Economic Hit Men

In Confessions of an Economic Hit Man, John Perkins told us how international consultants working in concert with the World Bank and IMF go into loan-seeking countries and inflate appraisals to secure large loans with interest which the countries cannot repay because the appraised property is not worth the appraisal value.

This practice is not reserved for destroying foreign countries. It’s destroying the fiber of our own.

[I]n cities around the country, homeowners and investors — unable to afford the homes they bought — are abandoning their properties, marring the neighborhoods they leave behind.

  NPR

Have inflated appraisals helped fuel the surge in foreclosures on credit-strapped borrowers? Are such appraisals at the core of many mortgage-fraud schemes?

The four largest trade groups representing appraisers say yes -- and they are asking federal financial regulators to crack down on lenders and loan officers who put pressure on appraisers to raise valuations to allow overpriced deals to go through.

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National studies repeatedly have shown that commissioned loan officers often demand that appraisers cooperate to hit whatever number is needed to push the transaction to closing -- or lose future business.

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A zero-down mortgage made to unqualified buyers on a house worth thousands less than the appraisal in a depreciating market is a financial cluster bomb waiting to explode.

  WaPo

Well, it's exploding now.

Roughly a year into the subprime mortgage crisis and months after credit markets took a turn for the terrible, the House Financial Services Committee approved a bill late Tuesday increasing government oversight of lenders.

The bipartisan measure requires licensing and registration of mortgage originators. It prevents lenders from steering unwitting borrowers into subprime loans with incentive payments. It establishes a "minimum standard" prohibiting creditors from issuing mortgages unless the borrower can prove they'll repay the loan. And it pre-empts some state laws regarding liability for mortgage securitization.

Nice ideas. But the bill has a dark side: It could prevent people who would normally qualify for mortgages from getting one. How many? It's unknown. In addition, the legislation, if passed, may drastically increase the number of lawsuits surrounding the subprime mortgage industry if borrowers somehow prove lenders steered them into loans they couldn't repay.

  Forbes

And I don't see anything there that says the bill would prohibit inflating appraisals.

But I trust we won't let this crisis take precedence over the much greater crisis of gay marriage.