at Landsafe, the entire review process was designed to ensure the appraisal
came in at value."
Interview: Appraiser Who Brought Down Countrywide by Isaac Peck, Associate
The U.S. housing bubble and the corresponding real estate market crash of
2007-2008 brought about one of the most severe economic downturns in America
since the Great Depression. The fallout was extensive: banks failed, established
companies declared bankruptcy, the net worth of American households plunged, and
millions of Americans lost their homes and jobs in a great recession that
quickly spread globally, submerging the economies of Europe, Asia, and the
Among the many firms and individuals who acted irresponsibly, and maybe
criminally, perhaps none did so with such flair and recklessness as Countrywide
Financial.Before its rescue-sale
to Bank of America (BOA), Countrywide was the largest mortgage lender in the
Countrywide became a “leader” of sorts in the lending industry, according to
numerous lawsuits filed by the Department of Justice, by adopting reckless
lending practices, encouraging fudged loan applications, and violating appraiser
independence in order to gain market share. A move that, some say, led to other
lenders lowering their standards to compete.
A little-known fact is that the original whistleblower at Countrywide Financial,
the man whose suit sparked an investigation that culminated in a one billion
dollar settlement between BOA and the Department of Justice, is a real estate
appraiser named Kyle Lagow.
Kyle Lagow Lagow was an appraisal manager and assistant vice president at
Landsafe, Inc., the appraisal subsidiary of Countrywide, a position which gave
him an inside look at the practices which caused the downfall of the largest
mortgage lender in America. For his part, Lagow sees Countrywide as being at the
heart of both the housing bubble and the real estate crash. In his words,
Countrywide, “Started a train and laid the tracks that ran the industry off the
edge of a cliff.”
This is his story.
How It Began Kyle Lagow of Plano, Texas says he was an appraiser running his own
firm for 14 years when he was contacted in 2004 by Landsafe and offered a
position as an appraisal manager, responsible for building an appraisal division
to span several states.
time they called they made the opportunity attractive enough and told me that I
would be able to build a staff of quality appraisers. So I told them that as
long as we do it right, I’ll run it,” Lagow says.
At Landsafe, Lagow was tasked with hiring and training a division of staff
appraisers spanning multiple states whose primary purpose was to appraise a
growing volume of Countrywide loans. Ultimately, Lagow helped open new markets
for the company, expanding Landsafe’s appraiser panel into Utah, Colorado,
Arizona, Louisiana, Texas and Oklahoma.
Fraudulent Appraisals Lagow says it didn’t take long for him to realize that Landsafe’s
executives weren’t interested in quality appraisals.The original suit filed by the DOJ alleges that in early 2005, a Landsafe
executive called a meeting of appraisal managers and made it clear that (1) they
needed to quit thinking of an appraisal as a separate unit, (2) that Landsafe
appraisers were there only to “help facilitate closing,” and (3) that they
needed to change their “thought process.”(You can find the suit at WorkingRE.com; Sidebar Information (left
column); Lagow vs. Countrywide Original
“An appraiser would turn in his or her appraisal. If it was low or didn’t meet
value, it went to a reviewer. If the appraiser didn’t meet value, the reviewers
were instructed to go and look at the market to see if they used the best comps
and to try to discredit the appraiser. The kicker is that I have an appraiser
who I trusted, hired and put on my fee panel because I believed they would do a
good job. But at Landsafe, the entire review process was designed to ensure the
appraisal came in at value. If one of my appraisers didn’t meet value, they were
blacklisted. Our own company would turn them in to the state and call them a bad
appraiser,” says Lagow.
Unfortunately, extreme internal pressure to meet value and the blacklisting of
quality appraisers was just the tip of the iceberg.In 2005, Lagow learned of a joint venture between KB Home and
Countrywide, wherein Countrywide would provide the loans for new construction
developments of KB Home. Lagow was tasked with hiring appraisers to complete
that appraisal work.However, Lagow
says that when his staff appraisers showed up at KB’s developments to appraise
properties, they were turned away and told that KB had an agreement with
Countrywide where it alone would decide who did the appraisals.
Lagow soon learned that a separate appraisal manager at Landsafe was handling
all of KB appraisal assignments; the work went to a small number of hand-picked
appraisers. The DOJ suit alleges that in Houston, the appraiser chosen by KB
Home completed over 400 appraisals in a single month by himself, all at a price
of $450 per appraisal.
Shortly after Lagow realized what was happening, he began sending notifications
to upper management, even though he had been warned against putting his concerns
in writing. On September 7, 2005, Lagow wrote the following:
“In summary: We have a clear attempt to
control the market- utilization of one appraiser, a refusal to supply data with
outside appraisers, and the appraiser of choice is being paid a fee abnormally
higher than what we pay everyone else for the same work. Add in the fact that
recent appraisals from outside appraisals have come in low, and I could make a
fairly strong case for market manipulation and appraisal fraud. Even if it is
not intentional, it looks bad.”
At the end of his email, Lagow warned that the problem would spread if nothing
was done to fix it: “I also want to caution anyone who cares to listen, that if
we allow this in Houston it will spread through the KB Home markets.”
Lagow says that he personally inspected many of the appraisal reports completed
by the Houston appraiser. “I looked at appraisal orders. I could tell you when
the inspection appointments were scheduled. One day, one was set for noon and
the next one at 12:01 P.M. It was a total fraud,” says Lagow.
See No Evil Lagow’s words of warning fell on deaf ears as Landsafe executives
proceeded to institute a “production-based” pay system where staff appraisers
were forced to radically increase their appraisal volume in order to earn the
same income, according to the complaint filed by the DOJ. Lagow also says that
Landsafe also facilitated a channel whereby Countrywide’s own loan officers
could request target “audits” of Landsafe appraisers who were not meeting value.
The original suit filed against Countrywide by the DOJ lists over half a dozen
appraisers who were “audited” at the direction of loan officers who were upset
that appraisers were not meeting value. According to the suit, one of the
appraisers that Lagow hired to add integrity to the appraisal process was told
point blank by a KB Home sales manager that KB would no longer require his
services if his appraisals came in below contract price.When he refused to go along with the fraud, the appraiser was blacklisted
from completing appraisals on any Countrywide loans.
Frustrated at the apparent fraud he was witnessing, Lagow sent this chilling
email to his supervisors at Countrywide Governance in February 2006:
“At the risk of losing my job I am
forwarding this email to you and want to relay my deepest concern for the
situation addressed. I report directly to you but I am also forwarding this to
(a superior) because she and I have talked about general concerns in the past.
I have spent considerable time looking over the KB Home situation in Houston,
Texas and took some time to drive a couple of subdivisions this weekend and look
around. As you are aware, one appraiser
controls the orders and the values…I believe that (name redacted) and KB Home
are engaged in a fraud to manipulate the local market.
In looking at the appraiser’s reports, when he needs to, for value, he goes
outside the market to access superior sales to bump up the market and then uses
the same sales in future sales, thus establishing and manipulating the market.
The appraisal reports I have examined have a continual characteristic of
selective manipulations of the market data in an effort to pump up the market.It is my opinion that, based on very limited data, we could be making
115% loans in the markets and if you examine some KB Home subdivisions you see
significant foreclosure rates.I
believe that by allowing the situation to continue we are condoning the activity
and placing at risk the jobs of our employees at Landsafe and Countrywide. I am
even more concerned, and I do not have any supporting data other than the logic
that an order has to come from us, that the individuals who mandated that only
one appraiser be utilized may be a Countrywide employee and could be implicated
in a conspiracy to defraud both the homeowners and the stockholders.
We are charged with the responsibility of protecting our client’s assets. If I
am correct on any of this, and if it blows up, the blame will rightly fall on us
for failing in our task. This has the potential to be a lightning rod for the
demise of Landsafe and we will need to act to make sure every effort has been
made to safeguard against this…”
Nothing changed as a result of the letter, Lagow says. Finally, in 2008, Lagow
says he sent an email directly to Angelo Mozilo, CEO of Countrywide, urging him
to stop the fraudulent practices and warning him that his executives were not
reporting the facts to him.
“I really wanted Mozilo to have not been
aware of this. I wanted to believe that a guy who spent 40 years building
this company wouldn’t want its legacy to be that we ran an industry off a cliff
and that we gave our industry a bad name. I couldn’t believe that he could have
known about it, I went to everyone else before I went to Mozilo,” says Lagow.
Lagow explains that Mozilo sent someone down to, in his words, “put on a show.”He was even contacted by several of Countrywide’s top executives who
seemed concerned, but the “conclusion” of management was that Lagow’s concerns
Fighting from the Corner By late 2008, Lagow learned that he needed treatment to combat
cancer and he was subsequently fired from Landsafe.“I fought inside the company for a long time to stop what was going on.
When I left I told them, look, I’m going to fight to fix this either inside the
company or outside the company,” says Lagow.
Leaving Landsafe wasn’t easy for Lagow. “At the time, I was pretty defeated. I
built their market for them. They took my model and applied it to the east and
the west coast. They didn’t have a clue how to hire and manage a staff appraiser
division,” says Lagow.
Lagow says he wasn’t even planning to file suit. “I had cancer when they fired
me. I just wanted to make it through that fight.I honestly didn’t want to go this route- I was on the list to do work for
Bank of America.But then I
received a letter from BOA’s attorney saying that they were not going to put
me on their fee panel list,” says Lagow. At that point, Lagow said he had no
choice. “I had to fight, there was nothing left. I was broke.I couldn’t do
work for them, I didn’t have any money. After all that they put me through, I
was ultimately deprived of this little bit of dignity of being able to do
appraisal work. I got mad. I picked up the phone and called up some lawyers who
were filing class action lawsuit. I said how can I help?”
The rest is history. In late 2009, Lagow filed a whistle-blower complaint under
seal, charging that Countrywide had committed fraud and violated the U.S. False
But things got worse for Lagow before they got better. “Once the lawsuit
was filed I couldn’t talk to anybody, not even my family. You go out there to
try to help an industry, and no one even knows you’re fighting the fight. Your
kids look at you like a failure, you can’t get any work. You’re fighting cancer.
I lost everything, I had repo people knocking on my door,” Lagow says.
Lagow’s complaint was among at least five other whistle-blower complaints that
were rolled into the $25 Billion settlement between regulators and the nation’s
largest banks in 2012. Lagow’s complaint was also critical to a $1 billion
settlement between the Federal Housing Administration (FHA) and Bank of America
For Lagow, his eventual victory is bittersweet. “As far as being a
whistleblower, I wouldn’t wish it on anyone. I got lucky. Without my lawyers,
Tom Loeser, Shane Stevenson, and Stevie Berman, who were courageous enough to
take the case, I’d be sitting in a house in default.”
For his share of the settlement, Lagow will receive $14.5 million for his role
as whistleblower. Lagow is thankful but says that it isn’t as much as people
might think.“By the time the
government takes its share, and the attorneys take theirs, it’s not as much of a
windfall as everybody thinks.If I
were working for the rest of my life, I would earn more than that,” says Lagow.
Present and the Future Appraisers may not be surprised to learn that Lagow doesn’t think
much has changed in the industry, even after all he has struggled for. “I don’t
think I made much of a difference. Everybody likes to say that there have been
big changes. The only change right now is that there aren’t as many loans being
done. If you had stolen $1 billion at gun-point, would you still be typing on
your computer? I don’t think so. Yet the same people who were in charge when
this fraud took place are still here. My supervisor at Landsafe, the area
manager, is still there. The appraiser who was completing 400 appraisals a month
in Texas still has his license. So you tell me, what’s changed?”
“You still have staff appraisers who know that if they don’t meet values, their
name is going to show up on somebody’s do not use list,” Lagow continues.
“Volume corrupts because the biggest
problem that we had back then was that loan officers who did the biggest volume
would say, ‘If you don’t get rid of so and so, I’m going to go somewhere else.’So loan officers had tremendous weight and influence and they still do.
You have the same infrastructure in place so once loan officers start doing
millions of dollars of loans again, the same thing will happen.”
“What these criminals did, committing fraud and inflating values, was a felony
before and it is a felony now, yet we haven’t put any of the big players in
jail- so nobody’s afraid,” Lagow says. “Go out there and look and see how many
people have been indicted from small private mortgage companies.Look and see how many have been indicted and tried and put in jail from
the largest mortgage companies. You will find that there are numerous
individuals in the private sector but when it comes to the big companies, the
regulators don’t go after them. Let’s start putting some people in jail and see
how quickly the rules start getting followed. Unless there is a profound
movement in the industry as a whole, they’re going to do it again. And they’ll
put the burden, and the blame, on the appraiser.”
Lagow’s message to other appraisers is simple: do good, honest work. “My message
is to do the numbers, do the best appraisal reports you can.If somebody doesn’t like your work, if your values aren’t there, walk
away. Have the dignity and self-respect to walk away and go find another client,
everything else will take care of itself.”
About the Author
Isaac Peck is the
Associate Editor of Working RE Magazine and Marketing Coordinator at
OREP.org, a leading provider of E&O
Insurance for appraisers, inspectors, and other real estate professionals in 49
states. He received his Bachelors in Business Management at San Diego State
University. He can be contacted at Isaac@orep.org or (888)
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