Greedy appraisers, who put lofty valuations on properties to please lenders and line their pockets, played a large role in the housing bubble. And the fallout continues: On Jan. 29, a former Beverly Hills real estate appraiser was sentenced to three years in federal prison for her role in a multimillion-dollar scheme to profit from inflated property values. That came on the heels of the arrest of a father and son appraiser team in Laguna Beach, CA charged with altering appraisals to inflate home values by up to $40,000.

In fact, a closer look at the industry and its scandals reveals a “Godfather”-like underbelly, complete with death threats on public officials and sting operations.

The conflicts have led to the increasing use of appraisal management companies — middlemen that are supposed to act as a firewall between lenders and appraisers. But for millions of homeowners, the issues still linger.

Just ask the owners of the quaint, but extremely moldy Denver home that apparently appraised for about $370,000, despite comps suggesting a value at least $100,000 less. The 2-bedroom home ultimately sold last summer for $237,000.

How did that happen?

Some of the cases working their way through the courts give a glimpse of the back-door dealing that went on. Landmark Equities Group, the family-owned appraisal firm being charged by the California DA, for example, brazenly had an on-site office at a mortgage broker’s facility. The appraisers, James Merritt Eaton, 60, and his son Brian Chandler Eaton, 28, secretly changed data on staff appraisers’ reports, allegedly to deliver the outcome the loan officers wanted.

In the case of eAppraiseIT LLC, a division of title company First American Corp., New York State Attorney General Andrew Cuomo charged that the unit gave in to demands for higher appraisals to secure more of Washington Mutual’s business. In 2006 and 2007, the appraiser did 262,000 valuations for Washington Mutual over an 18-month period, and had a total $50 million in earnings, Bloomberg News reported.

Now, that’s not to say all appraisers are corrupt. In fact, 11,000 of them signed a petition protesting the pressure and unethical practices. But the bad apples have given the whole profession a black eye.

Thanks in large part to Cuomo, Freddie Mac and Fannie Mae last year adopted the “Home Valuation Code of Conduct” to counter such abuse. The code says that appraisal management companies, which are paid by the lender out of the appraisal fees collected, must act as a liaison to keep appraisers and lenders from having direct contact on Fannie and Freddie-backed loans.

Needless to say, not everyone is pleased. In one extreme case, an appraiser was arrested and held on $500 million bail in December after allegedly threatening to shoot New York AG Cuomo. The man was “apparently upset over some of the actions office has taken regarding cracking down on mortgage-related fraud,” the New York Post reported.

(It should be noted that some believe that Cuomo, former HUD secretary under President Clinton, was largely responsible for the subprime mortgage crisis. And in 2004, he joined the board of AMCO, a Cleveland-based appraisal management company).

Some say the appraisal management companies (AMCs) may only make things worse, after all, some of them are owned by banks. (Landsafe, an AMC, is a subsidiary of Bank of America). The well-known New York appraiser Jonathan Miller, CEO of Miller Samuel, calls it all “an accident waiting to happen.”

Although the HVCC is intended to ward against improprieties, it is not fail safe. In fact, the code still allows banks to be involved in the appraisal process. For one, lenders can still use in-house appraisers, and are “responsible for selecting, retaining, and providing for payment of all compensation to appraisers.” It’s right in the guidelines on Freddie Mac’s website, with the caveat that the loan production staff is not to have direct involvement in the selection of an appraiser or discuss valuation with the appraiser or AMC.

The biggest concern is that the use of AMCs opens the door to appraisals being conducted by far-flung appraisers unfamiliar with the local market, which in turn will cause more erratic valuations.

“The problem is that anybody with a state-issued appraisal license has the exact same level of qualification to appraise here, whether they live in New York or Buffalo or Albany or Rockland County,” Jeffrey Jackson, co-founder of New York-based appraisal firm Mitchell, Maxwell & Jackson, told The Real Deal after the code was passed last spring.

“The appraiser is just the first step in the process, yet we are taking all the blame,” Portland-area appraiser Burr Robson told HousingWatch. “I had the same clients for literally 15 years until HVCC. I now have to fight for appraisal work from AMCs, and my income has fallen 67%. I am worried that I’m going to have to sell my house.”

And there’s a new concern for some homeowners and lenders: low-ball appraisals.

Walt Molony, spokesman for The National Association of Realtors, one of the most vocal critics of the code, said out-of-area appraisers often lead to “apples to oranges” comparisons, resulting in many valuations coming in below the price agreed upon between the buyer and seller. “In an environment where prices have declined over the past three years, this is absurd,” huffs Molony. “It has caused a rise in contract cancellations — not exactly the best way to solve the problem, particularly when homes are selling for less than replacement construction costs in much of the country.”

In the end, there will always be the temptation to give in to pressure to win repeat appraisal business — even if the pressure may not come in the form of a severed horse’s head under the bed sheets. It might be something as simple as the boss of a New York appraisal management company — let’s name him “Don CordeLoan” — saying, “I’m gonna make him an offer he can’t refuse.” In essence, work for us, our way, or don’t work at all.

Some industry watchers say appraisers should be better regulated, but setting up appraisal management companies as the intermediary has the potential of re-creating the same problem we’re trying to escape. As Michael Corleone once mulled: “If history has taught us anything…”
By Sheree R Curry

This is just another avenue of down payment assistance programs that are available to home buyers.
By Michael Mishak, Las Vegas Sun

Three years ago, as the Culinary Union sat down with Las Vegas casino companies for a new round of contract talks, labor leaders sought to preserve the city’s identity as a worker’s paradise, the place where a housekeeper owns a home. Part of the Las Vegas dream had always been homeownership — and the housing bubble, driven by subprime mortgages and real estate speculation, was pushing that core promise out of reach for many of the union’s rank-and-file members. The median sale price for a single-family home in 2007 topped $300,000.

So the union asked the casino companies to chip in to a fund that would help its workers buy homes. Three years later, nearly 200 families have used about $1.1 million in down-payment assistance to purchase homes. The program, a joint partnership with a matching grant from the state, has leveraged $24.3 million in home sales throughout Southern Nevada.

Under the program, members can get up to $20,000 in down-payment assistance but must first qualify for a mortgage, contribute 1 percent of the purchase price and complete an eight-hour homebuyer education course. Borrowers must repay the down-payment loan when the home is sold or refinanced. Today, half of the trust fund, or about $1 million, remains.

To be sure, the recession has rocked the union, which has lost roughly 10 percent of its members to layoffs and hour reductions. But tumbling home values and access to the loans has created opportunity for 197 families over the past year, with the program seeing big demand in the last quarter of 2009.
These first-time homebuyers are a rare bright spot in Nevada’s battered economy. Below, four of their stories:

Carla Henderson, 48: Booth cashier, Paris Las Vegas
Carla Henderson and her husband moved to Las Vegas from Kansas City 25 years ago. They raised a family on casino jobs and had dreams of starting their own mom-and-pop restaurant.
But life had other plans. They ended up with custody of their three grandchildren, making home a rented condo near UNLV. Over the years, Henderson watched their neighborhood decline and feared for her grandkids’ safety. When the complex saw a rash of shootings, the Hendersons went house shopping.
They sought financial counseling through a nonprofit but their paperwork was going nowhere. Enter the Culinary’s housing program. After taking an eight-hour class, Henderson had her sights on a house. Apparently, so did a group of vandals. They broke in, smashed holes in the walls and destroyed the toilets, sinks and bathtubs. Total damages: $80,000.
Henderson found another house and, with the help of the down-payment loan, closed on the deal last spring. “That was always the obstacle for me,” she said. “I had good credit, good work history. I just didn’t have the lump sum to put down. That was keeping the dream from coming true.”
Shortly after moving in, she had her first house party — and invited her loan officer, home inspector and real estate agent. Her grandchildren — ages 9, 11 and 12 — love the place. Her husband has planted fruit trees and the couple are busy on a variety of improvement projects.
“I have never been more ecstatic,” Henderson said. “It’s that security, to be able to say, ‘This is the foundation. This is mine.’ ”
Still, there’s guilt, especially when she thinks of her troubled co-workers.
“I’m happy, but in the back of my mind, in order for me to have my happiness means somebody else lost theirs,” she said. “And there’s a part of me that feels bad because my happiness came about as a result of somebody else’s misfortune.
“But I worked hard and the opportunity presented itself. I’ve put down roots now. I’m not moving. I’m not selling. This is it.”

Minjia Li, 26: Bus person, Japonais, at the Mirage
Minjia Li came to Las Vegas from China a decade ago.
He graduated from Clark High School and pursued a degree in electrical engineering at UNLV, supporting himself with a bus job at Japonais in the Mirage. Li interrupted his studies to return to Shanghai to get married. He and his wife came to Las Vegas to start a life together, but a house seemed out of reach.
“The market was crazy,” Li said. “I thought I would never purchase a home in my life.”
Then the recession hit and sliding property values prompted them to start looking. Still, real estate agents wouldn’t return their calls. The home-buying education class at the Culinary Training Academy changed that. Officials even helped him navigate the bureaucracy of verifying money his relatives had sent from China to help with the purchase.
Li and his wife moved into their four-bedroom house, complete with three-car garage, in July.
“I do believe that people deserve the right home and it takes efforts from everyone — the right Realtor, the right financing,” he said. “This is a total achievement of the American dream. For you to be settled and grow in America, to feel you are a real American, you need a home.”
He was so inspired by the experience that he got his own Realtor’s license and has sold four homes. Still, Li said, the banks need to loosen credit for working families.
“The banks aren’t helping the people that need to be helped,” he said. “They are looking for cash purchases and the easy deals. Investors are taking advantage of that. When we see the right people can’t get the right help, there’s a lot of frustration.”

Juan Exposito, 55: Room service server, Harrah’s
Juan Exposito (wife Milagro is also pictured) moved to Las Vegas from Los Angeles in 1997. He got a job working room service at Harrah’s and moved his family into a rental home in Summerlin. A few years later, he considered buying a home but the prices had skyrocketed. Rent was far cheaper than a mortgage.
“It felt like California,” he said. “We didn’t have a chance to buy a house.”
When home values tumbled, Exposito went on the hunt. He looked at 50 homes over the past year before settling on a four-bedroom home. His limit was $200,000. He got his dream house for $170,000. His neighbor, he said, paid $450,000 at the height of the bubble. Today, Exposito’s mortgage payment is $200 cheaper than the rent he used to pay.
“It’s like it came from the sky to us,” he said. “It’s what people call the American dream, to find this type of house for the price I got it. It’s unbeatable.”
Asked about his house, Exposito gushes: “It’s 2,400 square feet, living room, dining room, huge kitchen, family room, guest room with full bath.”
Still, the recession has taken its toll. Harrah’s reduced Exposito’s hours, so he works an additional shift at Red Rock to round out a 40-hour week. His tips are also down dramatically, from around $300 a night in the go-go years to $100 now. Nevertheless, Exposito is glad to be working.
The house, he said, provides stability.
“I’m happy,” he said. “I feel safe.”

Erika Pabst, 67, & Judy Hahn, 49: Retired food server, Binion’s & Hostess, Hugo’s Cellar, at the Four Queens
Erika Pabst and Judy Hahn met when they served tables at Binion’s two decades ago. Pabst, a former flight attendant from New York, and Hahn, a Vegas transplant from Washington, struck up a friendship and decided to become roommates, renting a spacious three-bedroom apartment.
After years of apartment living, they had talked about buying a house but prices were too high. When the Culinary announced its housing program, Pabst and Hahn jumped at the opportunity. The down-payment loan was crucial, as was the education program, which walked them through each step of the purchase.
They settled on a four-bedroom house with a view of Sunrise Mountain.
Four years ago the asking price was $279,000. Pabst and Hahn paid $124,000.
Compared to some of their co-workers, they said they had it easy.
“I’ve heard horror stories,” Hahn said. “Someone finds a house, puts in a bid and then an investor outbids them. It’s been hard for people to even find a house.”
In October, Pabst and Hahn moved in and have been busy painting and laying tile. After 21 years of serving at Binion’s, Pabst was laid off last May.
She’s collecting her pension and Social Security and looking forward to volunteering for her friend’s judicial campaign.
“We are kind of overwhelmed with all the space we have,” Pabst said. “We’re loving it.”