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It wasn't "if" this global economic implosion would happen the only question was WHEN.
The U.S. Congress assisted FHA/HUD and the Office of Thrift Supervision to eliminate the honest appraisers in the 1980's and '90's allowing for a 20 year artificial real estate market to be used as collateral for ALL these worthless mortgages (toxic assests) that has bankrupted the largest banks in the world.
It's quite simple really, if all these mortgages that have been "packaged" and sold all over the world and used to support the artificial economic growth for the past 20 years, were accurately evaluated, this could not have happen.
No matter how risky the home owners ability to pay for his/her mortgage, IF the real estate market was allowed to grow at it's own pace and not manipulated by those who profit from an overly inflated market then there can not be any loss. NONE, for the mortgage would have adequate collateral and would be able to be resold quickly , therefore, there would be, could be NO loss.
Following is a letter from Con. Doug Barnard Jr. to a real estate appraisal magazine relating his December 1985 investigation on appraiser fraud in the early 1980's and reasons for it.
House of Representatives
COMMERCE. CONSUMER. AND MONETARY AFFAIRS SUBCOMMITTEE
OF THE COMMITTEE ON GOVERNMENT OPERATIONS RAYBURN HOUSE OFFICE BUILDING, ROOM B-377 WASHINGTON, DC 20615
August 3, 1987
This is in response to your letter of July 28 enclosing a copy of the July/August 1987 issue of Residential Valuation magazine and its editorial addressed to me entitled, "You're Barking Up the Wrong Tree". You may use this response as a reply to your editorial.
Your editorial agrees with the finding expressed in my Subcommittee's report on appraisal abuses that "faulty and fraudulent real estate appraisals have become an increasingly serious national problem whose effects are widespread, pervasive and costly."
Unfortunately, the editorial distorts and thereby misstates the report's conclusions as to why real estate appraisers too often engage in shoddy appraisals.
Your editorial mistakenly attributes to our report the conclusion that abusive appraisals are due to appraisers who "are unqualified and unlicensed". We reached no such conclusion.
To the contrary, our report found that highly qualified appraisers are as often responsible for shoddy appraisals as those with less training; and that it is extreme pressures on appraisers from real estate lenders and borrowers that most often cause bad appraisals.
Even a superficial reading of the report would have found the following language:
"Responsibility for [the appraisal] problem rests with those who...base lending and related mortgage insurance/investment decisions on appraisals they know or should have known were improper or inaccurate. Equally culpable are the Federal agencies that regulate or oversee lending and mortgage insurance/investment activities and programs." (Report, p. 4.)
"Alarming numbers of lending institution officials regard appraisals as an obstacle to be overcome or a rubberstamp necessary in order to make a real estate loan under consideration. Loan officers are particularly suspect in this regard, since they are typically under explicit pressure to book as many loans as possible."
"Many lending institution officers, directors, and managers are demonstrably more interested in up-front fees and other tangible benefits accruing from a completed loan transaction, than they are with being assured that their institution's risk exposure is minimized by an accurate assessment of the actual market value of the loan's underlying collateral."
"Appraiser ineptitude, negligence, and misconduct are widespread. Of greatest concern is "client advocacy appraising, wherein large numbers of appraisers willingly agree, or otherwise succumb, to pressure brought to bear by lenders, borrowers, and others involved in the loan origination and underwriting process." (Report, p. 8.)
While appraiser ineptitude is occasionally responsible for inadequate appraisals, most abusive practices result from explicit or implicit threats against appraisers, by real estate lenders and borrowers, that their services will be discontinued if they fail to provide the "right" numbers.
Doug Barnard, Jr. Chairman
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This was 1985, just a few years into the deregulation of the banks and S/L's. In a HUD bulletin (below) you will see how we taxpayers were already taking a hefty hit. I want you to also notice in the first sentence the term, HUD "staff" appraisers.
At the same time Doug Barnard Jr. was doing his investigation into fraudulent appraisals costing taxpayers billions, FHA /HUD was enacting the Direct Endorsement program whereas lenders could now hire "in-house staff" appraisers.
In essence, Congress help eliminate the honest appraisers, that refused to be an "obstacle to be overcome" and deregulated the federally insured banking industry in the 1980's at the bequest of the Realtor and mortgage lenders PAC's.
Freddie and Fannie helped to eliminate the honest appraisers so to artificially inflate the home price for higher profit, The Office of Thrift Supervision knew it, FHA/HUD had a HUGE hand in it. Mortgage Guaranty Insurance Corp. knew it.
In the late 1980's the House Government Operation Committee said: "If sound valuation practices are not followed, HUD"S risks are increased." Yet they continued deregulating. Why? Because instead of being punished, everyone gets bonuses.
If you will go to http://appraiserspetition.com/ and read about the pressures that are still, to this day, applied to the appraisers, simply ask, how can a problem that was blamed for the LAST taxpayer bailout of the the banking industry, STILL be a problem today? Your Congress and the MEDIA.
Forgive my simplistic view, but again, if a mortgage on a piece of real estate has adequate collateral there would be very little to no loss to all, so people you must ask, how in the world did the same problem that caused the "largest taxpayer bailout in history", be the major reason for the largest "global" economic implosion in history? Why did Congress help to eliminate the honest appraisers that refused to succumb to the pressures to hit the "right numbers" in the 1980's after the last bailout? Without these over-valued "toxic assets" the rest of the game(s) were not possible.
This is a letter I finally received when trying to get help as an appraiser in Texas after being the casualty of their deregulation when an employee refuses (to commit federal banking fraud by fraudulently arriving at the "right" numbers) an assignment by the employer..
HENRY B GONZALEZ, TEXAS. CHAIRMAN
CHARLES E SCHUMER. NEW YORK
U.S. HOUSE OF REPRESENTATIVES
SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
OF THE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
ONE HUNDRED THIRD CONGRESS B303 RAYBURN HOUSE OFFICE BUILDING WASHINGTON, DC 20515-6052
BERNARD SANDERS. VERMONT (202) 225-7054
May 18, 1994
Mr. S G
Dallas, Texas 75248
Dear Mr. G:
I am writing in response to the recent letter regarding your unfortunate experiences as an appraiser in the past few years. First of all, I commend your meritorious honesty as a certified appraiser in the state of Texas. I sympathize with you and find it a shame that the fiduciary relationship you attempted to maintain with your employers went unnoticed and unrewarded.
Unfortunately, the Congress cannot legislate honesty throughout the banking and appraisal industry. I am confident that there are many respectable banks and mortgage companies who are in great need of an appraiser with your integrity. Rest assured that I always fight to uphold the FHA guidelines and I will continue to maintain the most effective way to protect borrowers and deter unfair lending practices.
Thank you for contacting me personally on this matter.
With every best wish I remain,
Henry B. Gonzalez,
Chairman
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Of course they couldn't regulate HONESTY in the industry, the PAC's and lobbyist's were paying them to de-regulate it. Again, how can something that was declared; "a serious national problem costing taxpayers billions..." by a Congressional subcommittee in 1987 still be a problem TODAY?
How does one:
"maintain the most effective way to protect borrowers and deter unfair lending practices. "
If one cannot regulate HONESTY in the banking and appraisal industries?
Why, when a Congressional subcommittee, chaired by Con. Doug Barnard, Jr, said:
"...that it is extreme pressures on appraisers from real estate lenders and borrowers that MOST often cause bad appraisals."
"Alarming numbers of lending institution officials regard appraisals as an obstacle to be overcome or a rubberstamp..."
"While appraiser ineptitude is occasionally responsible for inadequate appraisals, MOST abusive practices result from explicit or implicit threats against appraisers, by real estate lenders and borrowers, that their services will be discontinued if they fail to provide the "right" numbers."
did FHA/HUD enact the direct endorsement program allowing lenders to hire in-house staff appraisers, in 1985?
They just took an independent entity and made him an employee of someone who viewed him as an "obstacle to be overcome"
If the lenders had such a strong adverse effect on appraisers when they were independent contractors, what are they going to do now that the CONGRESS made them salaried employee's? How can they claim; "Of greatest concern is "client advocacy appraising and they then make the appraiser a salaried employee of the lenders?
Again go to http://appraiserspetition.com/ HOW is this STILL a problem TODAY.
YOUR Congress and a media owned by big business.
If all mortgaged home loans had ADEQUATE collateral and not backed by an artificial market this wouldn't / COULDN'T happen, That's the whole point in having an independent appraisal. To make sure the bank, the borrower, the secondary markets and the TAXPAYER is protected from unnecessary losses.
IF IT IS FEDERALLY SUBSIDIZED AND INSURED IT SHOULD BE FEDERALLY REGULATED.
