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FDIC Sues LSI and Corelogic; What Spring Selling Season?

June 6th, 2011 by Bill Collins Leave a reply »

One After Another, The Depressing Real Estate Reports Continue

This is getting to be old news but here are quick summaries of the most recent negative housing reports:

On May 31st, the S&P/Case-Shiller Home Price Index released reported that U.S. home prices declined by 4.2% during the first quarter of this year and posted a 5.1% decline from the same period last year.  While regional and local conditions varied widely, the S&P/Case-Shiller press release stated that: “Nationally home prices are back to their mid-2002 levels”.  David M. Blitzer, Chairman of the Index Committee at S&P Indices is quoted in the release as saying that: “This month’s report is marked by the confirmation of a double-dip in home prices across much of the Nation… Home prices continue on their downward spiral with no relief in sight.”

On May 27th, the National Association of Realtors (NAR) released their “Pending Home Sales Index” for April which reported a drop of 11.6% in April from a “downwardly revised” figure for March.  Lawrence Yun, chief economist for the NAR, blamed the “wettest April” in 20 years along with excessively tight mortgage underwriting for the decline.

Links to the S&P/Case-Shiller press release and the NAR press release (including a video of Mr. Yun) are found here: S&P Indices Press Release – National Home Prices Hit New Low in 2011 Q1

April Pending Home Sales Drop After Two Monthly Gains

Writing for Bloomberg on May 31st, Bob Willis reviewed this housing data and a link to his report is found here: Home Prices In 20 U.S. Cities Decline to Eight-Year Low, Case Shiller Says

On that same day, Robert Shiller was interviewed by Bloomberg reporters Carol Massar and Matt Miller.  In the interview, Mr. Shiller noted that the federal homebuyer tax credit “probably helped” at a point when “we were on the verge of a great depression”.  He went on to say that if government support of Fannie Mae and Freddie Mac was quickly withdrawn, it would be “…really bad, throw us into another recession”.  A link to this video is found here: Robert Shiller Interview On U.S. Housing Market

Yesterday, The Joint Center for Housing Studies at Harvard University released their publication “The State of the Nation’s Housing 2011” and a link to the Executive Summary of this report is found here: Executive Summary

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Bankers and Consumer Advocates Join Forces to Oppose ‘Draconian’ New Mortgage Requirements

On June 2nd, CNBC’s Diana Olick reported on the unlikely coming together of bankers and consumer advocates in opposition to the proposed QRM (Qualified Residential Mortgage), specifically the requirement for a 20% down payment, which would severely restrict access to housing for many Americans.  A link to this video, including comments by David Stephens (former FHA Secretary, currently CEO of the Mortgage Bankers Association): New Rules to Hurt Housing?

On May 31st, the Huffington Post included a report by former Labor Secretary Robert Reich which was excerpted from his recent Senate testimony as well as from his recent book (Aftershock: The Next Economy and America’s Future).  Mr. Reich reviews overall economic trends over past decades and concludes that “The fundamental economic challenge ahead is to restore the vast American middle class”.  A link to this interesting report is found here: The Truth About the American Economy

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Bad Commercial Real Estate Loans Still Causing Bank Failures, But At A Lesser Rate?

On June 4th, Katy Stech reporting for The Wall Street Journal cited newly released data from Trepp LLC which suggested that while non-performing commercial real estate loans were still the dominant factor in the failure of small banks, the rate of bank failure might be slowing.  During the month of May, five banks were closed down by the FDIC, the second lowest monthly number since early 2009.  Ms. Stech noted that only three banks were seized by the FDIC in March of this year, a sharp contrast with July of 2009 when 24 banks were seized, the high point for bank failures.  Trepp reportedly has 700 banks on the watch list of troubled banks, a figure below that of the FDIC’s recently updated number of 888 for the first quarter.  Ms. Stech reported that for the five banks that failed in May, commercial real estate loans constituted 76% of the total dollar amount of the non-performing loans.

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New Books of Interest to Appraisers

In our last newsletter, we discussed the new book by Gretchen Morgenson and Joshua Rosner titled Reckless Endangerment (How Outsized Ambition, Greed and Corruption Led to Economic Armageddon).  Excerpts from the book were published in the Huffington Post and a link to one of these (which discusses the Federal Reserve’s role in the financial collapse) is found here: Partners, Not Regulators: The Federal Reserve’s Role In The Financial Collapse

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And A Book Written By An Appraiser

Here it is, James E. Manning, a Certified Residential Appraiser from California, has released a book titled Public Trust Betrayed (The Truth Behind the Real Estate Appraisal Industry).  Mr. Manning dedicates this book to:

“…all of the thousands of hard-working, honest, and ethical appraisers all over this country that have had to watch, in horror, their careers and businesses evaporate because of the greed and bad judgment of others over the past few years, but who have still managed to stand their ground and do the ‘Right Thing’ in the face of adversity”.

Mr. Manning gives a personal accounting of his 35 year career as a real estate appraiser and cites the many instances of fraudulent lending activity that he observed and which are all too familiar to appraisers.  The book begins with Mr. Manning’s early years appraising during the 1970s and discusses how:

 “As we progressed into the 1980s, the lending industry, under the leadership of Ronald Reagan, became more and more ‘de-regulated’. I would like to make a point here. I have never seen de-regulation work in any industry…At the expense of using an overworked cliché, it’s like giving the fox the keys to the chicken coop”.  The author discusses the ensuing value erosion during the early 1990s and compares it with the current decline.  He states that “…it took approximately eight to ten years for real estate to recover. It always does. This was a typical cycle in length. This is what amazes me about the current downturn.  All of these so-called investors, reporters on the business channel and newspaper writers are all waiting for the ‘Housing Bust’ to bottom out. It doesn’t work that way…”

James Manning describes the problems faced by appraisers working for AMCs (Appraisal Management Companies) at reduced fees along with the loss of work caused by the use of BPOs (Broker Price Opinions).  At one point he states that “Is it any wonder we feel like the milkman when it comes to possible extinction?”  The author concludes by saying that:

“When so much is at stake, it would be nice to know that Congress, the regulators, the President, and homeowners everywhere will back us and help us change the system for the public good.  Confidence in the markets cannot be restored until they do.  But like so many other issues and reforms like health care, education, immigration, energy, and so many others, I can’t imagine it happening anytime soon, if at all”.

A link to the Tate Publishing website and additional information about Mr. Manning’s book is found here: Public Trust Betrayed by James E. Manning

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FDIC Sues LSI Appraisal, Corelogic and Parent Companies For Negligence in Providing Appraisal Services

The FDIC is reported to be suing the above companies in what appears to be an increased focus by the federal government to prosecute some of the securitization players who may have contributed to the mortgage crisis. Separate lawsuits are reported against each of the companies for actions including negligence in providing appraisal services, multiple violations of USPAP (Uniform Standards of Professional Appraisal Practice) and other breaches of contract for providing defective appraisals.

Isaac Gradman, writing for The Subprime Shakeout on May 31st, reported that the FDIC was seeking at least $154 million from LSI and at least $129 million from CoreLogic.  He noted that the FDIC was suing the two companies only for the amount that WAMU still holds on its books.  Mr. Gradman goes on to say that:
“In the case against LSI, the FDIC only reviewed 292 appraisals and is seeking damages with respect to 220 of those (75.3%), for which it claims it found “multiple egregious violations of USPAP and applicable industry standards” (LSI Complaint p. 12). Only 10 out of 292 (3.4%) were found to be fully compliant. Yet, the FDIC notes earlier in that complaint that LSI “provided or approved more than 386,000 appraisals for residential loans that WaMu originated or purchased” (LSI Complaint p. 11).

In the case against CoreLogic, the FDIC says that it reviewed 259 appraisals out of the more than 260,000 that had been provided (CoreLogic Complaint pp. 11-12). Out of those, it found only seven that were fully compliant (2.7%), while 194 (74.9%) contained multiple egregious violations (CoreLogic Complaint p. 12). And it was the 194 egregiously defective appraisals that the FDIC alleges caused over $129 million in damages.

Can you see where I’m going with this? If you assume that the rest of the appraisals looked very similar to those sampled by the FDIC, there’s a ton of potential liability left on the table”.

While Mr. Gradman notes that the small percentage of appraisals reviewed may not be representative of the entire pool, he notes the staggering potential liability to the firms with figures running into tens of billions of dollars.

Links to Mr. Gradman’s article along with a prior report by Peter Christensen of the Appraisal Law Blog are found here: The Subprime Shakeout

Appraiser Law Blog: FDIC News

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Settlement Between Coalition of State and Federal Agencies and Banks Over Foreclosure Practices Getting Closer?

The Los Angeles Times reported on June 2nd that HUD Secretary Shaun Donovan told them that a settlement between the federal and state agencies with the banks over foreclosure practices could come “in a matter of weeks” and a link to this report is found here:
Foreclosure Settlement To Come In A "Matter of Weeks," HUD Secretary Says

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Some Solutions to the Huge Problems Facing Residential and Commercial Real Estate Markets? welcomes the suggestions of its readers and has recently formed a professional group on LinkedIn where we asked for constructive ideas from appraisers and others as to possible steps that can be taken to begin to formulate positive solutions. George Paquette, an appraiser for an asset management company, began the dialogue with the following comments:

"Hello Bill- I love that you raise this question. I am an appraiser for an asset management company & we talk about this often. My feeling is that in order to get the pendulum swinging in the other direction is to ease restrictions to 1st time buyers. With programs in place to have a zero to 3% down program to assist those with a stable work history, good credit, & work within the community. I feel this type of buyer is as secure as any other buyer & would increase confidence in the market and get these empty REO homes occupied and paying property taxes to support local government, schools, police, fire, & other programs needed to serve the community and halt layoffs. Just my .02 GP"

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Downsizing From McMansions to "Shotgun Shacks"

Just how far has the pendulum swung? Stefanos Chen posted a video on AOL Real Estate on June 1st which provides a guided tour of a 320 square foot “shotgun shack” and a link to this amusing video is found here: Video: Family Lives in 320 Square Foot "Shotgun Shack"

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Rates & Dates

Both Freddie Mac and the Mortgage Bankers Association (MBA) again announced interest rate declines in their most recent weekly reports.

Freddie Mac reported that rates for 30-year fixed-rate mortgages decreased to 4.55% for the week ending June 2nd from the 4.60% rate reported on May 26th. 

The MBA in its most recent Weekly Mortgage Applications Survey for the week ending May 27th reported a drop in its average to 4.58% from the previous week’s rate of 4.69%.   

In their press release of June 1st, the MBA also reported a 4.0% decrease in mortgage applications during this most recent week.  Mike Fratantoni, the MBA’s Vice President of Research and Economics noted in the press release that:
“Interest rates fell last week as incoming economic data was weaker than anticipated. Despite this drop in rates, the number of refinance applications fell. In fact, the last time mortgage rates were this low, refinance volume was more than twenty percent higher. It is likely that many borrowers still cannot qualify to refinance given the lack of equity in their homes”.

Additional information from Freddie Mac can be found by going to: Primary Mortgage Market Survey PMMS – Freddie Mac

Additional information from the Mortgage Bankers Association can be found by going to their site at: Research and Forecasts – Mortgage Bankers Association

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Ask Angie

We want to congratulate our most recent winner: Robert Tribble, a Certified Residential Appraiser from Springfield Gardens, New York. He was the first to accurately answer that Robert A. Heinlein was the author of the quote “Of course the game is rigged. Don’t let that stop you-if you don’t play, you can’t win”, Warren Buffett noted that “If past history was all there was to the game, the richest people would be librarians” and that Karl Albrecht said “Start out with an ideal and end up with a deal”. 

Today’s questions:

1. Who Said: "It is not enough to be busy, so are the ants. The question is, what are we busy about?"

a) Sarah Palin
b) Martha Stewart
c) John Longino
d) Henry David Thoreau
e) None of the above

2. Who said: "We don’t have a choice on whether we do social media, the question is how well we do it."

a) Mark Zuckerberg
b) Jeff Weiner
c) Erik Qualman
d) Carol Bartz
e) None of the above

3. Who said: “Money is better than poverty, if only for financial reasons."

a) Yogi Berra
b) Woody Allen
c) Groucho Marx
d) Estelle Harris
e) None of the above

The first person to respond with the correct answers wins a choice of one of the below:

One Free Regular Listing on

A Free Copy of the 12/10 UPDATED Directory of Appraisal Management Companies (Available Now to Members of and FREE!)

One Free Trade Show Pass to Valuation Expo 2011 in Las Vegas

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Tell us what you think!

We invite your responses to any of the issues raised in this newsletter. Please e-mail us at: with your thoughts!

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We really hope you find our newsletter to be informative!  If you have any input on future topics for discussion, please email me your questions and I will do my best to address them in the next issue.  If you want to look back at past issues you can see our archive at


Bill Collins, Appraiser Help Inc.

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