We definitely hit a nerve, with our series on appraisal fraud.
The initial article Appraisal
Fraud: A need to Sort out the Victims from the Perps? published on April
25 elicited the most response. The comments ranged from criticism of the appraisal
process or of appraisers themselves; indictments of real estate agents, the
National Association of Realtors and lenders; to suggestions for reforming
the system. If appraisal fraud is a subject you care about - and if you
own a home there is a good chance you should care a lot - please click on "Comments/Feedback"
in the upper left of this screen to see some of the thoughts that appraisers
and others have posted.
In the interim, a posting on a closed appraisal web forum with a passionately
involved membership resulted in a dozen or more responses. The posting asked
appraisers for concrete examples of pressure they had received to inflate appraisals
or hit specific numbers. While we did receive a few anecdotes about such pressure,
most of the correspondence was an interesting mix of finger-pointing, suggestions,
and a bit of fortune telling. We have included a representative sample of these
responses below. While each writer granted permission to quote him by name,
they are identified only by location.
"CP" from Albuquerque, New Mexico submitted a collection of emails she has
received since the first of this year from mortgage lenders and what is apparently
a clearing house that makes assignments to free-lance appraisers.
- From the clearing house:
Could you take a look at these addresses and see what the square footage is
and the recent sales price/date to see if these could be used in place of (your)
comps. We would like to increase value to $192,000. (Three addresses in Albuquerque
were referenced.)
- From the clearing house:
The lender is requesting that I check with you to have value increased on this
report. They are looking to see if a bump in value to $150.000 is possible.
The loan is ready to fund and the lender needs this one bad. If you need to
pull new comps that would be fine and we will happily pay you an additional
fee to take pictures or whatever is needed.
- From a loan officer to the clearing house:
I need an increase to 155,000 to make this loan work. Can you contact the appraiser
and see if this is possible. (The sender included information on 4 properties
- stating he did not know anything about the square footage or other attributes
of any of them - which he wanted the appraiser to use rather than those
comps she had previously submitted.)
CP states that, on the last occasion she emailed the loan officer: "Look,
this isn't just because I got up on the conservative side of the bed this
morning (n)or am I on a power trip. These are nice people, but this is what
their home is worth. I can't change that."
CP says that, in this case the homeowners had been in their home for 28 years,
are retired, and love to travel in their RV. She says that she would never give
"a value short of their expectations unless that value was fully supported
by the market." Why in heavens name, at this time in their lives, are
they maxing out their home to mortgage it with a rather shifty, higher fee/interest
outfit???"
Several appraisers including TH from Texas claimed that pressure on appraisers
does not typically come from banks or credit unions which do "want to
know the true value of the home. The bottom line is mortgage brokers
(who) want their loan to close and they do not want the necessary evil of an
honest appraisal. Even fairly honest mortgage brokers will use a 'special appraiser'
to get the value needed when their 'honest appraiser' will not comply with their
value needs. It is 'greed' driven, or as a mortgage broker will say, 'a business
decision.'"
GH from Carlsbad, California had an interesting solution: "Appraisals
are more closely related to the underwriting process than they are to the origination
process. Take the loan originators and everyone in the production side of the
deal out of the appraisal engagement loop, and (the cause of) 90 percent of
all misleading appraisals would be cured overnight."
Steve from California wrote a very long and thoughtful note. He and several
other correspondents felt that an earlier attempt to cure mortgage improprieties
was worse than the disease in that it has put appraisers at substantial legal
risk. The Financial Institutions Reform, Recovery and Enforcement Act
of 1989 (FIRREA) was enacted to address the savings and loan crisis.
This was a huge piece of legislation but, in the fine print, set standards for
professions engaged in the loan process, including appraisers. It was FIRREA
that instigated the various state licensing and regulatory
legislation. This, Steve said, puts appraisers in the position of certifying
they are in compliance with the Uniform Standards of Professional Practices
and "now they are an easy target as a Loss Recovery Vehicle. Appraisers have
been indicated in mortgage fraud cases and charged with things like wire
fraud, mail fraud, communications fraud,
bank fraud, unfair business practices and
unfair competition. I know of no cases in which the appraiser
was charged with appraisal fraud..." as "that would nullify their professional
liability insurance.
"The appraiser is the ultimate mortgage insurer. The problem is they
do not know it. They only find out when they start getting sued. The antics
of the loan originations departments are different than that of the loss recovery
actions of the legal department'.
So where is all of this going?
Steve said that in California "over half of the original appraisers who
were licensed 15 years ago have left the business. Now over half of the residential
appraisers are Trainees (an official designation in some states). Many residential
appraisal shops employ unlicensed people who go out and see the properties or
prepare the reports which are then signed by someone who never saw the property."
To carry appraising yet another generation into the future, TF of Southern
California is about to begin training for her appraiser's license. She
wrote the following:
"...one of my biggest concerns in entering the field...is lender pressure.
I intend to screen prospective mentors to insure whoever agrees to train me
is every bit as ethical and professional as I intend to be. This includes not
allowing clients to influence values. My research ...leads me to believe that
the pool of potential mentors...will be drastically lessened in the current
environment. I am also concerned that, once I am ready to actually do appraisals,
that there will be enough work from lenders and brokers who do not want values
pushed to allow me to complete my training in a timely manner.
It appears that the complaints of appraisers are beginning to gain significant
traction. Rumor has it that a major network is preparing a story on appraisal
inflation/fraud and the industry press has also been paying attention.