New York AG sues First American for Appraisal Conspiracy

Press Release here.

 In a scheme detailed in numerous e-mails, eAppraiseIT (“EA”), a subsidiary of First American Corporation (NYSE: FAF), caved to pressure from Washington Mutual (“WaMu”) (NYSE: WM) to use a list of preferred “Proven Appraisers” who provided inflated appraisals on homes.  The e-mails also show that executives at EA knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu.

And you can bet it was to secure more title and mortgage processing business:

A Deafening Silence

Doug Miller has a great series about Controlled Business Arrangements (let’s all start calling them what they are). As Doug points out the sole defense of the arrangement is the consumer’s need for “one stop shopping.” I have yet to hear another rational explaination for their existence. And while rational, the one stop shopping argument isn’t very persuasive. We need to look no further than the actions of the supposed beneficiaries.

Did I Just See a RESPA Violation?

Recently, while photo copying HUD1 Settlement Statements at a real estate office, and for all eyes to see (my eyes were not wandering!), there on the wall was taped an advertisement, a glossy pitch from a mortgage lender soliciting the real estate agents. I have summarized below:

Individual Goal

Refer 4 loan applicants from August 1 through November 1 and get a $200 gift certificate for personal marketing

Office Goal

Just one referral gets you invited to a group dinner:

Refer 9 loan applicants – dinner at the “not so exciting” restaurant

Refer 18 loan applicants – dinner at the “okay this is getting better” restaurant

Refer 27 applicants – dinner at the “yes, I have arrived, fancy “schmancy” steak house

Does this advertisement violate Section 8 or any other section of RESPA? I would appreciate your opinion, maybe I am missing something.

Every day the independent title insurance agent struggles to compete with others who are not playing fairly and with the controlled businesses.

At this time, I have to direct you to Ethical Practices in Real Estate. Douglas R. Miller’s superb writing and on-the-mark insight into CBA’s, kickbacks, and ethics in the real estate industry is phenomenal. An absolute must read!

Looking the other way

The real estate transaction is made up a conglomeration of professionals, each one with a real or a preceived duty to the parties at the settlement table.

Through our inattention to ethics and principle, we, the real estate industry, find ourselves surrounded by a vast quagmire of self-dealing, failed duty, and ethical breaches.

Fools Rush In

Looks like we’ve moved into a new phase of the foreclosure market.

I received two calls last week from successful bidders on property at sheriff’s sale.  For those not in PA, that’s how the counties manage the sale of properties – usually for unpaid taxes or mortgage foreclosure.

Bothwanted to know if they could purchase title insurance after the sale.  Since a Sheriff’s Deed can take several months to be delivered to the new owner, it’s not a risk most title insurance underwriters would take.   We weren’t able to help them.

What’s noteworthy:

1. Both called AFTER they purchased the property, not before
2. Both freely admitted that they really didn’t really know what they were doing when purchasing a property at sheriff’s sale.

Two thoughts:

1. It’s usually at the end of a cycle when neophytes get involved – remember the cab drivers recommending internet stocks?
2. There will be continued pain for distressed properties and neighborhoods as those who are neither experienced in nor ready for the challenges of turning around these properties assume ownership.

Just in case you only read the headlines

The media is reporting a 0.7% increase in pending sales for February.  Sounds great, unless you read the report.  It’s a 0.7% increase in pending sales as compared to January:

The Pending Home Sales Index,* based on contracts signed in February, stood at 109.3 – down 8.5 percent from February 2006 when it reached 119.4, but is 0.7 percent higher than a downwardly revised reading of 108.5 in January.

Everyone in the industry knows that February should be MUCH BETTER than January, not 0.7% better.   The real story is that pending sales are down 8.5% from last year, which was already a bad year. 

This conscious denial of reality by leaders in the RE industry continues – the statistics show that things are getter worse, not stabilizing. 

Anecdotally – I’m seeing things improve slightly, but I’m seeing more “ugly” deals – problems with title, liens, appraisals coming in too low.  From a title perspective the risk is higher and the returns are lower.

Disruption on the Technology Side

IBM has announced that they are entering the market for mortgage processing automation.  Having worked for large system integrators in the past, it tells me several things:

1. IBM has determined that there is a sizeable and mature market to support their entry
2. They feel current vendors are under serving the market
3. They have analyzed the market and decided that it has consolidated or will consolidate into enough large players to support IBM’s sales and marketing model

If IBM is successful and stays in the market it stands to reason they will eventually expand horizontally into all aspects of the RE process, from listings to closings. 

This a traditional disruption of the market, where a large entrant displaces a number of smaller or less efficient competitors.   The title companies have placed considerable emphasis on the automation market for their continued profitability.  This should definitely give them cause for alarm.

Is this a RESPA Issue?

This just in.  The California Bankers Association is offering a discounted/bundled set of closing services through FirstClose.   The highest value/margin product in the offering is Title Insurance.  It only makes sense to discount or offer at cost the other services to attract the title order.

Question:  If discounts are a thing of value, is it a RESPA violation to offer them in conjunction with title insurance?

Thoughts are welcome.

Quality has no value

I’m not sure that quality is a valued or valuable commodity in our business anymore.  In fact, I think doing things correctly is becoming a barrier to success.  

Case in point – last week two different underwriters thanked us for following their guidelines and doing the right thing.  One went so far as to say he would sleep better if all his agents were as diligent. While it feels good to get the pat on the head, it won’t earn us a dime of income.  

But following the guidelines nearly derailed a big deal.  We worried that the loss of the deal would ruin a client relationship and great referral stream. The client has other alternatives – there are too many others who aren’t burdened by a commitment to quality and the law that will step in and take your place.    

More and more getting the deal done is all that matters.  Quality title work and conveyancing have become a problem, not an asset.  It raises issues, delays closings, and kills deals.  

There seems to no longer be a disincentive for title agents who break the rules.  Sure, major fraud lands you sideways with the law, but the minor “oversights” will most likely go undetected.   There is little policing – it’s left to the underwriters.  If you’re caught, the “police” are likely to let you walk away with a warning.   

For the “get the deal done” crowd it makes sense to find someone who is willing to be “flexible” in their approach.  By ‘forgetting” to raise and issue, accepting incomplete or inaccurate information, or simply removing an “old” mortgage or judgment from a title commitment, they win the loyalty of the deal makers.  

Once upon a time it was difficult to find someone with “flexibility.”    Now there are legions standing by with ABAs, and signing agents, and “flexible” practices to help you out.    

Few seem interested in stopping this trend.  Some are even working to institutionalize it. Quality title work is facing extinction.  So are those who believe in it.

Is the foreclousure boom a bust?

Great article on the InmanWiki on the vocabulary of short sales.  We’ve been seeing a handful of short and distressed property sales for several months in the Philadelphia area. 

The deals we are seeing are from novices, not the “professionals/specialists.”  When amateurs get involved it usually marks the end of a cycle, not the beginning. 

Are the pundits wrong, and the coming foreclosure “boom” already coming to an end, or is this somehow different?