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About a month ago, we had a situation where the lender called us to hide the true occupant of the unit we were appraising. [Mortgage Fraud: Hiding True Occupant Of Apartment From Lender [Soapbox].](http://soapbox.millersamuel.com/?p=78)

The same lender (clarification: loan officer for a national lender) calls us up a month later and decided to go with the original appraisal after all (option 1). This was the report with the effective date that was the same as the inspection date making the occupant a tenant at the time of inspection.

Apparently the panic emergency call last month was not a deal killer. I think thats the lesson here. If you stick to your guns and always remain consistent, and of course ethical, most of these emergencies will go away. Of course this calibur of loan officer will move on to the next appraiser who will accommodate.

Just imagine for a moment…if this lender could not find anyone morally flexible enough to make the initial change the client wanted.

What a wonderful world this would be…

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, Series

Comments Off on Mortgage Fraud: Hiding True Occupant Of Apartment From Lender [part 6 update]

Our appraisal firm tends to stay away from wholesale lending other than clients who pay their invoices and do not pressure us. Mortgage brokers tend to hook in with specific appraisal firms that make the deal, especially on cash out refi’s. We are not one of those firms. As a result, lenders tend to gravitate to us to perform desk and field reviews.

Here’s a typical scenario that happened today:

We are asked to review a report for a national lender who like many lenders, has better control over the quality of their retail channel appraisers than their wholesale channel appraisers. High volume mortgage brokers are often able to muscle “their appraiser” in by flooding the lender with high loan volume for short bursts.

The report we reviewed was a condo unit and relevant sales in the building were excluded and adjustments for amenities such as expansive views of the comparables were ignored. The appraiser gridded a listing as the first comparable that had been on the market for 6 months with no activity and yet the estimated market value was much higher than this sale. The other sales used were not comparable. The sales used had significantly superior views or locations and they were as much as 50% larger with token adjustments for square footage differences.

The result?

The estimated market value was overstated by about $2,000,000! Now I’d like to point out that this lender gives us a hard time about not measuring up to their turn time standards. Guess what? This appraisal firm can get the reports in faster than we can.

A while back, I reviewed an appraisal by this same firm that was about $9,000,000 over valued. The report had been shopped around to several lenders.

Lenders and appraisers that see this type of activity have little recourse in our state. We have to disclose our name in public and therefore would be subject to retaliation.

When is Congress, the secondary mortgage market and financial institutions going to figure this out? The end is near and good appraisers will be ready.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Series

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Today our firm got a call from a major national lender and was asked to change the occupant noted on the appraisal from tenant to owner. It wouldn’t fit the loan package they had arranged for. This particular national lender makes requests like this all the time.

The people making the request are usually clerical and have no idea what they are really asking from us. We get the impression that appraisers usually comply with these sort of requests in hopes of maintaining the relationship.

The client pressed hard for us (politely) to change the occupant information, even when we clearly explained why we couldn’t and that what we were being asked to do was fraudulent.

For this assignment, the tenant’s lease expired in 2 months. We gave the lender 2 options:

1: We change nothing in the report
2: We make the effective date for two months from now when the lease expires, disclosing that we inspected it two months prior and that the unit was occupied by a tenant with the terms of the lease disclosed, that the condition was unchanged between the effective date and the inspection date, all as a extraordinary assumption. (phew!)

They called back an hour later and chose selection 2.

Just another day…

Hello out there…where are the bank regulators?

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Series

1 Comment

One type of fraud we see on a somewhat regular basis occurred today. Here’s how it went.

We received a first time order from an out of state mortgage banker to perform an appraisal of a high end condo worth over $7M). The unit owner had wanted to have “their appraiser” perform the assignment but the lender wanted us to do it because they were more comfortable with our reputation.

We require payment before we release an appraisal for clients we do not have a track record with. The lender asked us to collect at the door. The couple paid us for the appraisal and we completed and delivered it to the lender as agreed.

The check sent by the applicant subsequently bounced (this was a complex property and an above average appraisal fee). We called the husband to request a new check to be sent to pay for the appraisal fee owed but we could not reach him. We called the wife who indicated that she will give the message to her husband but said “we did not do our job and bring the value in at the amount they wanted.”

The couple ended up hiring that other appraiser and guess what? Their value was higher than ours. The lender told us that they will not accept the other appraisal. The irony here is that the deal worked with our value estimate so this is a matter of pure ego by the couple.

I was so annoyed I called the appraiser. They (shouldn’t have spoken to me about it) said they knew that the purpose of the assignment was refinance but said that the lender ordered it directly (the lender – our client – denies this). If the appraisal was actually ordered and engaged by the borrower, not the lender, and the appraiser knew that it was a refinance, they should not have accepted the assignment and they violated the terms of their certification. This has been a “no-no” for a long time [See OCC letter [PDF].](http://www.occ.treas.gov/ftp/advisory/2003-9a.pdf) If I find out that this is true, I will submit their name to the appraisal review board in our state.

So now we are in a situation where we have been engaged to complete an appraisal. We completed it. The borrower appears to have intentionally bounced the check in order to get back at us for not “making the number.” Our report may actually be used for the deal but we have not been paid for it. The borrower will end up paying for two appraisals. Nearly everyone loses.

The lender indicated they will pay us by debiting the funds on account with the borrower. If this doesn’t work out, we will likely sue the borrower for bank fraud or send the lender to collection. I was told by a major lender about 10 years ago that intentionally bouncing a check is bank fraud. Of course we have to prove whether its intentional.

Moral: We have become viewed as an impedement to the deal and the originator and ourselves, may also be victims. Hello out there. Does anyone really want to know what the value is?

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, Series

4 Comments

Yesterday (and nearly every day) our appraisal firm received a fax from a mortgage broker with a checklist. This checklist included all aspects of the loan package that the bank felt needed to be corrected by the mortgage broker. There was only one item pertaining to the appraisal and it was the cryptic:

Appraiser is to remove time adjustments

It never ceases to amaze me how cavalier this type of request is. The underwriter generally has no concept of what they are requesting. Essentially they are asking us to misrepresent the market so that the mortgage can meet their own portfolio criteria by reducing the perceived risk associated with the collateral. Isn’t this fraud?

The sad thing is that many appraisers, in order to keep their relationship going, will simply comply. We see this frequently when we do appraisal reviews. The same appraiser will tell Bank A that the market is flat while Bank B gets a report on another property in the area that the market is rising. The adjustments are made up under other amenities so the value is the same and everyone is happy. Isn’t this fraud?

A few years ago, a local lender issued a policy forbiding time adjustments. I sent them a letter explaining that this was unethical and that this was an underwriting policy, not an appraisal matter and we were sorry but we would be forced to resign from their appraisal panel. Since we were their primary and most trusted appraiser, they exempted only us from the policy. Of course, other members on the appraiser panel complied so they could continue to receive work.

Just imagine if all appraisers withstood this systematic pressure? Of course its important to remember that it is unfair, unethical and probably illegal that we are put in this position in the first place.

Tags: Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Series

4 Comments

Today our appraisal firm had a typical request from a client who happened to be a mortgage broker. We had submitted an appraisal that was performed by a licensed assistant in our firm. The report was reviewed carefully and the lender that received the report said it was fine except for one thing, they didn’t accept a licensed assistant as the signer. As it turns out, the mortgage broker had submitted our report to a different lender than we had been told, at the last minute. In the competitive world of interest rates, this is a common occurrence.

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

Mortgage Broker: The appraiser that signed your report is not approved by the lender we are submitting the report to. [because he was a licensed assistant]. The report looks fine but we need the appraiser’s name changed.

Appraiser: What do you mean?

Mortgage Broker: Just have another appraiser sign the report.

Appraiser: Do you mean, claim that they inspected the property and performed the analysis?

Mortgage Broker: Yes, all of the other appraisers we use do this.

Appraiser: No, we can’t do that. We did complete the report in compliance with the lender you indicated you were sending it to. However, we can send a certified appraiser to the property again quickly and do the report over at a discounted fee since the research has been done. The appraiser needs to verify the research and may or may not agree with the original result.

Mortgage Broker: Oh, ok. That’s fine. But please hurry.

Note: This client is one of the good ones – they will try to ask for this sort of thing but accept our logic and keep using us, indicating there is hope for humanity, or at least wholesale lending.

Tags: Soapbox Blog, Mortgage Fraud, Series

2 Comments

[Freddie Mac’s Weekly Primary Mortgage Market Survey for September 1st](http://www.freddiemac.com/dlink/html/PMMS/display/PMMSOutputYr.jsp) shows fixed rate mortgages dropping for the 3rd consecutive week. Bankrate.com shows that this trend has continued since the first week of August and [mortgage rates took a steep drop after Hurricane Katrina hit.](http://matrix.millersamuel.com/?p=100) The federal government [OFHEO released 2nd quarter housing stats](http://money.cnn.com/2005/09/01/real_estate/buying_selling/OFHEO_prices_up/) that showed a 13.4% increase in prices over the past year. [Granted I have some issues with OFHEO stats](http://matrix.millersamuel.com/?p=95), but they do show an important trend.

Then why do most appraisals we review show no time adjustments?

The answer is usually, “the underwriter wouldn’t accept the report with the adjustments included.” However, the sales price or refi estimated value was reached in the final report anyway. How? Other amenities were over or under adjusted to make the number, thats how.

A form of appraisal fraud and appraisal pressure

This a form of appraisal pressure or fraud that occurs so frequently that many underwriters and appraisers don’t even realize that this violates lending and licensing regulations. According to USPAP, the appraiser is [not supposed to present a report that is “misleading” to the reader.](http://commerce.appraisalfoundation.org/html/USPAP2005/std2.htm) Characterizing a rapidly rising real estate market as “flat” fills the definition of misleading.

Our firm receives this sort of pressure nearly every day.

The solution: do not remove your time adjustments if they are clearly supported by the market. Time adjustments are an underwriting issue, not a valuation issue. The appraiser is reporting an existing market condition. If the appraiser chooses to comply, then the appraisal must be made subject to a [“hypothetical condition” per USPAP.](http://commerce.appraisalfoundation.org/html/USPAP2005/std2.htm)

Tags: Appraisal Management Companies, Soapbox Blog, Appraisal Pressure, Appraisal Process, Mortgage Fraud, Series

2 Comments

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]

Tags: Soapbox Blog, Appraisal Pressure, Mortgage Fraud, Series

2 Comments