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FDIC suing LPS (Lender Processing Services) for $154.5 million

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FDIC seal photo by Ryan McFarland

FDIC files suit

The Federal Deposit Insurance Corporation (FDIC) has filed a lawsuit accusing Lender Processing Services Inc. (LPS) of negligence and breaches of contract for which they are demanding a jury trial to recoup $154.5 million in losses on behalf of Washington Mutual Bank (WaMu) of which they are now the receiver.

Fox News describes LPS as a company that “helps mortgage servicers manage home loans and has come under fire for the various problems plaguing mortgage servicers, including cases of false affidavits known as robo-signing.”

WaMu falls, FDIC takes over, now filing lawsuits

In the largest bank failure in American history, WaMu was seized by the FDIC in 2008 which facilitated its sale to JP Morgan Chase. The FDIC maintains receivership of WaMu and has filed a lawsuit demanding a jury trial against LPS, seeking to recover $154,519,071.10.

The FDIC alleges that WaMu suffered this loss “as a direct and proximate result of gross negligence” and repeated breaches of contract.

The lawsuit alleges that WaMu hired LPS subsidiary LSI Appraisal, LLC (LSI) in July 2006 as its appraisal branch, wherein LSI agreed it would “conform to federal and state law, regulatory guidelines and all applicable industry standards, specifically including the Uniform Standards of Professional Appraisal Practice (‘USPAP’)” and that LPI would serve as the “gatekeeper” regarding appraisal services provided and would “insure the competency and qualifications of its appraisers, to conduct meaningful quality control review of the appraisals and to police WaMu’s loan staff and act as an intermediary” between WaMu originators and LSI appraisers. The agreement also required LSI to report any “inappropriate contacts or requests’ by WaMu employees regarding appraisals.

LPS allegedly used unqualified appraisers

The lawsuit further notes that despite the terms outlined above, “at least 220 of the appraisal services LSI provided failed to comply with federal and state law, regulatory guidelines, and USPAP.

Further, the FDIC alleges that LSI “used appraisers who lacked the skill, experience and qualifications necessary to perform the appraisals requested” and that their “quality conrol of the appraisals” was “severely inadequate.”

Bottom line of the allegations

The crux of the allegations is that because the appraisals provided to WaMu were so negligent and “contained substantially inflated appraised values” and subsequently “WaMu would not have made the residential mortgage loans at issue and would not have suffered losses on those loans.”

Why was LPS and Fidelity named in the suit?

LSI and LPS were named alongside Fidelity National Information Services, Inc., LPS Property Tax Solutions, Inc. (fka Fidelity National Tax Services), LSI Title Company and LSI Title Agency, Inc.

“The other named Defendants controlled and directed the actions of LSI” therefore, the lawsuit states that they are “directly liable for the damages resulting from the grossly negligent appraisal services provided by LSI.”

LPS responds to allegations

“LPS contends that the services LSI provided satisfied the terms and conditions of its contract with WAMU and were not performed with gross negligence,” the company said in a recent SEC filing. They also note they believe “that any loan losses are not because of appraisal issues, but are due to the quality of underwriting by WAMU, borrowers defaulting and the weakness of the economy after the loans were made, among other factors.”

Some people note that appraisals don’t make a loan good or bad rather simply satisfy a regulatory requirement. LPS spokeswoman Michelle Kersch has stated, “LPS intends to aggressively defend itself against these allegations.”

Click here for the full FDIC v LSI Appraisal lawsuit.

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15 Comments

15 Comments

  1. Joyce Cauthen

    August 28, 2011 at 12:04 pm

    Well, I do believe that it is absurd that the FDIC is suing for damages to Wamu. Wow!!! In my day, regardless of whether the appraisal was done inhouse, out sourced or in any other manner, it was subject to quality control within the WAmu entity itself. This way Wamu would have had the opportunity to perform due diligence of appraisals no matter who performed them, thus, limiting liability to Wamu and secondly, stopping the practice before it got to the extreme. This is ridiculous.

    What is missing out of the equation is:

    The internal auditors, state auditors, federal auditors, fannie and freddie auditors and the several due diligence divisions such as the internal one at wamu which is a regulatory requirement by the OTC and the FDIC. The regulatory was not minding the store nor were those at Wamu – FDIC needs to step up to the bench and admit that it did not or if it did, when it did, audit the loans on a regular and consistent basis. Even so, if Fannie and Freddie purchased any of those loans, they too, had in place a due diligence division which would have brought this pratice to light. Now, should the LSI pay for some damages, yes, but should the auditors of Wamu, FDIC, OTC and Fannie and Freddie get a pass – certainly not. What I believe was intentional was the practice of these lenders outsourcing such items as appraisals (critical to loan approval) and passing the liability to another entity such as LSI because these entities knew or should have known what was going on. There will be no way to convince anyone in the business that LSA was allowed to get away with this on their own. I hate that, I really do because we need good regulatory, auditing systems and due diligence and it was removed from the spotlight back in 1998 when deregulation came into play. I was not against deregulation, but I was against what the unintended consequences would be of deregulation and friends, this is just one of the places where it made itself known.

    Fannie and Freddie were masters in 1984 through 1990 and the best of the best and never would have allowed this kind of practice to take place. Most people do not realize it, but Fannie and Freddie were the main stay of the mortgage industry and when they began to go along with the rest of the lenders and their violations, etc., this eliminated the one source the industry had for providing affordable home loans to people who could afford to pay and who did not have to resort to the fraud that is now rampant in the industry.

  2. Joyce Cauthen

    August 28, 2011 at 12:31 pm

    And another note of interest, how is it possible that the LPS spokesman could make a statement that the "appraisals" don't make a good loan or a bad loan. Here again, if that loan goes south and it was given a higher value than what it should have had, the lender and the homeowner are going to get hit twice as hard. While it is a regulatory requirement to order an appraisal, the appraisal value must be as solid as it can be and the terms of the loan with regard to LTV are a critical factor in determing LTV, is it not?

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Austin

Austin tops the list of best places to buy a home

When looking to buy a home, taking the long view is important before making such a huge investment – where are the best places to make that commitment?

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Looking at the bigger picture

(REALUOSO.COM) – Let us first express that although we are completely biased about Texas (we’re headquartered here, I personally grew up here), the data is not – Texas is the best. That’s a scientific fact. There’s a running joke in Austin that if there is a list of “best places to [anything],” we’re on it, and the joke causes eye rolls instead of humility (we’re sore winners and sore losers in this town).

That said, SelfStorage.com dug into the data and determined that the top 12 places to buy a home are currently Texas and North Carolina (and Portland, I guess you’re okay too or whatever).

They examined the nerdiest of numbers from the compound annual growth rate in inflation-adjusted GDP to cost premium, affordability, taxes, job growth, and housing availability.

“Buying a house is a big decision and a big commitment,” the company notes. “Although U.S. home prices have risen in the long term, the last decade has shown that path is sometimes full of twists, turns, dizzying heights and steep, abrupt falls. Today, home prices are stabilizing and increasing in most areas of the U.S.”

Click here to continue reading the list of the 12 best places to buy a home…

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Housing News

Average age of houses on the rise, so is it now better or worse to buy new?

With aging housing in America, are first-time buyers better off buying new or existing homes? The average age of a home is rising, as is the price of new housing, so a shift could be upon us.

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aging housing inventory

The average home age is higher than ever

(REALUOSO.COM) – In a survey from the Department of Housing and Urban Development American Housing Survey (AHS), the median age of homes in the United States was 35 years old. In Texas, homes are a bit younger with the median age between 19 – 29 years. The northeast has the oldest homes, with the median age between 50 – 61 years. In 1985, the median age of a home was only 23 years.

With more houses around 40 years old, the National Association of Realtors asserts that homeowners will have to undertake remodeling and renovation projects before selling unless the home is sold as-is, in which case the buyer will be responsible to update their new residence. Even homeowners who aren’t selling will need to consider remodeling for structural and aesthetic reasons.

Prices of new homes on the rise

Newer homes cost more than they used to. The price differential between new homes and older homes has increased from 10 percent traditionally to around 37 percent in 2014. This is due to rising construction costs, scarcity of lots, and a low inventory of new homes that doesn’t meet the demand.

Click here to continue reading this story…

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Housing News

Are Realtors the real loser in the fight between Zillow Group and Move, Inc.?

The last year has been one of dramatic and rapid change in the real estate tech sector, but Realtors are vulnerable, and we’re worried.

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zillow move

zillow move

Why Realtors are vulnerable to these rapid changes

(REALUOSO.COM) – Corporate warfare demands headlines in every industry, but in the real estate tech sector, a storm has been brewing for years, which in the last year has come to a head. Zillow Group and Move, Inc. (which is owned by News Corp. and operates ListHub, Realtor.com, TopProducer, and other brands) have been competing for a decade now, and the race has appeared to be an aggressive yet polite boxing match. Last year, the gloves came off, and now, they’ve drawn swords and appear to want blood.

Note: We’ll let you decide which company plays which role in the image above.

So how then, does any of this make Realtors the victims of this sword fight? Let’s get everyone up to speed, and then we’ll discuss.

1. Zillow poaches top talent, Move/NAR sues

It all started last year when the gloves came off – Move’s Chief Strategy Officer (who was also Realtor.com’s President), Errol Samuelson jumped ship and joined Zillow on the same day he phoned in his resignation without notice. He left under questionable circumstances, which has led to a lengthy legal battle (wherein Move and NAR have sued Zillow and Samuelson over allegations of breach of contract, breach of fiduciary duty, and misappropriation of trade secrets), with the most recent motion being for contempt, which a judge granted to Move/NAR after the mysterious “Samuelson Memo” surfaced.

Salt was added to the wound when Move awarded Samuelson’s job to Move veteran, Curt Beardsley, who days after Samuelson left, also defected to Zillow. This too led to a lawsuit, with allegations including breach of contract, violation of corporations code, illegal dumping of stocks, and Move has sought restitution. These charges are extremely serious, but demanded slightly less attention than the ongoing lawsuit against Samuelson.

2. Two major media brands emerge

Last fall, the News Corp. acquisition of Move, Inc. was given the green light by the feds, and this month, Zillow finalized their acquisition of Trulia.

…Click here to continue reading this story…

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