Appraisers Examine Florida Mortgage Mess
Have inflated home appraisals helped fuel the current foreclosure crisis - and effectively helped scam artists rip off lenders? Property appraisers say yes.
Moreover, they want regulators to crack down on the Florida mortgage lenders who’ve pressured them to raise home appraisals of certain properties so that an overpriced sale will go through.
It goes beyond Florida, as well.
The 22,000-member Appraisal Institute and other national trade groups this month told regulators that bad credit mortgage lenders with plenty of loans in foreclosure often pay “systematic inattention” to appraisals’ accuracy.
The group claims some mortgage lenders approved low- and no-down payment mortgages in the past without taking hard looks at appraisers hired to estimate properties’ values, failing to put up efficient “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 give the green light to a Florida mortgage loan.
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 say they have lost a loan officer’s business if they refused to play the game.
Such actions have apparently not only impacted legitimate home sales, but have also enabled con artists to steal billions of dollars from buyers and sellers via Florida 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 real estate agents stuck with listings that aren’t selling. To move such a property, an agent finds cohort to offer them $30,000 to $100,000 above a home’s list price.
The agent then works with an appraiser and a mortgage broker to help this “buyer” get a no-money-down mortgage covering the home’s inflated price. The result…
- The home appraiser gets a fee
- The seller gets the price he or she wanted
- The realty agent and Florida 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 lender and something like this (scheme) is going to stick.”
However, many lenders are still in denial about the problem.
Crabtree said he’s offered one lender documentation of a “Cash Back at Closing” scam involving one of the firm’s mortgages - but the lender won’t return calls.
Unfortunately, this problem affects more than just lenders.
When a home sells for an artifically inflated listing price, other buyers use it as a “comparable” when deciding how much to pay for nearby properties. That means other homes will end up overvalued as well.
SOURCE: Boston Herald
