Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Analyst: WaMu Could Face Flood of Repurchases if First American Suit Succeeds
by Paul Jackson
November 2, 2007
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The lawsuit that’s got everyone buzzing in the industry — that would be NY AG Andrew Cuomo’s allegation that First American unit eAppraiseIT caved to pressure from WaMu and inflated appraisals — could have some serious repercussions for Washington Mutual should Cuomo succeed, according to a story on MarketWatch.

An analyst at Keefe Bruyette & Woods has estimated that WaMu’s repurchase exposure could run into the billions:

Washington Mutual may have to set aside some $412 million to $2.1 billion in extra reserves if a lawsuit filed by New York state’s attorney general against the mortgage lender succeeds, a Keefe Bruyette & Woods analyst estimated on Friday …

The lawsuit filed by Cuomo “raises an issue of considerable risk to Washington Mutual: that poorly performing securitized loans will be put back to WaMu from bondholders on the basis of fraudulent appraisals and WaMu would be forced to put bad loans back on its balance sheet,” Cannon said.
“In such a scenario, WaMu would have to buy the loans back at par and then mark them to market on its balance sheet.”

Cannon also questioned WaMu’s assertion that it has no incentive to inflate the appraised value of homes that it lends against.

HW readers in the industry know that lenders make representations and warranties on loans they sell into the secondary market; a common rep is that appraisals are free from fraud. Theoretically, then, an admission of appraisal inflation would put WaMu in an uncomfortable position.

I personally think it’s debatable that this case would escalate to a point where First American or eAppraiseIT would be saddled with culpability — the worst-case outlook here would seem to me to be a settlement without admission of wrong-doing where First American gets hit in the pocketbook and Cuomo gets to issue a press release about how he stuck it to the man.

That being said, First American’s remarks to the press on the matter suggest the title insurer is gearing up for a head-to-head fight here, so who knows?

The analyst’s math found that WaMu may need to repurchase $33 billion in mortgage loans covering volume associated with eAppraiseIT, equating to a need for additional reserves of $412 million. The analyst also noted a doomsday scenario where the alleged inflation practice was systemic to all lending at WaMu — which would require an estimated $2.1 billion in reserves associated with loan repurchases.

(The analyst noted the numbers were “premature” — although if that were the case, I’m not sure why they’d be put out there in public view.)
 
WaMu vulnerable on securitized mortgages?
Likely to set aside extra reserves if appraisals found fraudulent: analyst
By Alistair Barr, MarketWatch
Last Update: 12:33 PM ET Nov 2, 2007
SAN FRANCISCO (MarketWatch) -- Washington Mutual may have to set aside some $412 million to $2.1 billion in extra reserves if a lawsuit filed by New York state's attorney general against the mortgage lender succeeds, a Keefe Bruyette & Woods analyst estimated on Friday.

Attorney General Andrew Cuomo announced the suit on Thursday, alleging that First American Corp. (FAF) and its eAppraiseIT unit had been "colluding" with Washington Mutual (WM) , also known as WaMu, to inflate the appraisal value of homes. See full story.

WaMu suspended its relationship with eAppraiseIT and said it has no incentive to have appraisers inflate home values. First American said the complaint "has no foundation in fact or law."

If Cuomo succeeds in proving eAppraiseIT's appraisals on WaMu home loans were fraudulent, that could create big problems for the Seattle-based lender, KBW's Frederick Cannon wrote in a note to clients.

After lenders like WaMu originate home loans, they are often packaged up into mortgage-backed securities and sold to institutional investors around the world. The process gets the loans off the lenders' books, freeing them from the risk that those loans may default and also providing fresh cash to make more new mortgages.

But if parts of the origination process are found to be fraudulent, investors can potentially force lenders to buy the mortgages back at the original price. If the assets have suffered delinquencies and have dropped in value, the lender takes a financial hit.

Shares of WaMu sank more than 6% to stand at $24.16 in midday trading, adding to big declines from Thursday. Meanwhile, First American shares traded down more than 1% at $30.09 after climbing in the Thursday session, leaving them roughly unchanged since the suit was filed.

'Considerable risk'
The lawsuit filed by Cuomo "raises an issue of considerable risk to Washington Mutual: that poorly performing securitized loans will be put back to WaMu from bondholders on the basis of fraudulent appraisals and WaMu would be forced to put bad loans back on its balance sheet," Cannon said.

"In such a scenario, WaMu would have to buy the loans back at par and then mark them to market on its balance sheet."

Cannon also questioned WaMu's assertion that it has no incentive to inflate the appraised value of homes that it lends against.

For mortgages that the company originates and then keeps on its balance sheet, the assertion is valid. But for home loans that WaMu sells as mortgage-backed securities, such an argument can be dubious, he said.

"For loans that a bank plans to sell, high appraisals support a greater amount of loans that can be sold, and loan officers are generally paid on volume," Cannon explained.

"Further, if a mortgage loan is sold it is generally accepted by the lender that they have passed on the default risk to the security holder," he added. "Therefore, it would seem that there indeed could be an incentive for loan officers and the bank to push for inflated home values in the case of sold loans."

Cuomo's suit claims that eAppraiseIT provided appraisals or appraisal reviews on roughly 262,000 properties for WaMu between April 2006 and October 2007. If the average loan size was $200,000 to $300,000, this would account for between $52.4 billion and $78.6 billion of loans, Cannon estimated.

During the period in question excluding October 2007, WaMu originated $275.4 billion of real-estate loans, selling $172.5 billion as mortgage-backed securities. As a result, the loans appraised by eAppraiseIT could account for 19% to 29% of loan production, the analyst wrote.

The value of mortgages that could be "put back" to WaMu may be about $33 billion, Cannon estimated. That may require additional reserves of $412 million, or the equivalent of 30 cents a share, he said.

In a worst-case scenario -- in which inflated appraisals were systemic throughout WaMu -- the lender might need to set aside an extra $2.1 billion, or $1.57 a share, of reserves, he added.

"Although we attempt to put this issue in perspective with these numbers, the issue is far too premature to include any estimated expense in our earnings estimates," Cannon cautioned.

Alistair Barr is a reporter for MarketWatch in San Francisco.
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Stephen

Let's hope so.  Wamu and all the other racketeers need to learn this isn't the wild, wild west.  They thought they had bought off ALL the politicians.  Guess they missed a few.

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So what about the home owner? What if loans by other lenders used First America with an inflated appraisal.

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Nye Lavalle
Get a lawyer and rescind your mortgage and SUE, SUE, SUE!!!
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My moment has arrived. My mortgage has every aspect of fraud! fraud! fraud! It touched everything from broker, realtor, appraisal fraud. Servicing fraud with double insurance, pushed into foreclosure and Bankruptcy. I am losing 2 homes! Anyone know a good lawyer. My appraisal fraud is pretty solid.
Thanks for this web site, a lot of good information!
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I have not been foreclosed on yet, no notices, it has been a long long time. I think the note is in outer space somewhere. We started BK but put it on hold when we seen some agencies are realizing homeowners are not the blame for the whole sub prime mess.
Primary home is in NJ, the problem home is in Florida.
I can guess what a Rooker Feldman issue is, but not sure exactly
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I am not at all surprised!

They were in total coercion with Litton stealing my deceased relatives home bypassing the family.  WAMU, also circumvented Probate Estate law and illegally broke locks removing whole contents of household without a court order, sheriffs office and/or family's permission.

Also, WAMU refused to turn over his loan file documents to me, as next of kin.  So nothing they do would shock me. 
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HERE IS ANOTHER CONNECTION TO MILWAUKEE, MGIC, WASHINGTON MUTUAL, CBASS AND LITTON LOAN.  mmmm I just wonder why Milwaukee has all these I wonder,

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You are so right on Gary!

Did you get the documents, I emailed you last night!
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Lynn that's common for WaMu they vandalize the home and claim it has been abandoned by the owner that allows them to gain a non-judicial foreclosure and bypass the whole foreclosure process and redemption period.

WaMU's Homside division got kicked out of Illinois for this reason among others.

Ameriquest has been known to do this as well our own Dianne observed an Ameriquest break-in and called the police.
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