[lets-retire]

Quote:

Originally Posted by emilylynn How about the lenders who knowingly inflated borrowers' qualifications, who obtained overblown appraisals, and who intentionally assumed risks that never would have been deemed commercially reasonable had it not been for the fact that these loans were destined for the securitization pipeline?

1) The lenders and the government have policies to prevent issue number one. Several banks have been put on probation for proven issues. While on probation these banks must endure extensive audits by the government. If there are any errors the probation remains. Only when a bank successfully passes an audit without any errors is it allowed to resume normal operations. Unless the borrower is getting a "liar loan" all items are scrutinized very well. If an originator purposely overstates a borrowers qualifications they can be liable for several legal and civil repercussions.

2) Overblown appraisals are VERY difficult to prove. The appraisers are held to a standard and if they are caught willingly producing an inaccurate appraisal they can be held liable and can lose their license. Since appraisals are essentially one person's estimate they are like filling out your taxes. One appraiser might come in at X dollars while another comes in at Y dollars and both are correct. The people reviewing the appraisals might be able to see inconsistencies in them and send them back for corrections, but other than that they are not appraisers and short of glaring inaccuracies can not outright say the appraisal is wrong.

3) ANY loan sold to an investor must meet the investor guidelines. If it does not the loan goes back to bank granting the loan for servicing. Yes the loans are sold in groups, however each loan is entered into the investors' system and is reviewed at that time.