Home Appraisers Appraise Home Mortgage Mess

Have inflated home appraisals helped fuel the current mortgage foreclosure crisis - and effectively helped con artists scam lenders? Property appraisers say yes - and want regulators to crack down on the lenders who’ve pressured them to raise estimates of homes’ values so overpriced sales go through.

The 22,000-member Appraisal Institute and other trade groups this month told regulators that bad credit mortgage lenders with lots of loans in foreclosure often pay “systematic inattention” to appraisals’ accuracy.

The group claim some lenders have approved low- and no-down-payment mortgage loans without taking hard looks at appraisers hired to estimate properties’ values, and failed to put up “firewalls” between loan officers working on commission and appraisers hired to evaluate properties.

National studies have repeatedly shown that commission-based loan officers often demand appraisers “hit the number” - say a home is worth enough to allow a bank to OK a mortgage.

One survey found 90 percent of appraisers reporting threats, nonpayment or other forms of coercion if they didn’t “hit the number.”

In fact, many respondents said they lost a loan officer’s future business if they refused to play the game. Such actions have not only impacted legitimate home sales, but have also enabled con artists to steal billions of dollars via mortgage scams.

The FBI estimates mortgage fraud is approaching $3 billion a year - with many schemes involving intentionally inflated property valuations.

California appraiser Gary Crabtree, a top Appraisal Institute member, recently provided me with an inside look at the “Cash Out at Closing” scam.

Crabtree said this scheme involves realty agents stuck with listings that aren’t selling. To move such a property, an agent finds cohort to offer $30,000 to $100,000 above a home’s list price.

The agent then works with an unscrupulous appraiser and a mortgage broker to help this “buyer” get a no-money-down mortgage covering the home’s inflated price.

Net result:

• The seller gets the price he or she wanted;
• The home appraiser gets a fee;
• The realty agent and mortgage broker get commissions;
• The buyer gets a kickback from the seller covering some or all of the $30,000 to $100,000 in inflated home value.

But then, the buyer only makes a few monthly mortgage payments before dropping out of sight - and the home falls into foreclosure.

“It’s total fraud,” said Crabtree, who’s currently documenting 32 cases of alleged appraisal scams for state and federal authorities. “You can throw a dart at just about any large subprime (bad credit home loan) lender and something like this (scheme) is going to stick.”

However, many a mortgage lender is still in denial about the problem.

Crabtree said he’s offered one major lender documentation of a “Cash Back at Closing” scam involving one of the firm’s home mortgages - but the lender won’t return his calls. Unfortunately, this problem affects more than just lenders.

When a home sells for an artifically inflated price, other buyers use it as a “comp” when deciding how much to pay for nearby properties. That means other homes will end up overvalued as well.

SOURCE: Boston Herald