In previous blogs, I’ve made reference to the subprime mess and what caused it. Since then, things are starting to happen. My natural assumption was that appraisers would be blamed again, as we were following the Saving & Loan problems in the 1980’s. To a certain extent, this is true, but only in part this time. The regulators and government appear to be focusing on the real root of the problem, and while it involves appraisers, it also involves lenders, realty agents, buyer and sellers. In short, it’s been a huge issue of fraud, and it runs deep. Well beyond “sub-prime”. That’s just the tip of the iceberg!
As has been stated before, the role of an appraiser in mortgage loan transactions is that of a brake…..a safety valve. No bad deal can go through unless the scammers can find an appraiser to go along. Basically, appraisers have to be “untouchable”. Some are, some are not. Enough have not been that things got wild and out of control. The losses? Billions and Billions. Enough billions to put the entire US economy at stake. This is how Depressions get started.
In these deals, fraud took (and in some cases still takes) many forms. Lying on loan documents, misrepresenting income, etc. That was fraud against the lenders. But for others, lenders knew full well what was going on, and even encouraged it. As has been stated before, nobody gets paid unless these deals go through. The role of the appraiser in this fraud took many forms, but in all of them, the goal was to “make value”. Plenty of my brethren did.
So what were the consequences? To an appraiser who refused to work these deals, no more business, or to some, loss of jobs (they were fired). So a wink here, a nod there and the deal slips by. Worse, some appraisers thought their role was to make deals work, so they groomed “dogs” to make them look like they were ready for an AKC show, or just flat out lied.
But now that it’s hit the fan and regulators who were asleep start to wake up, what are the consequences? We used to think the worst that could happen was you could lose your license. Not so. The worst is a 30 year jail sentence! Mortgage brokers, RE Agents, buyers, sellers and appraisers are facing felony convictions and are going to jail.
For now, the center of interest is on residential mortgages. Not having done any of that, I’m removed from that problem, but have seen enough of it in my farm appraisal work that I know the same things have been going on and for the same reasons. For now, the good times in the farm economy are masking it, so we have not heard about those…….yet.