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Manufactured Homes Finance Scam Brings Down Giant CONSECO

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Austin

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Jan 16, 2002
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Certified General Appraiser
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Virginia
Paper, Paper, read all about it. Manufactured home financing fiasco brings down CONSECO!

What this story says is that CONSECO was having some minor problems but then purchased Green Tree, which was load up with bad loans resulting from manufactured home financing deals. They don't say this but the cause of Green Tree's problems is faulty appraising due to manufactured sales comps AKA "Land-Home Packages." So in summary, faulty appraisal practices brought down the Giant CONSECO.

You can read all about this story at the following online newspaper site but you have to sign in.
http://www.nandotimes.com/business/story/6...p-5040497c.html

Here are a few quotes:

When CONESCO Inc. bought Green Tree Financial in 1998, the fast-growing insurer hailed the deal as the breakthrough it needed to become a financial-services supermarket to middle America.

Instead, the $6 billion acquisition has turned into a nightmare, triggering a torturous stock slide that has left CONESCO in financial ruin and facing several shareholder lawsuits.

Wendt unloaded about $2 billion in debt, largely through asset sales, but was unable to boost the company's languishing stock as manufactured housing industry troubles continued amid the recession, leaving CONESCO with a glut of repossessed properties. Meanwhile, credit downgrades hurt insurance operations.

CONESCO Finance Corp., the division that emerged from the Green Tree deal, has said it is seeking new investors or a possible sale by year's end. The unit also acknowledged on Dec. 4 that it was unable to make $4.7 million in payments related to its mobile-home lending.
 

Tim Hicks (Texas)

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They knew, so they got what they deserved. :) I have been posting about this subject for over two years and the problem still exists.
 

Steve Owen

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Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
Good story, Austin. Thanks for the link.

There was something about this in the Wall Street Journal a couple of weeks ago. They talked a lot about the mobile home business, but I'm not sure they had so much info about Green Tree. I'm trying to remember, but it seems like the jist of their article was wondering if it might ultimately cause problems for a larger lender. Citi Group? Just can't remember for sure.
 

Tim Hicks (Texas)

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Texas
I don't know about the rest of the country, but most of these loans were done as refi's in TX. That kind of shoots the wheels off of the "drive off the lot depreciation therory" that many of these mastermind appraisers would use as defense for the large drop off versus actual re-sales. Plus, they would use other re-fi's as comps. Green Tree, Associates, Conseco all knew what was going on and would "shop" for appraisers who would play ball. They were making so much money that the large lenders (Wells Fargo, WAMU, B of A) were attempting to join the ranks. They may have. They were holding seminars toting the money to be made in the MH loan business. Heck, we had MH appraisers visiting local lenders giving seminars about their "comp finding techniques". It amounted to getting "false" closing statements, knocking on doors and asking the home owners how much they paid (yeah, that will always get honest answers and forget about mentioning that owner financing) and basically creating a market that was all smoke, mirrors and flim-flammed buyers,who paid more for a MH home than the cost for a traditional brick home on slab with 2 car garages. Dang it, Austin, I had finally calmed down about this and now my blood is boiling again.
 

rtubbs

Junior Member
Joined
Jan 15, 2002
Austin, I would venture to say that faulty appraisals were not Conseco/Green Tree's downfall. I believe the bulk of their business was not real property but personal property. From a mfgd home retailer's mouth, they were making personal property loans at 130% of the dealers invoice. In addition to Consecos demise, they also put several mfgd home dealers out of business. They were concentrating on make loans on their repos so that the dealers couldn't compete with their prices. Personally, I would prefer that convential institutions would just cease from underwriting loans on mfgd homes.
 

Austin

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Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Do you guys not see the irony in all of this? Suppose some government regulatory agency like the SEC was charged with the oversight of the equities market or companies like ENRON or WorldCom and something of this magnitude happened? What was the public reaction? The whole regulatory apparatus was overhauled and heads rolled.
Where do the appraisal regulatory authorities fit into this picture? All of this happened right under their noses. What have appraisal regulators been doing for the last few years? I will answer my own question: They have been sitting in circles engaging in arcane arguments about annual changes in USPAP; taking people's licenses for using methods that certain state appraisal board members don’t arbitrarily approve of basically because they don't like the appraiser under review; state appraisal boards like the NCAB, extorting $3,000,000 from appraisers and now planning to build a new super office complex from which to launch their next round of witch hunting expeditions; the state of Illinois just passed a new set of laws that holds the appraiser responsible for any legal, engineering, or environmental reports prepared by others but included in their appraisal report that may contain an error; FNMA demanding 3-year sale histories on comps sales but making no mention of market support for time adjustments which is the reason for the price escalation; and people like us sitting on this forum babbling about lender pressure and interpretations of USPAP. The appraisal regulatory system screwed up people! All of this and much more happened under their watch. Any bets on how many heads will roll? I can't wait to get my copy of USPAP version 2004 after this. I will have to rent more office space to house my copy.
 

Jo Ann Meyer Stratton

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Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Arizona
A lot of those manfuactured home loans were based on an appraisal of the land only. The lender then would take the appraised value of the land, add it to the invoice and base the loan amount on that total. The big problem with the invoice would be that a lot of things would be hidden. Invoice would show a $20,000 trade in for a 1968 single wide Elkhardt that was not in livable condition, or the price of the unit would be increased $20,000 to cover up the fact that the borrower had $20,000 in credit cards to pay off, etc, etc. The land/home packages would have the same playing around with numbers also--so if they were used as comparables, the total shown would not be representative of the value of the real estate/property because so much other garbage was thrown in. If the buyer paid cash or had a very large cash down payment, the invoice for the exact same model from the same manufacturer and same dealer would be totally different. And the exact same model from the same manufacturer and a different dealer could be completely different than the one sitting on the lot next door. The "value" of the unit did not have a thing to do with its final location, neighborhood influences, marketing area, etc--so that alone makes a land/home package bogus. Now my blood is boiling too--Tim! And I had started to calm down because it did appear that Fannie Mae, Appraisal Foudnation and several state boards were starting to understand the situation.
 

Karl

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Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Arizona
I agree totally with the postings so far but does anyone else see the same problem with stick built homes coming soon. 125% of a new home purchase can be obtained here. Granted the only thing saving stick built not depreciating as fast as MFH However with all the new building here, the resale of homes is tuff as a new home is selling for same as two years ago.
No where in any articles does it say where & why an investagation on certain mortgage issues started.
I'M BETTING it wasn't with the Mortgage Originators.
 

Willie

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Joined
May 30, 2002
Professional Status
Certified General Appraiser
State
Tennessee
The appraisals that Conseco Finance used and GreenTree Financial used in TN, until about a year ago, were land only appraisals. I would doubt they lost money on $5,000 to $20,000 pieces of land all over the country. They lost money because of personal property loans on MH's. The land is still there, probably holding it's own in most areas, whereas the over valued MH's have depreciated. They would lend 95% on the total package and put bad credit people in these things. What would have you expected?
 
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