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Inflated real estate appraisals under investigation

Have you heard of anyone who wanted to refinance their mortgage and couldn't do so because the appraisal came in too low? This is the natural result of the pendulum swinging back after a spike in inflated real estate appraisals.

Months ago, Clark told you that 90% of appraisers say they've been pressured by mortgage lenders to artificially raise the value of a house. About 5 years ago, that number was just a little over 50%. Standards and ethics became much looser as everybody tried to make the deals happen.

Now we're in a time when many mortgage lenders are questioning appraisals because of the rapid decline of home values in many markets. Plus, they're scared of increased scrutiny of their lending practices.

Here's what's been going on behind the scenes: New York State Attorney General Andrew Cuomo has been pressuring the industry to change how appraisals are done. He wants to ensure that loan officers can't influence appraisers and would actually be separated from the decision of which appraiser is hired.

The Mortgage Bankers Association is fighting hard to overturn the new rules so they'll still be able to get "liar's appraisals." That's just shameful, according to Clark. We've had enough harm done already to families who got into homes they couldn't afford and are now being put out on the street.

Meanwhile, Countrywide has been under a cloud for cheating people on their loans by coming up with false paperwork saying they owe additional money. Clark already relayed the report about Countrywide fabricating documents when they got caught cheating a homeowner with inflated loan fees. But after being caught, the company reached an agreement with the homeowner to keep the documents secret. Thankfully a federal judge intervened and said these documents need to come out -- especially in light of similar allegations against the company all over the country.

Countrywide is going to disappear as a company; either Bank of America will go through with a purchase, or it will fail. It's a shame that a once-respected brand has been sullied. Yet a lot was built on false pretenses and foolish lending. Clark was surprised to learn that the company had internal procedures in place to cheat people, especially those in bankruptcy.

As always, Clark would love to have a Countrywide representative come on the show and explain their position.

Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.

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What others are saying

  • Howard, Please get the whole story...
    I believe this explains what really is going on...

    http://www.washingtonpost.com/wp-dyn/content/article/2008/05/09/AR2008050900851.html?referrer=emailarticle
    By jemelb @ 05/12/08 08:27:55 PMreport abuse
  • Fannie Mae/Freddie Mac and the HVCC
    Mortgage brokers have generate a lot of smoke about the Home Valuation Code of Conduct (HVCC). They pontificate that if the changes proposed in the HVCC are enacted it will prevent brokers from engaging qualified, and experienced appraisers. The truth of the matter is that there are many experienced and professional mortgage brokers who are in the minority, because they can not compete with the majority of the “close the deal” brokers.

    What the “close the deal” brokers are really saying is that I won’t be able to shop appraisers until I can find one that will make my deal. I am an appraiser, and have gotten numerous “comp check” requests from brokers saying that they have a deal and need a value of x to close the deal, what is your fee? One e-mail was actually addressed to 30 appraisers in the address line. The “comp check” is the mortgage brokers way of getting 1) a free appraisal, and 2) a guarantee of a pre-determined value. The appraiser is required by appraisal standards to follow the same data collection and analysis for a comp check as a complete appraisal and is forbidden by those standards to take an assignment with predetermined values. Both of which are required by a “comp check”.

    Why doesn’t the appraiser, just say no. Some do and the ones that don’t play along can be black listed by the mortgage broker. The broker will remove the appraiser from their list of “approved” appraisers and may add them to the lender’s “do not use list”. These backlists are maintained in secrecy providing no notification that the appraiser is on the list and no way to appeal their inclusion to the list. If the appraiser is foolish enough not to collect their fee up front and looks to the mortgage broker for payment, they will find that if they don’t meet value, they won’t get paid. If the deal doesn’t close for whatever reason, they won’t get paid. If they complain, they won’t receive future work. I know of one appraiser whose appraisal came in at value; however, the market had an oversupply condition which the appraiser indicated in the report. This killed the deal. When the appraiser refused to lie and change the report, the broker canceled every open order the appraiser had with the broker. These situations are not the exception as the mortgage community will try to tell you, but the norm.

    Will the HVCC solve these problems? I think not. The intentions are good, the methods are extremely flawed. Separating the mortgage broker from the appraisal process is a step in the right direction, but going to Appraisal Management Companies (AMCs) is jumping out of the pan into the fire. The AMCs are not regulated or required to have appraisal licenses. The value they add (if any) is deducted from the appraiser’s fee. The HVCC need a lot of work, but not by the mortgage broker who are one of the major culprits.
    By Withheld @ 05/12/08 11:20:17 AMreport abuse
  • Don't speak when you don't know what your talking about
    I was driving around today when I heard your tirade on appraisers and how lenders are pressuring appraisers into providing “liar’s appraisals.” Your comment “The Mortgage Bankers Association is fighting hard to overturn the new rules so they'll still be able to get "liar's appraisals." was insulting and patently inaccurate! What we are fighting is a regulation that will require us to use an appraisal management companies to order the appraisals and eliminate our ability to use appraisers that we know will do a quality job. In sharp contrast to your “analysis” of my industry’s motives, most originators DO NOT WANT INFLATED APPRAISALS. Inflated appraisals blow-up deals when underwriters review them, and make borrows somewhat upset when they find out that they paid too much for their homes. If enacted, any appraiser who is able to get on a panel would have an equal shot of getting a appraisal order – regardless of how good they are, or how bad they are. Originators would then be stuck with whoever got the order. There would be no incentive for an appraiser to do quality work, because their business would not be based on the quality of their work, but rather how often their name came up. This proposal essentially socializes the appraisal industry. Do you really think this is a good idea? THIS IS WHAT WE ARE FIGHTING, NOT THE ABILITY TO DO LIAR’S APPRAISALS!!!

    I do not believe this “problem” you speak of is the issue you seem to believe. Your statement that “90% of appraisers say they've been pressured by mortgage lenders to artificially raise the value of a house.” is questionable at best. Even without knowing how sloppily the survey was done, based just on what you said: if an appraiser had one of perhaps 30 to 40 lenders they work with try to pressure them into an inflated value, they would fit in the 90% number. And NOTHING you said indicated that any appraiser actually fudged an appraisal! You made it sound like 90% of the appraisals done were done improperly and this is simply not true!

    It is true that some lenders will pressure appraisers, and it is equally true that some appraisers are susceptible to this intimidation. However these people are in the minority. The reason they do this is because they are the marginal players. Quality originators want quality appraisals from competent professional appraisers. Here in California we have very strict appraisal standards that appear to work very well. In any case what is being proposed would reduce the quality of the appraisals being done, increase the costs to the consumer, and discourage professionalism. That’s why my industry is fighting this, not so (we will) still be able to get "liar's appraisals.

    Robert S. Willett, Jr.
    1st Sierra Mortgage, Inc.
    900 Fulton Avenue, Suite 208
    Sacramento, CA 95825
    (916) 974-2700 X 16
    Voice Mail/Cell: (916) 485-7939
    Fax: (916) 974-3925
    Website: sacramentohomes.net
    e-mail: bob@sacramentohomes.net
    By Bob Willett @ 05/09/08 07:21:30 PMreport abuse

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