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The Trouble With Appraisal Reform

The story of appraisal hasn't gotten much play in the housing crisis narrative, and this is a significant oversight. Several reports on IndyMac highlighted issues with appraisal, but for whatever reason none of them ignited into anything throwing of heat. Teri Buhl, familiar to Dealbreaker readers from Housing Wire, however, has been minding the store here.

Despite calls for reform, Countrywide is still showing signs of committing the same predatory lending sins under new owner Bank of America. As Congress rushes the lending reforms through the House this month, banks are still fighting to keep control of how they run the mortgage business, and keep collecting lucrative fees in every step of the lending process.
Exhibit A is a $2.8 billion class action lawsuit filed on March 7th against a BofA subsidiary called Countrywide-KB Home Loans and its wholly owned appraisal firm Landsafe, Inc. The suit accuses the two subsidiaries of an appraisal inflation scheme affecting over 14,000 borrowers, and is a product of a yearlong investigation examining home buyers in California, Arizona, and Nevada. Leading the charge were the Laborers' International Union of America (LIUNA) and Seattle-based law firm Hagen Berman. The law firm is presently litigating over three class action cases against Countrywide.

Cuomo is, of course, all over this new twist, pushing matters all the way into the GSEs, which he insists knowingly bought loans tainted with fraudulent appraisals. With borrowers penning "liar loans," banks like IndyMac actively fabricating income details for applicants, ratings agencies applying AAA stamps to anyone with what appeared to be a default correlation model, GSEs knowingly buying "sexed up" appraisals (allegedly) and securitization drawing monoline protection without the assets to back losses, you have to wonder, what part of the mortgage process was not actually tainted by fraud?
Buhl points us to an excellent diagram on the tentacle-laden topography that is the appraisal relationship map. Catch it after the jump.
Exclusive: Banks' Appraisal Conflicts Could Continue Under New HVCC Rules [The Mortgage Lender]