meant appraisal requirements spread nationally, and an appraisal ‘profession’ grew. In doing so, most lenders by far relied on independent appraisals. They substituted the ability to fire and disgrace an employee when a loan went bad, for the worthless opinion of an outside appraiser, against whom a lawsuit would ordinarily fail, for, after all, an appraisal is a mere statement of one’s opinion, it is not an actual fact. A lawsuit against an appraiser is battle of expert opinions, and if the defendant can secure the services of an expert to say the disputed appraisal was, in fact, a satisfactory opinion, in other words, that the value stated was, within a range of tolerance, a reasonable value, the lawsuit fails even if the appraisal was made fraudulently, being right for the wrong reasons. The appraisal, the stated opinion of value, has to be false and untrue at the time made, or the lawsuit fails.

    So, assume you were an appraiser, a few years ago, and you were asked to appraise a loan for a condominium in a large brand-new building or a single home in a large newly-built subdivision. Assume you know the project is selling rapidly and the prices are rising. And, you state, in your opinion, that the value of the subject condo or home is worth the last known price at which a comparable condo or home was sold. In other words, you state as your opinion, the very same value confirmed by the market place. And, assume, the security declines in value, and the unpaid principal of the loan exceeds the value of the last sale of a comparable condo or home, is your appraisal wrong? Can the lender get a judgment against you, and destroy you financially? Probably not. But if the lender should secure a judgment against you, the judgment is probably worthless, being uncollectible.

    The government requirement for appraisals did not prevent the return of the real estate depression experienced during the ’30s. This not an opinion, but a fact. And the reason is the value of the security for the purposes of making a loan is less than value for appraisal. That is why loans were, until recent years, limited arbitrarily to a percentage of the sales price or appraised value of the security, whichever was less. Depending on the specific security, it might be 70%, 80%, or more percent. The ‘crime’ of the regulators was raising the lendable loan-to-value ratios.

    Think about this: assume I lend you $100,000 to buy your home for $100,000, a nothing down, 100% loan, and you die, and your family, without income, no longer makes monthly payments. In about 6 to 10 months, I foreclose, and your family respecting the contract you made when you borrowed, leaves. I enter, take possession, pay others to clean up the house and yard, repaint portions of the interior and exterior, make repairs, hire a real estate agent, put your home on the market and sell it to another nice family for $100,000, the same price you paid. How much do you think it cost me to make you that loan? Try a minium of $10,000 to $15,000. Who makes the loss good? In the short term, I do, but, in the long run, as a lender, I try to pay my depositors less interest, and charge future borrowers higher rates and fees.

    Note, the appraisal has nothing to do with my loss. I lost money because I bet too much on your ability to repay, and, through no fault of the borrower the loan goes bad. The appraisal did not make my loan good or bad. It just satisfied a regulatory requirement.

  6. rktbrkr says:

    The drive by, zip code appraisal I referred to was for a Wells second mortgage in Bergen county NJ done around the housing peak, the borrower asked when they were coming by and was told “naw, we know the area, we’ll probably just drive by”. Nice suburban community but older housing stock , not cookie cutter

  7. louis says:

    The last comparable is also a fraud.

  8. DeDude says:

    Fred; I agree that getting away from 20% down was a huge part of the problem. I hope that all the agencies will get back to the 20% down-payment requirement with strict limits on how people can get that money. However, we still need some kind of objective evaluation of whether the property is worth the sale price to avoid fraud (selling a 200K property for 500K to a friend, who then defaults). Demanding that the banks keep some skin in the game for 3-5 years may be the best way.

  9. Billyjimbob says:

    I believe this same fraud was the reason that all fee appraisers must now work for similar companies as the plaintiffs as Home Valuation Code of Conduct rules now mandate. What a concept , get caught cheating and get rewarded. Lenders now must order appraisals from the same Appraisal exchanges who caused the fraud in the first place. They now charge more in fee and pay appraisers less that 60 % of what they made for the same appraisal 10 years ago. I for one am glad that FDIC is going after them.

  10. ericthered says:

    Exactly what do we expect from companies whose entire business model is built on stealing fees from appraisers instead of charging their own fee for their alleged “service?” I’ve worked for Value-IT (Rels), Corelogic, Quantrix, ILS, NVS, LPS and several of the other “s”s. In 10 years I’ve been asked daily how fast I could slap reports on the computer, and how little they could pay me to do it. I’ve never once been asked how good a job I could do.

    When you pay $200 for an appraisal, you get a $200 appraisal. Sound like common sense? Try telling that to an AMC.

    It is absolutely outrageous that despite never having made a critical error or omission, I’m required to secure errors and omissions insurance in order to work for the very companies whose incompetence, negligence and stupidity crashed the entire world’s economy.

    If this industry were a horse somebody would take it out behind the barn and shoot it.