Pipeline

Rough Appraisal

The Federal Deposit Insurance Corp. has accused Lender Processing Services Inc. of Jacksonville, Fla., and CoreLogic Inc. of Santa Ana, Calif., of causing $283.5 million of damages to the former Washington Mutual Inc. for failing to provide oversight of appraisal.

The agency filed a 118-page suit Tuesday against LPS for $154.5 million that says 220 appraisals performed between 2006 and 2008 contained "multiple egregious violations" of industry standards, while less than 4% conformed with professional appraisal standards.

An LPS subsidiary, LSI Appraisal LLC, engaged in improper licensing of appraisers, failed to perform site visits, used improper or unsupported comparisons of properties, failed to take into account declining housing prices and tied compensation or employment to appraisal results, according to the suit.

The FDIC, as the receiver of Washington Mutual, alleges that the losses "were a direct and proximate result" of work done by LPS.

In a filing with the Securities and Exchange Commission on Tuesday, LPS responded to the allegations, claiming that other entities provided the full appraisals on 75% of the appraisals reviewed by the FDIC.

LPS said in the filing that it "believes 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."

The FDIC filed a separate suit Tuesday that seeks $129 million from CoreLogic, claiming it found negligence in Corelogic's eAppraiseIT unit after a review of 194 appraisals performed in 2006 and 2007. CoreLogic said in an SEC filing that 85% of the loans cited by the FDIC involved "desk reviews" that do not require an interior or exterior inspection by the reviewer, and that desk reviews "are more limited in scope than full appraisals."

Refi Redlining?

A new report, "Paying More for The American Dream V," by a group of nonprofit housing advocacy organizations, finds evidence that banks may be engaging in redlining on refinance loans in communities of color.

The report studied seven cities across the country and found that in 2009, conventional refinance loans to homeowners in predominantly white neighborhoods increased by an average of 129%, while those in communities of color decreased by an average of 17%.

The housing advocacy groups that authored the report say that their findings may point to possible violations of the Community Reinvestment Act and consumer protection laws. "We cannot say what percentage of people who got denied really should have gotten loans," said Kevin Stein, associate director of the California Reinvestment Coalition. "But we know that the numbers are such that it raises a red flag that it should be looked into as to whether banks are doing all that they can do."

One of the major challenges to finding answers as to why people of color are being denied credit is that there is not enough data available, and the report calls on the federal government to implement the provision of the Dodd-Frank Act that would lead to an examination of loan level data.