Lenders Collude with Appraisers to Push Overpriced Homes Fueling Sub Prime Mess…


New York Attorney General Andrew Cuomo recented initiated a lawsuit against a real estate appraisal unit of the Fortune 500 company First American Corp.He says the appraiser colluded with Washington Mutual, one of the largest savings and loan companies, to inflate home values. According to Cuomo, the practice is widespread and has contributed to the sub-prime mortgage crisis.

I’ve known that for 15 years Andrew…thanks for the update.

It is no secret that Realtors, appraisers, and lenders have been colluding for years to drive an over-inflated housing market, by selling over-valued homes to people who couldn’t afford them. Result? A giant crap sandwich.

Cuomo claims that during the housing boom, mortgage companies started leaning harder on appraisers to basically lie about home values. “We believe this is a problem all across the industry,” he says. “We believe the federal government has not been effective at regulating it. We believe it has serious consequences long-term.”

As usual, your governing bodies are behind the learning curve. All they needed to do was pick up a newspaper at any point over the past ten years or so and begin reading the classified section in large cities like Atlanta, Dallas, New York, and L.A. To their collective amazement, they would have found hundreds of ‘small’ three bedroom ranch homes selling for hundreds of thousands of dollars beyond their fair-market-value.

Who pays $890,000 for a two bedroom condo? Who pays over $1 million for a three bedroom ranch with no garage at a whopping 2300 square feet?

The foolishness was as plain as day, but no one flinched…not Realtors, not the banks, not the government…no one. Why? The reason is simple. We are living a valueless debt driven economy that is only being precariously propped up by a few vital sectors – over inflated health-care, over inflated housing, and over inflated energy commodities…that’s it.

If any of these cogs few out of the U.S. economy, we would be looking depression right in the face. The sad part is that at the core of this nonsense is the gullible American consumer. As a nation, we are starry eyed and foolish when it comes to consumption. We spend beyond our means and the sky is the limit. As long as we can put hot dogs on the table and keep the cable on, we’ll spend…no matter what. Even if it means abandoning that home you couldn’t afford in cities like Phoenix, where 10,00 homes stand vacant – too embarrassed to face family and friends with your failure…willing to eat your mistake and take the debt to your grave. We’ve been programmed and it’s pathetic. 

Predatory lenders simply identified the stupidity and took advantage of it. Their practices made it easier for people to overpay for a home, or to borrow too much against their current house, or even to borrow on a second and even third mortgage! And now, with home prices falling, homeowners are getting creamed. Some homeowners are taking losses as high as 30%, as they are unable to refinance out of their high-interest sucker loans, that they were fully aware of at closing time. 

I’ve been a landlord for 10 years and I’ve seen more criminal activity at the hands of shady Realtors and lenders in the last five or six years than I’ve ever seen before. These people should be punished and I applaud Cuomo for pursuing them, however, in the end, I believe that a good portion of these homeowners should be left to burn if only to set an example to other sheep in the herd. They knew full well what they could afford or not afford and they knew of the potential consequences. Time to be grown ups, face the music, and learn that the land of milk and honey can turn sour if you buy more than you need.


Posted on November 8, 2007, in Economic Policy, Iraq War, Law, Politics and tagged , , , , , , , . Bookmark the permalink. 2 Comments.

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