Indecent Appraisal
How WaMu cut out the appraisers who were supposed to safeguard its home loans.
Graham Albertini, who now works with Hagar, observed that erosion from the inside. Albertini was a veteran review appraiser—an in-house watchdog—at Home Savings of America, which WaMu absorbed in 1999. At WaMu he was appalled at many of the appraisals that crossed his desk: “In one case at the start I said, ‘Don’t give me any more work by this guy.’ It was fraudulent. One manager acknowledged it and said he’d tried to fire people like that, but HR wouldn’t do it. At WaMu, there was an unwritten rule: Nobody under any circumstances will get fired for incompetence.” And not just at WaMu. “To get fired at a bank as an appraiser, you had to commit a crime against persons. They were afraid of lawsuits, afraid anyone who got fired would claim discrimination.”
Contrary to bank policy, loan officers—front-office salespeople who work for commissions on the mortgages they sell—would plead with appraisers to boost valuations so their loans could close. Often they’d invoke Countrywide Home Loans, the nation’s largest mortgage lender—and the first to implode when the bubble burst—as a pace setter. “It was Countrywide this, Countrywide that,” recalls Albertini. “Loan officers would say, ‘If you don’t approve it, they’ll just go to Countrywide.’” For all that nudging, he never saw them explicitly order appraisers to hit the numbers: “They didn’t need to pressure appraisers. The bad ones just knew they’d be making people happy. They would do whatever they needed to do to come in at the loan amount.”
“At WaMu, there was an unwritten rule: Nobody under any circumstances will get fired for incompetence.”
If they didn’t, they would have to waste time answering questions and demands for “reconsideration of value.” And they would make less money. WaMu pushed appraisers to turn cases around faster—eight review appraisals a day, says Albertini, though it could take a full day to correct (i.e., redo) a bad appraisal. And it rewarded speed with generous productivity bonuses. “I told them you can get quantity or quality, but not both.”
Even resisting the push to speed up, Albertini found that productivity bonuses boosted his income by half. “Others got much more,” he recalls: WaMu appraisers could clear $15,000 a month in Washington during the boom years. “It was frustrating to see the unethical ones making so much more money.” And alarming to see what comps they came up with to justify high loan values and turn files around quickly. “I saw a nonview home in Kent compared to waterfront in Des Moines. Waterfront at Fauntleroy and waterfront in Hunts Point [a much pricier enclave]. Property in Enumclaw and property on Capitol Hill!”
At the same time WaMu and other lenders also sought to save money by automating many appraisals, using algorithms similar to the one employed by the online Zillow service. Hagar has found these computer models fairly accurate for homogeneous areas such as Bellevue’s Eastgate neighborhood. But they fare far worse in less uniform conditions: for new construction, and in older cities like Seattle, where modest and lavish homes are jumbled together. “Zillow is right about half the time and wrong about half the time,” says Hagar. “So is the professional version.” Both rely on data from county assessors, whose practices vary widely—and who rely increasingly on computer modeling themselves.
And finally, starting around 2003, the banks outsourced more and more to appraisal management companies like the one that tried to lowball Barry Wilson in 2004. The initial motive was to cut costs, not necessarily to subvert the appraisal process as charged in the lawsuits. By delegating oversight to the AMCs, WaMu was able to eliminate nearly all its own review appraisers. But that savings came at the cost of experience and quality. The AMCs made their money by shopping appraisals out to the lowest bidders, driving fees that had run $400-plus down to as little as $200 in Washington and a reported $125 in Texas. “It took the educated appraiser out of the field,” says Patrick Lamb, a member of the appraisal firm Wilson now works for. “Younger, inexperienced appraisers who didn’t have a long-term view or a reputation to uphold would fill in.” At the same time, appraisers who’d worked for established appraisal companies could strike out on their own and get work from the AMCs, as long as they delivered the desired results. “They’re isolated—there’s no coworker next to them to say ‘wait a minute’ if something isn’t right,” says Lamb. “It opened the door to abuse.”
And abuse rushed in, buoyed by surging loan volumes and valuations. Barry Wilson missed most of the party; soon after he refused to cut his fee in 2004, Washington Mutual stopped calling. Instead he’s plugged along at slower, steadier work, valuing homes for estates and divorce settlements—where hitting the number isn’t an issue. He’s not sorry. The buzz he’s heard in the trade is that federal and state investigators probing home financing abuses are targeting mortgage brokers first, then loan officers at banks. “Third will be the appraisers.” Clear back in 2005, a Spokane appraiser was sentenced to 18 months in prison for inflating home valuations at the prodding of lenders. The case was exceptional at the time. Now it seems like a bellwether.
Published: January 2009
