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Posts Tagged ‘Mortgage Fraud’

Apparently, We’re Flush

August 17, 2005 | 1:08 pm |

CNN just ran a story on incomes of appraisers. This survey stikes me as a bit overstated. Specialization is key, especially if the focus is on complex properties.

IMHO, I think the appraisers on the residential side that are generating a lot of income, own very large operations with a lot of trainees and are tied in tight with wholesale lending channels. Its going to be interesting to see how these firms do when or if refi or sales business drops off significantly. On the commercial side, its the firms tied in with conduits. With capital in abundance these days, demand for these appraisers is high.

A study on appraiser incomes [Note: Abstract], done in 1999 at Washington State University, was reported to be the first of its kind.

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Mortgage Fraud: Changing Names on the Appraisal [part 1 of a series]

August 15, 2005 | 4:25 pm |

Today our appraisal firm received a frantic call from a mortgage broker we occasionally do business with. We have had a number of problems in the past from this firm with being pressured for values so we don’t encourage the relationship. In order to curb the pressure, we require payment in advance for all work from this firm and firms like them.

The call goes like this [names withheld to protect the guilty?]:

Mortgage Broker: The appraiser and supervisory appraiser that signed your report are not approved by the out of state bank we are submitting the report to. The report looks terrific but we need the names changed.

Appraiser: What do you mean? Are other appraisers in our company approved?

Mortgage Broker: Yes, we need you to change the names on the report so we can get this loan done. We send you a lot of business and this is not a big issue.

Appraiser: Sorry, we can’t do that. Do you realize what you are asking?

Mortgage Broker: Yes, and its not a big deal.

Appraiser: No, thats not possible.

Mortgage Broker: Exasperated sigh, [Click]

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FBI sees double the Suspicious Activity Reports

August 15, 2005 | 3:49 pm |


The Federal Bureau of Investigation received more than double the number of mortgage-related “suspicious activity reports” from 2003 to 2004.

Common mortgage fraud schemes include:

  • Property Flipping – Property is purchased, falsely appraised at a higher value, and then quickly sold.
  • Inflated Appraisals – An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Mortgage fraud indicators include:

  • Inflated Appraisals – Exclusive use of one appraiser
  • Increased Commissions/Bonuses – Bonuses paid (outside or at settlement) for fee-based services and/ or higher than customary fees

Mortgage fraud is growing and moving from cities to more rural areas and appraisals using fraudelent information is an important component.

If you look at what causes fraud, it’s a case of economics,” said Bill Matthews, vice president of Reston, Va.-based Mortgage Asset Research Institute, “If you have a frothy market it causes fraud to go undetected.”

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Predatory Lending Results From Overzealous Efforts To Increase Homeownership

August 11, 2005 | 9:40 am |


Predatory lending has run largely unchecked. Here’s one of the best articles I have seen written on the topic….Wolves in Small Print

excerpt…

Buyers aren’t the only ones screaming. Nationally and in Fort Worth, some of those working in the real estate and mortgage business are also coming forward to charge that the real estate lending business is fraught with fraud. Those professionals say that appraisals are being inflated to buoy up higher housing prices, bigger loans, and higher fees for the industry. First-time home buyers without down payments and with poor credit histories are being pushed through the mill, critics say, and come out the other side with loans they have little chance of repaying. That in turn is pushing foreclosure rates to alarmingly high levels.

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Selling a house they didn’t own

August 10, 2005 | 9:17 am |

2 sentenced for real estate scheme

In this case, its sounds like the appraiser was duped, but it is a scary thought. It makes for a good argument to get the sales contract on your transactions (besides other obvious reasons, like understanding the terms of the sale). We match up the seller with public record.

I am amazed how many real estate brokers have said to us that we are the first firm to actually ask for a copy of the contract.

Its a USPAP standard as part of the appraisal licensing requirement [i-2e(iv)]

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Housing appraisals – bloated appraisals cause borrowers to over leverage

August 9, 2005 | 10:54 pm |

The article in Consumer Reports describes appraisal inflation as a potential…

Watch out for the bloat!

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Indicted for $400 appraisals

August 9, 2005 | 5:10 pm |

Appraiser gets $350 to $450 per report, his clients get $3M: yet all 3 indicted

Here’s another typical story, this time on Long Island…Appraiser does report, client steals $3.1M

Yet another…Appraiser does report, client steals $800K

Over and over we see appraisers being indicted and their appraisal fees are nominal, yet they are indicated alongside those who stole millions from lending institutions.

Q: What does it say about appraisers who get into trouble selling their soul for a few hundred dollars and their clients reaped millions [albeit all parties are indicted]?

A1: They do it with such frequency, they can’t keep track of ethical and unethical appraisals.

A2: They don’t see anything wrong with what they are doing since they aren’t charging a premium for these reports.

A3: They don’t see the value of the service they are providing to the criminals [sorry, thats a stretch] 😉

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eBay: Bid On Your Real Estate Appraiser Apprenticeship Anywhere in USA

August 8, 2005 | 11:30 am |

The following eBay post for an appraiser apprentice position [Note: PDF] was found on Ann O’Rourke’s Appraisal Today‘s email blast.

Can the standards of the appraisal profession drop any lower? The inference here is that you become a form-filler with minimal effort. Amazing!

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Mortgage fraud huge in Florida, FBI report says

August 8, 2005 | 10:41 am |

Florida’s red-hot real estate market may have a serious downside.

“Research shows that one-third to one-half of appraisals are overpriced, and the problem is endemic in Florida,” says John Taylor, president and chief executive of the Washington, D.C. based National Community Reinvestment Coalition.

“It’s like a time bomb,” says Alan Hummel, government relations chairman for the Appraisal Institute and an appraiser in Des Moines, Iowa. “There is so much out there, but we don’t find out about it until down the road when property owners start having problems.”

Lack of structure and accountability in the valuation process promotes fraud.

When you have a lending system where the appraisal process is not treated as a “sacred activity,” where the results are respected, believed and followed, then money talks and lenders find appraisers who will play the game.

It’s just that simple.

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Liability of Appraisers Who Help Understate Tax Liability

August 2, 2005 | 8:24 am | |

On the Tax and Legal update section on ERC’s web site, there is reference to an IRS memorandum that discusses applying penalties to appraisers who knowingly manipulate appraisals to help an individual pay less tax. Examples of appraisals done for tax purposes include estate tax, gift tax, facade easements and charitable contributions.

the IRS Office of Chief Counsel [note: pdf] discussed the possible application of section 6701 of the Internal Revenue Code to appraisers. Section 6701 imposes a penalty on anyone who aids or participates in the preparation of any return or document and has reason to believe it will result in the understatement of someone else’s tax liability.

What’s wrong with being held accountable for the value estimate? Nothing, except…

…and here’s the caveat, the person requesting the appraisal should be on the hook as well. The tax attorney or accountant is often the person trying to influence the appraiser. My problem with this IRS memo, is that the appraiser is left twisting in the wind.

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Interagency Statements on Independent Appraisal and Evaluation Functions

July 29, 2005 | 9:51 pm |

The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) were concerned enough on several appraisal issues that they released a joint statements in 2003 and 2005.

The October 28, 2003 statement addressed concerns over the independence of appraisers. [note: pdf].

Highlights…

The agencies’ appraisal regulations address appraiser independence and require that an institution, or its agent, directly engage the appraiser. The only exception to this requirement is that an institution may use an appraisal prepared for another financial services institution, provided that the institution determines that the appraisal conforms to the agencies’ appraisal regulations and is otherwise acceptable. Independence is compromised when an institution uses an appraiser who is recommended by the borrower or allows the borrower to select the appraiser from the institution’s list of approved appraisers.

The March 22, 2005 statement addressed concerns over the transferring re-assigning appraisals [note: pdf].

Highlights (Q & A Format)…

  1. May an appraisal be routed from one lender to a regulated institution via the >borrower?

Answer: A regulated institution cannot accept an appraisal from the borrower unless the regulated institution can confirm that the appraisal was in fact ordered by another regulated institution or financial services institution. In accepting the appraisal, the regulated institution must also confirm that the appraiser is independent of the transaction and that the appraisal conforms to the agencies’ >appraisal regulations and is otherwise acceptable.

  1. Can a borrower pay the appraiser directly for an appraisal that is ordered by the lender?

Answer: Since the regulated institution has engaged the appraiser for its services, the regulated institution should be the party to remit payment to the appraiser. The regulated institution may seek reimbursement from the borrower for the cost of the appraisal. However, the borrower may not recommend an appraiser to the institution or select the appraiser.

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OFHEO Finalizes Regulation on Mortgage Fraud

July 29, 2005 | 1:47 pm |

From their press release: “The Office of Federal Housing Enterprise Oversight (OFHEO) has finalized for publication in the Federal Register a regulation requiring Fannie Mae and Freddie Mac (the “Enterprises”) to report mortgage fraud or possible mortgage fraud in a timely fashion.” OFHEO is the regulatory oversight agency for GSE’s (Government Sponsored Enterprises) like Fannie Mae and Freddie Mac.

Complete text of the final regulation can be found here. [note: pdf]

Appraisal fraud is now considered within the definition of mortgage fraud. This rightfully defines those who pressure appraisers to reach a specific value or they won’t receive future business as committing a fraudulent act.

Excerpt… § 1731.2 Definitions.

(c) Mortgage fraud means a material misstatement, misrepresentation, or omission relied upon by an Enterprise to fund or purchase — or >not to fund or purchase — a mortgage, including a mortgage associated with a mortgage-backed security or similar financial instrument >issued or guaranteed by an Enterprise. Such mortgage fraud includes, but is not limited to, a material misstatement, misrepresentation, >or omission in identification and employment documents, mortgagee or mortgagor identity, and appraisals that are fraudulent.

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