Long time readers are familiar with my fascination with antique sports cars. One of my pals, Jan, is a well known Porsche collector who is also affiliated with the International Automotive Appraisers Association (IAAA). Its a hobby for him, and he specializes in the rehabilitation and appraisal of antique sports cars. He has rebuilt and appraised everything from celebrity Bugattis to classic Ferraris to modern supercars.
I call Jan "landed gentry" — he’s owned a major car rental firm (sold it), develops real estate, buys/sells land and houses. He is quasi-retired, leaving him plenty of time to play with his many fine automobiles — and for us to discuss the housing market collapse.
Amongst our many discussions, we have gone over the issue of housing appraisal fraud. So when the IAAA newsletter sent out the tale (below) to its members as a warning against fraud, conflict of interest, and corruption, it got his attention — and he forwarded it to me. His comments were: "This is even worse than the nightmare of corruption you described."
Let me hasten to add that many appraisers were offended by the corruption of colleagues in their industry, especially those greased by the worst elements among mortgage brokers and real estate agents. In 2005, more than 8,000 appraisers — roughly 10 percent of the industry — signed a petition asking the federal government to take action; the White House and Federal agencies demurred, and appraisal fraud continued unabated. Eventually, Phony and Fraudy cut a deal with NYS AG Cuomo to stop enabling the appraisal fraud.
Which brings us to the now defunct Indy Mac, and the below diatribe about the criminality, corruption, and rampant appraisal fraud that was the CountryWide spinoff’s stock in trade.
Martin was the chief commercial appraiser for Indy Mac from October 15, 2001, to when he was terminated six months later for failing to look the other way or actively engage in fraud. Most of the details below are culled from the public record of his wrongful termination litigation, which was eventually settled in Martin’s favor.
My quick overview of the conflicts, fraud, and criminality at Indy Mac —
• Underwriting loans based on appraised values well above purchase prices;
• Fabricating rent rolls for commercial properties to be appraised;
• Over-stating Construction work as 80% complete versus 15% in actuality;
• Attempting to change discounted cash flow models for subdivisions in order to increase appraised value;
• Attempted intimidation of Appraisers;
• Providing false information to appraisers;
Conflict of interests:
• Appraising a development where the land was being purchasing from David Loeb, IndyMac’s Chairman of the Board;
• On one transaction, the CEO’s father and father-in-law were
commercial construction inspectors for the firm; the loan officer was
the CEO’s brother (a former police officer with no loan experience);
That’s just the overview.
Amazingly, these events took place before the enormous Housing and Construction boom from 2003-06. One is left to imagine just how insane the place must have been during that period. I’d love to find the details, and given the enormous lending losses — $8B and counting — we can only begin to imagine what sort of rampant fraud took place. I hope the FDIC releases a full report of their investigation of the collapse of Indy Mac. (Gee, I wonder how Senator Schumer caused THOSE problems back in 2001? CNBC should know better than to publish trash such as this.)
You really need to read the entire piece to get a feel as to just how much of a criminal enterprise Indy Mac was before it went under.Is it any surprise the entire firm, and not just any individuals, are under FBI investigation for Fraud?
These things have a tendency to disappear, so I am capturing a PDF and the text (after the jump) in case it somehow vanishes.
Idiots Fiddle While Rome Burns (July 2008)
My experience at IndyMac
Vernon Martin, Certified General Appraiser
Appraiser’s Forum, 07-14-2008, 12:41 AM
Appraisal fraud: your home at risk
Appraisers say they’re being pressured by lenders to inflate their estimates of home values
CNN/Money June 2, 2005: 9:56 AM EDT
Fannie Mae, Freddie Mac agree to new appraisal standards
L.A. Times, March 04, 2008
My experience at IndyMac- General Real Estate, Mortgage, and Economic Discussions – Appraisers Forum PDF Download my_experience_at_indymac.pdf
IndyMac fraud probe launched; FBI looking into firm, not individuals
Lara Jakes Jordan, The Associated Press 07/16/2008 09:08:13 PM PDT
Certified General Appraiser
My experience at IndyMac
I’ve shared some tidbits with you in the last month about my
experience at IndyMac as their chief commercial appraiser from October
2001 to the end of March 2002. Now that IndyMac has been seized by FDIC
and their legal staff presumably unemployed, I will tell the rest of
the story. Some people tell me that it must have been hell for me, but
I look back on it as an adventure, like sailing into the “Perfect
Storm”, a perfect storm of corruption and incompetence, and living to
tell about it.
I first became acquainted with IndyMac through OTS appraisal
examiner Darryl Washington, MAI. Darryl used to examine my appraisal
department each year when at Home Savings of America, which was
acquired by WAMU in 1998. During the summer of 2001, I had a chance
encounter with him at a jazz concert. I asked him what he had been up
to, and he told me that he had just completed the first examination of
IndyMac Bank, which had just received its savings and loan charter only
a year before. He said, “Vern, they could use a guy like you.”
Several weeks later I saw the chief commercial appraiser position
for IndyMac Bank posted on Monster.com. I responded with a cover letter
that started with “Darryl Washington of the OTS suggested that I
contact you….” Apparently, that was the right way to start the letter.
IMB’s chief credit officer called me soon, asking “do you know Darryl
Washington?’ I said “Yes, he examined my department annually at Home
Savings.” His next question was “Do you know how to deal with him?” I
assured the chief credit officer that I was used to dealing with the
OTS and Darryl and that I could get IMB into compliance with OTS
After 3 interviews, IMB wanted me to start right away, because the
OTS was returning in November. I started on 10/15/01 and had a month to
familiarize myself with their commercial lending practices until the
OTS showed up.
At the end of my first week, there was an urgent need to field
review an appraisal of a subdivision in the Sacramento area. I went up
there on the weekend, but also took along some other recent appraisal
reports from the Sacramento area. One of the other appraisal reports
concerned me. A residential subdivision had been appraised as “80%
complete”, but when I visited it, it had only been rough-graded,
probably no more than 15% complete. When I returned to the office on
Monday I asked who the construction inspector was for that region. I
was told that there were two inspectors for the Sacramento area; one
was CEO Mike Perry’s father and the other one was Mike Perry’s
father-in-law. The loan officer on the deal was Mike Perry’s younger
brother, Roger, who had recently been hired. His previous experience
had been as a cop. Thereafter I heard of favoritism towards relatives
of Mike Perry and “FOMs”, and the chief credit officer advised me to
take special care of Mike Perry’s brother. (“FOM” was IndyMac jargon
for “Friend of Mike”.)
I reported my Sacramento findings in a private memo to the chief
credit officer, who then distributed it to the senior managers at the
construction lending subsidiary known as the Construction Lending
Corporation of America (CLCA). The senior credit officer from CLCA, the
manager who most resembled Tony Soprano, was the one to call me. He
asked “Are you sure you saw what you said you saw?” in a rather
chilling manner. He said he had been on site with Roger Perry and had
seen things differently. After that call, I asked the chief credit
officer why CLCA’s senior credit officer would want me to recant my
report. He told me that the senior credit officer received sales
commissions for every loan made, which seemed to me like a blatant
conflict of interest.
All appraisals were ordered by the loan officers from a list of
approved appraisers maintained by LandAmerica. I was not allowed to
order appraisals, but I recognized many names on the LandAmerica list
as well known, reputable appraisers. What I began to observe, however,
was that loan officers were learning which appraisers were more
“flexible” than others. My areas of concern were extraordinary
assumptions, lack of feasibility analysis, and false information given
As an example, I read an appraisal of a vacant, former Costco
warehouse which had been purchased for $2 million several months
before, but was appraised for $17 million based on a fabricated rent
roll composed of tenants that had never signed a lease or a letter of
intent. Only one tenant actually moved in. I told the loan officer that
I could not accept the appraisal report, as it was hypothetical. He
wanted me to approve it, any way, with the understanding that no funds
would be disbursed until the prospective tenants could be verified. I
told him that I wasn’t going to approve a hypothetical appraisal. The
loan was funded, any way.
My only substantive encounter with CEO Mike Perry was in November
2001. I was summoned late to an impromptu meeting of senior executives
in the board room. When I arrived, the meeting was already underway.
The tone of the meeting was very different than senior executive
meetings at other companies I had worked for. Mr. Perry, a man in his
thirties, was spinning ideas and executives who were 10 or 20 years his
senior were behaving like “yes men”, competing to agree with his ideas.
There were lots of raised hands and enthusiastic participation. He
seemed to be enjoying this, in an immature, megalomaniacal way.
Then he turned to me with an idea. He asked me if I, as the chief
commercial appraiser, had the regulatory authority to change the
discounted cash flow models in each subdivision appraisal, which might
have the effect of changing appraised values. I said that I could
possibly do it, but why? He smiled and said "Don’t housing prices
always go up?" (Was he really too young to remember the early 1990s?)
I told him that it wasn’t a good idea, because we were already
hiring competent appraisers who had more local knowledge than I had.
Unless I could show that their analysis was flawed, it would be
inappropriate for me to change the appraisals. That answer seemed to
anger him. At the end of the meeting, the chief credit officer tried to
introduce me to him, but he turned his back on me.
I later learned that Mike Perry was hired as CEO of IndyMac at the
age of 30 when it was spun off by Countrywide. He had been an
accountant at Countrywide and a protégé of Countrywide founders David
Loeb and Angelo Mozilo.
When the OTS arrived mid-November, my review duties were handed over
to LandAmerica. I was to spend full time responding to findings from
OTS examiner Darryl Washington. In the ensuing month it became
increasingly obvious that the main reason I was there was to refute OTS
findings and serve as window dressing for an institution that scoffed
at or was wholly ignorant of federal regulations. Many, if not most, of
the senior executives had come over from Countrywide, which was an
unregulated mortgage bank.
One of the craziest violations of OTS regulations was underwriting
loans based on appraised values well above purchase prices. For
example, a prominent Sacramento developer purchased a piece of land for
$18 million, a price most reasonably supported by the comps, but it was
appraised and underwritten at a value above $30 million, the rationale
being that this developer added value to the property just by buying
it. This does not satisfy the USPAP and federally accepted definition
of market value, however. The appraisal firm was the same one used for
the supposedly 80% complete subdivision.
I was present at several confrontational meetings between the OTS
and FDIC examiners and CLCA executives. It seemed that IMB was intent
on refuting every finding and using me towards that end. I was
criticized for not arguing enough with the examiners.
After the examination was over, there was an unsolicited appraisal
report waiting for me on my desk. A piece of land next to an airport
had recently been purchased for $24,375,000 and was almost immediately
appraised for more than $65 million based on the owner’s plans to build
an airport parking lot. This was three months after September 11th,
2001 and average parking lot occupancy at this airport had declined
from 73% to about the low fifties. The appraisal lacked a sales
comparison approach and its feasibility analysis was based on
pre-September 11th data. The feasibility analysis was done by the same
consultant who caused the city of Los Angeles to lose millions on the
parking garage at Hollywood and Highland. The appraisal was done by an
unapproved appraiser who had previously caused my previous employer,
Home Savings, to set up a $17 million loan loss reserve on a hotel he
appraised for $450 million and the loan defaulted within a year. The
report was delivered less than a week after it was ordered by the IMB
loan officer, leading me to suspect that it had already been completed
for someone else, most likely the borrower. I told CLCA executives that
I could not accept the report and that I considered it to be biased. I
tried to get the appraiser to change the report, but he immediately
called the chief lending officer, who must have then instructed him to
ignore my request.
Despite my stated objections to the appraisal report, the chief
lending officer told the Loan Committee that I had ordered and approved
the appraisal, and they funded a $30 million loan. Thereafter, there
was sustained pressure on me to approve the report. I responded that I
would have to write my own report, since the original appraiser would
not make changes. This bought me time. Meanwhile, the airport, who had
previously owned 80% of the parking spaces in the area, was suing the
developer and erected a fence to keep people from walking from the
parking lot to the terminals.
The chief lending officer also pressured me to accept another
unsolicited appraisal of a Sacramento-area subdivision. This report was
based on an “extraordinary assumption” that a road led to the subject
property. When I went up to Sacramento to see the property, there was
In January I went to Sparks, Nevada, to review an appraisal of the
last phase of a condominium project. The first phase, with condos on
the golf course, was a success, but the last phase was on the opposite
side from the golf course and actually sloped below grade. The
appraiser made an $8000 downward adjustment for each unit, and I
questioned whether $8000 was adjusting enough. That provoked warnings
from several executives, including the chief credit officer. The
developer was buying the land from David Loeb, IndyMac’s Chairman of
the Board (and co-founder of Countrywide), and I was warned that
challenging this deal could get me fired. Soon after, the chief credit
officer came to my office with a representative from human resources to
announce that my initial 90-day probation would be extended for another
90 days, as CLCA executives had complained about my lack of cooperation
with them. The HR rep had a look of horror on her face the whole time
he delivered this message.
I finally finished my own airport parking lot appraisal report in
late March, the same week that the Bush Administration laid off most of
the OTS examiners. I don’t know which event precipitated my
termination. My appraisal of the airport parking lot estimated the
stabilized value at $37 million in year 2003 and the value upon
completion as $31 million in 2002. These appraised values were
considered insufficient to support the $30 million loan.
IMB gave me two weeks’ notice of my impending termination and
offered me $25,000 severance pay if I turned over all documents and
signed a non-disclosure agreement. I told them that state law required
me to keep records of all of my appraisals and reviews, and that
$25,000 was not enough. After a few days of seeing that I was not
cooperating, I was summoned to a final meeting with the chief legal
officer and “chief people officer”. A written statement indicated that
I was being terminated for having a “communication problem”. I asked
for examples of my communication problem, but none were presented. (I
later recounted, during a deposition, that I was left alone with the
chief legal officer for a few minutes of awkward silence. I then asked
him, “Doesn’t it bother you that I am being fired for a communication
problem without any evidence against me?” He said, “Not at all.” This
cracked up my attorney.) After the meeting, I was escorted back to my
office by a large security guard to collect my personal belongings, and
then I was escorted out of the building, with my toothbrush in my left
hand and my toothpaste in my right hand.
During these last days I contacted OTS about the abuses going on at
IMB and said I had documentary evidence. They flew in to Burbank to
meet me and they debriefed me for a couple of hours. They were upfront
about how the flow of information had to be one way, from me to them,
and not vice versa. I had to call my friends at IMB to find out how OTS
was responding. The OTS paid a special visit to IMB and called for an
internal audit to investigate my allegations. The first audit was
considered a whitewash, and the OTS called for a re-audit.
Interestingly enough, there was even a document produced that
supposedly indicated my approval of the appraisal of the “80% complete
The second audit corroborated most of my allegations and the OTS
called for certain personnel changes. The president and senior credit
officer of CLCA were ousted; the chief lending officer had his loan
approval privileges removed. Chairman of the Board David Loeb suddenly
and coincidentally retired at the same time. He died 5 months later.
Interestingly enough, at about this same time, I read in the press
of IMB receiving a “corporate governance” award from some organization,
for having an impartial and effective board of directors.
I had an excellent attorney. Besides suing for wrongful termination,
he showed me that I could actually sue for discrimination. Many states,
including California, have laws that prevent discrimination against
employees who are upholding public policy, which was the very reason
that got me fired. Other bank appraisers should take note of this.
USPAP and OTS appraisal regulations are public policy.
In interrogatories sent to IndyMac during the litigation, they were
once again asked to demonstrate evidence of my “communication problem”.
The only evidence provided was a memo from me about a borrower “trying
to deceive us” and a memo from a loan officer complaining that I
actually called Union Pacific Railroad concerning one of his deals, a
subdivision being built close to a railroad right-of-way. I was told by
the loan officer that the track was no longer used, but Union Pacific
disclosed to me that it was still being used once a day during the
Interestingly enough, in the six months of unemployment and
underemployment which followed my termination, I rented many videos,
one of which was “The Insider”, the real-life story of Dr. Jeffrey
Wygand, who blew the whistle on the tobacco industry to Sixty Minutes
and was also fired, coincidentally, for having a “communication
Most of this information is already publicly disclosed in my
lawsuit, filed 7/15/02 in Los Angeles Superior Court, Case Number
BC277619, for anyone wanting further details. As for the results of
that lawsuit, the only thing I can legally say is that “the matter has
been resolved to the mutual satisfaction of both parties”.