Inflated real estate appraisals under investigation on clarkhoward.com

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.

What others are saying

HVCC
Cuomo caught e-AppraiseIT and WaMu with their hands in the cookie jar and to punish them, he gave them the keys to every candy store in the US.
AMCs are the problem, not the solution!
Interesting the only provision of the HVCC that was NOT activated was the IVPI which was supposed to ENFORCE the
laws.
By Allison @ 06/23/09 12:30:59 PMreport abuse
Appraiser
As an appraiser, I used to be pressured to up values about 10% of the time;I refused. Now I'm pressured to lower values for foreclosure and relocation companies;I refuse. Bye Bye work and income. But as a Certified Residential Appriaser in several states for many years I haven't starved or bankrupted. I'm still here to enjoy the latest government induced misery: Appraisal Management Company middlemen wherein problems have just multiplied and become more subtle. AMCs, by the way, take their fees by lowering mine, while reports grow longer and more complex, if not more effective or accurate. While costs, from professional insurance (claims increased 100% over past two years), to cars and computers, software and data systems, food and shelter and medical escalate. Time pressures for production are relentless. I learned long ago to block out everything but the market data; I was on a lender's staff for many years in days when they kept their loans and did not sell them to the taxpayer-insured secondary market. The result? They got the best appraisers they could, fully supported their independence and accuracy, paid them decently. The result - they were the most successful housing lender in the country. Now, along with almost everyone else, they too slid down the yellow brick road, sold their loans, made appraising a "profit center" adding hundreds of dollars for themselves to the appraisal cost, put staff appraisers under crushing quotas-on Thanksgiving every appraiser was at her desk in an otherwise empty branch bank. I went from being valued for accuracy to being censured for taking two days on a difficult foreclosure involving litigation. Now? Enough is enough and I am actively seeking alternative employment. The odds? Not good. But from my viewpoint, things are going from bad to worse. Personally, I think the mess might ease if Lenders had to hold their loans accepting the risks for the full life of the mortgage. Break up the monsters, disallow their "subsidiary" appraisal companies. Make room for smaller, local competition who may make fewer billions while perhaps taking better care of their long time consumer. And how far is that idea going to get these days?
By Camille @ 06/06/09 05:55:24 PMreport abuse
appraisals
I don't think it's fair for those of us who maintain our homes, live in a neighborhood for 20+ years and try to refinance (with excellent credit) only to find out that the appraisal came back lower than the original purchase amount 21 years ago because of foreclosures in the hood. A home that sells for $60k is trashed, not move in ready like mine. Why not add the cost of repairs to the appraised value? Also, Gwinnett County is still getting paid taxes on double what my home is worth. Two years ago I owed less than 1/2 half of what my home was worth. My equity is gone. My home is not in foreclosure, yet I can't refinance it because of how the appraisals are done, listing all the foreclosures that don't compare to my home. How many years will it take for my home to go back up in value?
By Laurie @ 05/13/09 03:28:48 PMreport abuse
I have a bone to pick with you on your comments on hour 1 of 5/9 in regards to the New York AG vs the Lenders in appraisal matters.

I work as an appraiser for one of the giant monster mega banks. Our staff model of appraisals is something that the NY AG wants to get rid of. My bank has never pressured me for a value on the house, if a loan officer does, I report them immediately to my manager, who then turns them over to the Risk Assessment department.

The reason we like our staff model is I work along a 15 mile strech of freeway completing 3-4 orders a day whereas a fee appraiser may work 3-5 different counties. I know my area very well which allows me to complete top notch appraisals effectively.

In the past years since the mortgage meltdown I have shot down over 50% of the refinances that I have come across and no one says a word to me. I am doing my job as the eyes and ears of the lender, protecting my company's investment, and they like it that way.

The problem with what the NY AG has proposed is a fee appraiser only based model. A fee appraiser only model makes sense, looking at it from the outside. Until you get loan officers who send an order to a fee appraiser with a Qualifying Value (Refinance, HELOC) or Purchase Price, if the appraiser does not bend his ethics to make that price it goes to the next appraiser, until you get an appraiser who is greedy or starving and will do so.

Do I think all staff based companies never pushed values on their appraisers? Absolutely not! We need some government oversight and possibly audits of appraisal departments on a yearly basis. I will point out how effective my company has been during this time of the melt-down as opposed to companies that allowed their loan officers to utilize fee appraisers at their own discretion. My company attributes the effectiveness during this melt-down to the way we lend and our staff appraisal model.

I also think the professionalism of appraisers is something a company needs to control. In a time of online banking, bill paying, and direct deposit. I personally have not been inside a branch in a few years. Appraisers are the face of the lenders and we aren't just in a store down the street, you invite us into your homes. I have heard stories of the fee appraiser/landscaper who shows up at a house with a truck and a lawnmower in the back, wearing jeans and a T-shirt. Not exactly the model of professionalism.
By Caleb @ 06/11/08 01:32:29 AMreport abuse
New Beazer Homes
anyone have information?
By kate @ 05/16/08 03:56:11 PMreport abuse
how about LAZY APPRAISAL?
Let's include LAZY APPRAISALS in this discussion. I just refinanced a home in AZ, and (go figure) the appraisal came in at EXACTLY the listing price of the home next door. My bet is the appraiser drove by, picked up their flyer and quickly "completed" his appraisal. It's disgusting I had to pay for that.
By margaret @ 05/13/08 12:04:22 PMreport abuse
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

HVCC

Cuomo caught e-AppraiseIT and WaMu with their hands in the cookie jar and to punish them, he gave them the keys to every candy store in the US.
AMCs are the problem, not the solution!
Interesting the only provision of the HVCC that was NOT activated was the IVPI which was supposed to ENFORCE the
laws.

By Allison @ 06/23/09 12:30:59 PMreport abuse

Appraiser

As an appraiser, I used to be pressured to up values about 10% of the time;I refused. Now I'm pressured to lower values for foreclosure and relocation companies;I refuse. Bye Bye work and income. But as a Certified Residential Appriaser in several states for many years I haven't starved or bankrupted. I'm still here to enjoy the latest government induced misery: Appraisal Management Company middlemen wherein problems have just multiplied and become more subtle. AMCs, by the way, take their fees by lowering mine, while reports grow longer and more complex, if not more effective or accurate. While costs, from professional insurance (claims increased 100% over past two years), to cars and computers, software and data systems, food and shelter and medical escalate. Time pressures for production are relentless. I learned long ago to block out everything but the market data; I was on a lender's staff for many years in days when they kept their loans and did not sell them to the taxpayer-insured secondary market. The result? They got the best appraisers they could, fully supported their independence and accuracy, paid them decently. The result - they were the most successful housing lender in the country. Now, along with almost everyone else, they too slid down the yellow brick road, sold their loans, made appraising a "profit center" adding hundreds of dollars for themselves to the appraisal cost, put staff appraisers under crushing quotas-on Thanksgiving every appraiser was at her desk in an otherwise empty branch bank. I went from being valued for accuracy to being censured for taking two days on a difficult foreclosure involving litigation. Now? Enough is enough and I am actively seeking alternative employment. The odds? Not good. But from my viewpoint, things are going from bad to worse. Personally, I think the mess might ease if Lenders had to hold their loans accepting the risks for the full life of the mortgage. Break up the monsters, disallow their "subsidiary" appraisal companies. Make room for smaller, local competition who may make fewer billions while perhaps taking better care of their long time consumer. And how far is that idea going to get these days?

By Camille @ 06/06/09 05:55:24 PMreport abuse

appraisals

I don't think it's fair for those of us who maintain our homes, live in a neighborhood for 20+ years and try to refinance (with excellent credit) only to find out that the appraisal came back lower than the original purchase amount 21 years ago because of foreclosures in the hood. A home that sells for $60k is trashed, not move in ready like mine. Why not add the cost of repairs to the appraised value? Also, Gwinnett County is still getting paid taxes on double what my home is worth. Two years ago I owed less than 1/2 half of what my home was worth. My equity is gone. My home is not in foreclosure, yet I can't refinance it because of how the appraisals are done, listing all the foreclosures that don't compare to my home. How many years will it take for my home to go back up in value?

By Laurie @ 05/13/09 03:28:48 PMreport abuse

I have a bone to pick with you on your comments on hour 1 of 5/9 in regards to the New York AG vs the Lenders in appraisal matters.

I work as an appraiser for one of the giant monster mega banks. Our staff model of appraisals is something that the NY AG wants to get rid of. My bank has never pressured me for a value on the house, if a loan officer does, I report them immediately to my manager, who then turns them over to the Risk Assessment department.

The reason we like our staff model is I work along a 15 mile strech of freeway completing 3-4 orders a day whereas a fee appraiser may work 3-5 different counties. I know my area very well which allows me to complete top notch appraisals effectively.

In the past years since the mortgage meltdown I have shot down over 50% of the refinances that I have come across and no one says a word to me. I am doing my job as the eyes and ears of the lender, protecting my company's investment, and they like it that way.

The problem with what the NY AG has proposed is a fee appraiser only based model. A fee appraiser only model makes sense, looking at it from the outside. Until you get loan officers who send an order to a fee appraiser with a Qualifying Value (Refinance, HELOC) or Purchase Price, if the appraiser does not bend his ethics to make that price it goes to the next appraiser, until you get an appraiser who is greedy or starving and will do so.

Do I think all staff based companies never pushed values on their appraisers? Absolutely not! We need some government oversight and possibly audits of appraisal departments on a yearly basis. I will point out how effective my company has been during this time of the melt-down as opposed to companies that allowed their loan officers to utilize fee appraisers at their own discretion. My company attributes the effectiveness during this melt-down to the way we lend and our staff appraisal model.

I also think the professionalism of appraisers is something a company needs to control. In a time of online banking, bill paying, and direct deposit. I personally have not been inside a branch in a few years. Appraisers are the face of the lenders and we aren't just in a store down the street, you invite us into your homes. I have heard stories of the fee appraiser/landscaper who shows up at a house with a truck and a lawnmower in the back, wearing jeans and a T-shirt. Not exactly the model of professionalism.

By Caleb @ 06/11/08 01:32:29 AMreport abuse

New Beazer Homes

anyone have information?

By kate @ 05/16/08 03:56:11 PMreport abuse

how about LAZY APPRAISAL?

Let's include LAZY APPRAISALS in this discussion. I just refinanced a home in AZ, and (go figure) the appraisal came in at EXACTLY the listing price of the home next door. My bet is the appraiser drove by, picked up their flyer and quickly "completed" his appraisal. It's disgusting I had to pay for that.

By margaret @ 05/13/08 12:04:22 PMreport abuse

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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May 09, 2008 -- Inflated real estate appraisals under investigation

What others are saying