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Mortgage Crisis Watch Business and legal issues affecting: loan repurchases | mortgage-backed securities | mortgage insurance

Inaccurate Appraisals: Weakest Buy-Back Demand

Misrepresentation?

We have long held the view that investors’ buy-back demands based on allegedly inaccurate appraisals are about the weakest type of buy-back demand imaginable.

Think about it: the two fundamental components of such a demand are that the loan originator made a “misrepresentation,” and that the misrepresentation concerned the appraised value of the property being obtained with the mortgage loan.

What is a “misrepresentation”? It is generally a more polite way of saying that the originator lied — or at least that the originator was reckless and inaccurate in representing and warranting that the appraisal appeared to be appropriate.

Fact vs Opinion

And what is an “appraisal”? It is nothing more than an opinion (as Bank of America has recognized and stated publicly when suing a mortgage insurer).

So let’s put those two fundamental concepts together. The essence of an appraisal-based loan repurchase claim, therefore, is that the originator “misrepresented” (i.e., lied about) an OPINION.

All of us can understand how a FACT might be misrepresented, but how exactly does someone misrepresent an OPINION?

No Basis for a Repurchase Claim

If the loan purchaser wants to come back to one of our clients and demonstrate that the client somehow falsified an appraiser’s actual opinion (doctoring the paperwork to show an appraised value over and above what the appraiser actually concluded, for example), we are happy to have that discussion — but that’s never what the investor is actually claiming, in our experience.

Instead, the claim is that the appraiser’s opinion was somehow incorrect, and that the originator therefore allegedly “breached” the loan purchase agreement by submitting with the loan file an appraisal containing that supposedly inaccurate OPINION.

We hope that no originator will ever feel inspired to open up its wallet in response to a buy-back claim that is based simply on an investor’s opinion that an appraiser’s opinion, given years ago, was inaccurate. Solid facts, not mere conflicting opinions, must be the starting point for a potential repurchase.