See any of your clients on this list?

By
Real Estate Appraiser with AmcAppraisalsinc.com

A recent article indicating that FHFA is taking action against some lending institutions, should get you thinking.  Are any of these lenders listed in the article below YOUR clients (present or past)?   And if some examinations of the appraisals done in the portfolios should make their way to any you have done, do you have a well documented workfile to withstand an investigation?

 
Questions that should make us revisit our workfile policies, storage of files, and appraisal practices.
 

FHFA Sues 17 Banks to Recoup Mortgage Losses

The Federal Housing Finance Agency announced Sept. 2 that it filed suit against 17 of the nation’s largest financial institutions to recoup billions in losses from the sale of soured mortgage-backed securities to Fannie Mae and Freddie Mac.

The complaints, which were filed in federal courts in New York and Connecticut and in state court in New York, alleged violations of federal securities law and common law in the sale of residential private-label mortgage-backed securities to the two government-sponsored enterprises, the FHFA reported. FHFA is conservator of Fannie Mae and Freddie Mac.

The FHFA alleged that portions of the losses that Freddie and Fannie incurred on private-label mortgage-backed securities were attributable to misrepresentation and improper actions by banks, namely that the characteristics and descriptions of the loans were different and riskier than what was contained in the banks’ marketing and sales materials. 

The complaints also alleged that loans were made to look less risky through inflated appraisals. Mortgage originators, among others, are alleged to have pressured appraisers to furnish inflated loan-to-value ratios that overvalued properties. Inflated appraisals were reported to be especially pervasive when originators packaged mortgages to be sold for securitization, which resulted in lower LTV ratios and therefore appeared less risky

The complaints seek damages, civil penalties and compensatory damages for negligent misrepresentation. The amount the FHFA seeks to recover, however, is not expected to equal the amount the GSEs paid for the MBS.

The suit is similar to one the FHFA filed against UBS Americas on July 27. In that case, the FHFA alleged the bank made false statements about 16 mortgage-backed securities it sold to Fannie and Freddie between 2005 and 2007. FHFA is seeking $900 million in damages in the UBS.

To date, the U.S. has spent $141 billion to shore up Fannie and Freddie, and has recovered about $18 billion from banks since the beginning of 2010, the FHFA reported.

Institutions named in the Sept. 2 complaint and how much the GSEs bought from each:

    

  • 1. 
  •      JPMorgan Chase: $33 billion
  • 2. 
  •      Royal Bank of Scotland: $30.4 billion
  • 3. 
  •      Countrywide Financial Corp.: $26.6 billion
  • 4. 
  •      Merrill Lynch: $24.8 billion
  • 5. 
  •      Deutsche Bank: $14.2 billion
  • 6. 
  •      Credit Suisse: $14.1 billion
  • 7. 
  •      Goldman Sachs: $11.1 billion
  • 8. 
  •      Morgan Stanley: $10.5 billion
  • 9. 
  •      HSBC: $6.2 billion
  • 10. 
  •   Bank of America: $6 billion
  • 11. 
  •   Barclays: $4.9 billion
  • 12. 
  •   Citigroup: $3.5 billion
  • 13. 
  •   Nomura: $2 billion
  • 14. 
  •   Société Générale: $1.3 billion
  • 15. 
  •   First Horizon: $883 million
  • 16. 
  •   Ally Financial: N/A
  • 17. 
  •   General Electric Co.: N/A.

  

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Rainmaker
571,412
Bill Gillhespy
16 Sunview Blvd - Fort Myers Beach, FL
Fort Myers Beach Realtor, Fort Myers Beach Agent - Homes & Condos

Hi Richard,  I'm betting we all want the big lenders to have their feet held to the fire on this but they will surely just try to pass the blame down line to the companies who bundled the loans - and possible inflated them.  Interesting .  Have a terrific weekend !

Sep 09, 2011 04:27 AM #1
Rainmaker
173,450
Richard Glesser
North Country Appraisal Services - Gaylord, MI

I have no worries about the banks trying to pass the blame - they do it all the time.  My concern is that it all rolls downhill, culminating in suits against every appraiser who ever valued a home which went into foreclosure.  E & Os are insurance companies which love to "settle".  The banks will recover their losses and put an end to the appraisal industry.  Just the insurance deductable alone times several defaulted properties will put most appraisers out of business.  And of course, the E & O companies will drop coverage based upon having several lawsuits. 

Sep 09, 2011 02:50 PM #2
Rainmaker
68,543
Richard D. Ferris
AmcAppraisalsinc.com - Clermont, FL
Florida State Certified (FHA) Appraiser

@Bill - thanks for the good weekend wishes! So far so good!  And yes - the pressure we all faced during the boom is soon forgotten by the very parties now dealing with their losses!

 

@Richard G.  -I have been in talks with some attorneys who need consulatations about appraisals for foreclosure defenses.  And the E&O companies who get involved will likely settle as you mention.  It is just cheaper than trying to defend a poorly written appraisal which may not even be in the appraiser's file any longer (5 years old or more)

Sep 10, 2011 11:30 AM #3
Rainmaker
173,450
Richard Glesser
North Country Appraisal Services - Gaylord, MI

Further, the appraisal may not be poorly written, but only used to shift the blame and recoup loses.  That has been the focus of my opposition to "Enhanced Reviews".  The reviewer is required to provide the lender all the documentation necessary on which to build a case against the appraiser - from copies of MLS and public documents for the subject and all original comparables to the requirement of 3 additional comps - even if the 3 original comps were the best available!  This allows the lender to cast enough doubt on the original appraisal to sway the E&O into a settlement leaving the original appraiser few options but to close their doors.  It's a grim picture and, while I would like to see it fail, do not believe that anything will work out weel for the appraisers.

Sep 11, 2011 07:00 AM #4
Rainer
309,997
Jack Hughes
Hughes Appraisal Group Inc. HUD/FHA Approved) - Lehigh Acres, FL

They're just trying to put another nail in the appraisal industry coffin. At one time we were the Watch Dogs in the Real Estate Industry now we're the Mutt.

Sep 14, 2011 12:39 AM #5
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Rainmaker
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Richard D. Ferris

Florida State Certified (FHA) Appraiser
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