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CREDIT EXPANSION 

brokers received an average fee from the borrowers of ,, or . of the loan
amount. On top of that, the brokers also received yield spread premiums from New
Century for , of these loans, averaging , each. In total, the brokers received
more than . million in fees for the , loans. 
Critics argued that with this much money at stake, mortgage brokers had every in-
centive to seek “the highest combination of fees and mortgage interest rates the market

will bear.” Herb Sandler, the founder and CEO of the thrift Golden West Financial

Corporation, told the FCIC that brokers were the “whores of the world.” As the hous-
ing and mortgage market boomed, so did the brokers. Wholesale Access, which tracks
the mortgage industry, reported that from  to , the number of brokerage
firms rose from about , to ,. In , brokers originated  of loans; in

, they peaked at . JP Morgan CEO Jamie Dimon testified to the FCIC that
his firm eventually ended its broker-originated business in  after discovering the
loans had more than twice the losses of the loans that JP Morgan itself originated. 
As the housing market expanded, another problem emerged, in subprime and
prime mortgages alike: inflated appraisals. For the lender, inflated appraisals meant
greater losses if a borrower defaulted. But for the borrower or for the broker or loan
officer who hired the appraiser, an inflated value could make the difference between
closing and losing the deal. Imagine a home selling for , that an appraiser
says is actually worth only ,. In this case, a bank won’t lend a borrower, say,
, to buy the home. The deal dies. Sure enough, appraisers began feeling pres-
sure. One  survey found that  of the appraisers had felt pressed to inflate the
value of homes; by , this had climbed to . The pressure came most fre-
quently from the mortgage brokers, but appraisers reported it from real estate agents,
lenders, and in many cases borrowers themselves. Most often, refusal to raise the ap-
praisal meant losing the client. Dennis J. Black, president of the Florida appraisal

and brokerage services firm D. J. Black & Co. and an appraiser with  years’ experi-
ence, held continuing education sessions all over the country for the National Associ-
ation of Independent Fee Appraisers. He heard complaints from the appraisers that
they had been pressured to ignore missing kitchens, damaged walls, and inoperable
mechanical systems. Black told the FCIC, “The story I have heard most often is the
client saying he could not use the appraisal because the value was [not] what they

needed.” The client would hire somebody else.
Changes in regulations reinforced the trend toward laxer appraisal standards, as
Karen Mann, a Sacramento appraiser with  years’ experience, explained in testi-
mony to the FCIC. In , the Federal Reserve, Office of the Comptroller of the
Currency, Office of Thrift Supervision, and Federal Deposit Insurance Corporation
loosened the appraisal requirements for the lenders they regulated by raising from
, to , the minimum home value at which an appraisal from a li-
censed professional was required. In addition, Mann cited the lack of oversight of ap-
praisers, noting, “We had a vast increase of licensed appraisers in [California] in spite

of the lack of qualified/experienced trainers.” The Bakersfield appraiser Gary Crab-
tree told the FCIC that California’s Office of Real Estate Appraisers had eight investi-
gators to supervise , appraisers. 