AUTHOR: Beverly A. Bayer, SRA – Moreno Valley California real estate appraiser. Author of Practical Residential Appraising - available as an e-book at: www.practicalresidentialappraising.com Phone - 951 247-3674
Who is Responsible for the Mortgage Mess?
Is it the couple who bought their first home?
Found by their real estate agent?
Who suggested the loan broker?
Who placed them into a loan, made possible by an appraiser’s value?
Funded by a lender who accepted the appraised value and the borrower’s credit worthiness; and designed the loan product?
Or the secondary holder of that loan who packaged it into mortgage backed securities?
Or the retired teacher who invested her life savings into that mortgage backed security; at the suggestion of her stock broker, as a source of monthly income.
Or was it the rating entity that gave a good score to that mortgage backed security that the retired teacher bought into.
At the suggestion of her stock broker, whose brokerage house had a vested interest in that mortgage backed security?
That was comprised of loans made from the lender who funded the couple’s mortgage loan and designed the risky loan product that generated income to their bank.
That was brought to them from the commissioned, unlicensed loan broker, who uses appraisers who overvalue properties and encourages borrowers to lie about their stated income.
Who was suggested by the couple’s real estate agent, who received a commission at the close of escrow of the couple’s dream home?
Or the couple who exaggerated their income to qualify for the loan needed to buy the house they couldn’t afford. That is now in foreclosure.
To place the blame, you need to know who profited and who was hurt. And was mortgage fraud, predatory lending, just poor timing or greed the reason why so many loans are failing, now. Mortgage fraud is a deception on the lender that could be done by inflating the borrower’s income or market value of the collateral property.
Predatory lending is when the borrower is taken advantage of – such as with putting them into an inappropriate loan or charging excessive fees. Predatory lending might also encompass not exploring the buyer’s options or not explaining adequately the features and ramification of the chosen loan.
Poor timing might be issues that adversely affect the borrower’s ability to continue making the mortgage payments; or when conditions change negatively in the marketplace. We are seeing now that declining home prices are taking away the option to refinance or sell a home to get out of a bad loan for many in trouble homeowners. Could the change in the marketplace have been predicted? Yes, an on the ball appraiser might have alluded to a growing inventory of homes for sale, a slowing in the rate of home sales, longer marketing times and other signs of a coming real estate slow down. However, it has been my experience (as an appraiser) that our lender clients don’t want to hear anything that may affect their ability to continue making loans.
And then there is greed. The homebuyer gets the home of their dreams. Their real estate agent and the loan broker get commissions that are usually higher with the higher priced homes. The lender makes a loan that they can sell to the secondary market, the secondary market gets a loan they can convert into mortgage backed securities and the brokerage houses have mortgage backed securities they can market to investors; all making money along the way. And who is hurt when the borrower starts skipping payments: first is whoever owns the loan / or part of the loan when mortgage payments are missed and that is often the secondary market and the holders of mortgage backed securities (the retired school teacher).
Under some circumstances the lender is required to buy back the bad loan and sometimes the bad loan goes back to the loan broker; other times the secondary market takes the hit. Eventually the home will be sold at the foreclosure auction and the couple will be evicted from the house, hurting their credit for many years. The entities least hurt by the loan failure would be the real estate agents, loan brokers and the appraisers. Of that group the appraisers were the lowest compensated for their part in the process.
However, if mortgage fraud was committed the perpetrators could face criminal or civil penalties. It would be hard to prove the loan broker encouraged the borrowers to over state their income or pressure the appraiser to over value the property; and the homebuyers has been hurt by the loss of their home and damage to their credit. So all that is left is the appraiser. With the appraisal report available as evidence of property over valuation or misrepresentation of the property that was used for the failed mortgage loan.
AUTHOR: Beverly A. Bayer, SRA – Moreno Valley California real estate appraiser. Author of Practical Residential Appraising - available as an e-book at: www.practicalresidentialappraising.com Phone - 951 247-3674
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