Way back in April of 2008 I Wrote a column titled What Caused the Mortgage Meltdown? This was before the mortgage meltdown led to the financial collapse. The first two offenders listed were mortgage brokers and appraisers.
So-called “tame” appraisers appraised real estate at inflated values for mortgage brokerages on whom they depended for referrals. The brokers not only knew the appraisals were bogus, but encouraged and even demanded inflated appraisals. This was a major factor in mortgage meltdown and the ensuing financial collapse.
New regulations and some prosecutions of unscrupulous mortgage brokers and appraisers were supposed to curb this behavior. It has been somewhat effective; appraisers seem to be more conservative in their work.
Unfortunately, there are still some scumbags out there.
A client, whose house has a market value of about $375,000 was recently extended a $525,000 line of credit based on an appraisal of $450,000. There is NO WAY this house is worth $450,000. NO WAY.
So we have a 116% mortgage based on a fraudulent appraisal, resulting in an actual debt ratio of 140%.
Who’s the mortgage broker? Is it some lone fly-by-nighter? No. It’s one of the Portland area’s largest brokerages and the individual offender is its owner. If you listen to morning radio on a particular station, you’ve heard the host extol this individual’s virtues.
A former coworker of this broker has a different opinion. When I described my client’s situation to him, he calmly said it didn’t surprise him at all and the broker in question was “an abomination.” In a business where even competitors are reluctant to criticize each other, this is quite a statement. Unfortunately, I don’t think this offender is unique.
What idiot bank would loan 116% on a house in today’s real estate market? Not surprisingly, B of A. They’re the ones who used bailout money to buy Merrill Lynch and Countrywide instead of keep credit flowing and then went back to the bailout trough for a second feeding at the taxpayer tit. Five B of A board members are now being hauled before a judge on charges that they deceived investors in about bonuses to be paid to executives at Merrill Lynch & Co.
The point is this: mortgage brokerages, banks and appraisers are still engaging in the exact behavior that led to the financial collapse last fall.
Any predictions for what happens this October?