Does this actually surprise anyone?
In Kenneth Harney’s article Half a Billion Dollars Says U.S. Is Getting Serious About Busting Fraud, he identifies mortgage fraud practice and what the US is doing to fight it.
The funny thing is, many recent practices were fraudulent and commonplace, yet ignored by lenders, mortgage brokers, borrowers, appraisers, and pretty much anyone semi-connected the the housing busines – all were more interested in the final goal of a successful mortgage closing so everyone got paid or got their house.
Here are some interesting facts:
- 2/3 of mortgage fraud occurs at mortgage application
- 28% involve “deliberate misinformation” about tax returns
- 22% involved appraisal value “padding”
As far as appraisal padding goes, that is a wildly low percentage IMHO. I’d say it was more like 80%.
Well, I’ve resided in 4 of these states…
According to the 2009 report from the mortgage researchers, the top 10 states where disproportionate numbers of frauds occur are not necessarily where you’d guess. For example, the No. 1 state for mortgage frauds last year was tiny Rhode Island. Next came Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado.
Aside from the organized fraud rings, lenders essentially knew this was occurring, but were more interested in making loans. Regulators were asleep at the switch, afraid to upset the apple cart. Appraisers wanted more assignments. Borrowers knew they were lying on their applications and mortgage brokers showed them how to manipulate the process.
Now we all get to pay for the clean-up and act like everyone is innocent and it’s just one of those unfortunate things that happen.
This just in.
Mortgage fraud is still happening. I can speak for the appraisal portion of this process. Aside from dealing with fewer mortgage brokers due to the Home Valuation Code of Conduct or (HVCC), NOTHING HAS CHANGED.
There is pressure – the lenders are dealing with appraisers who play ball and appraisal management companies are eliminating competency in valuation of collateral for mortgage lending.
The gears are still in motion.
80 PERCENT? WOW! Well my personal solution to avoid the schizophrenia of parallel universes of appraisal standards and appraisal business was to drop out of appraising for the secondary mortgage market or for clients who don’t know or care about acceptable quality appraisals.
I interviewed an AMC this morning that called to interview me as a prospective appraiser. I couldn’t get answers to some of the most basic inquiries about fees and turn times that are of fundamental importance to maintaining ethical appraisal standards so the interview was short. The AMC does not meet my standards and I won’t be working for them. Since they were looking for cheaper/faster, they still don’t know anything about me other than my opinions about ethics. So, 80%. Maybe my personal solution to the pressure situation should be considered for the profession.
Its going to happen all over again! Very frustrating.
From everything I have read or heard I have concluded that the only thing of significance to Fannie appraising appraising that is included in the HVCC is that brokers can’t order appraisals. Is that it? Is that all there is? Why did Cuomo let Fannie have any control whatsoever over the process of ensuring appraiser independence? Has he not read a Fannie form or the guidelines? Perhaps Cuomo missed the chapter where it was revealed that Fannie is a part of the problem.
At risk to my relationships with most of the appraisers I know let me make this comment: So long as you follow Fannie you will not be independent and most likely not accurate or thorough either.
These rules are a joke
[…] of the process is broken and How long did it take to get the appraisal completed. And what does appraiser extraordinaire Jonathan Miller at Matrix have to say."Mortgage fraud is still happening. I can speak for the appraisal portion of this process. […]
I recently blogged this in response to an article in Realty Times that viewed the housing/lending mess from a “guard the consumer” perspective. I’ll share it here:
“The consumers of real estate and real estate loans are under assault. I am reminded of the video where a panicked ball of herring were consumed by seals, gulls, dolphins, sharks and finally a whale with an enormous mouth. It wasn’t said, but I guess the herring, like the consumers, just keep coming. It is gratifying to read advice that urges buyers to get objective and unbiased opinions with respect to their real estate transactions. Since so many lenders seem to have evolved into predators, I think that advice necessarily includes information with respect to the value of the house as well as the loan program that is being offered. As a certified general appraiser I appreciate your advice to consumers in selecting an appraiser. I might add that the appraisal is an important part of the transaction and the earlier in the process that it is completed the better for its reliability and usefulness.
Although the lending industry would be stupid to admit it, I have concluded that lenders simply have little or no respect for the appraisal industry, and “marking to market”, which is what appraisers do, is apparently anathema to their self interest. In turn, if an appraiser assumes the responsibility to offer expert opinions about market value to a lender, the appraiser absolutely must know what he/she is doing or be able to figure it out. If the appraiser does not consider him/herself a well trained expert able to advise real estate agents and lenders as well as buyers, then he/she has no business in holding him/herself out as a qualified appraiser.
As you mention, the appraisal profession is under assault as well. The majority of the intended users of appraisals view the appraisal as a tax on their business and simply resent having to get one. I can’t change that, so in order to assure that my professional and personal integrity remains intact and still produce credible appraisals that I can market, I have chosen to refuse any mortgage work that is headed for any secondary market. That of course assumes that lenders who are keeping the loan in house care about the actual market value of the collateral. The Appraisal Institute is correct that competence is the measure of the appraiser. From experience I am convinced that designation or membership in any organization is of little use in measuring character. And appraisers with good character do a good job and do it ethically. I remain hopeful that our leadership will ensure that cost and speed are completely eliminated from the criteria used to measure the appraisal. I have tried to address the problem of competing on the basis of speed and cost with clients and peers by engaging in dialog, blogs, speeches and letters, but it is firmly entrenched that real estate appraisals are a commodity, the value of which is measured inversely to the cost and time it takes to turn it in. I am now resigned to refusing almost all mortgage work if I am to make any difference at all. So far the only difference I can measure is in my income. It is lower.
DO NOT ORDER FAST AND CHEAP APPRAISALS LATE IN THE PROCESS AND BE VERY SKEPTICAL IF THE APPRAISAL MUST MEET FANNIE MAE GUIDELINES AND THE LOAN IS GOING TO THE SECONDARY MARKET. Too many transactions obtain an appraisal almost as an afterthought when everything else is complete. Those sorts of appraisals are suspect and indicate a “could care less” attitude on the part of whoever is ordering the appraisal. Most likely if the client could care less, then that client will hire an appraiser who could care less as well.
In the event this reaches any appraisers who care. You are a part of a profession that has lost its way, but a profession we can individually be proud of none the less. Do not join with appraisers who are primarily interested in producing income. Nothing wrong with business or charging for your services, but in our profession ethics and credibility must be way ahead of income in priority.”
OK. I’m a crusader, but ain’t nobody going to straighten out our part of it for us. Not the AI, not the Foundation, not the attorneys general, and certainly not Fannie, just us. We’ve paved a portion the road with nothing but deep un-compacted spin and a veneer of what masquerades as good intentions. It is long past time to irrevocably orient appraisers to the Jonathan Miller Matrix mix of facts and analysis that supports credible appraisal conclusions.