Closing the curtain on appraisal fraudAllen Johnsonmortgage industry, Fair Value and Independent Appraisal Act
In the entertainment world, many bad actors are given the
tongue-in-cheek Razzie Award for their awful performances. In the
mortgage world, too many bad actors are awarding themselves with
raises.
Today, appraisal fraud schemes have the spotlight shining
brightly on the mortgage industry—and it is not giving off a
glamorous glow. In fact, the critics in Washington, D.C. are
looking to shut down these shows of bad business in a hurry.
Sen. Mel Martinez and Sen. Bob Casey have pooled their talents
with Rep. Paul Kanjorski and Rep. Judy Biggert to introduce the
Fair Value and Independent Appraisal Act to reform the appraisal
process for home purchases and to deter appraisal fraud scams that
sell homes at higher prices than what they are worth. Currently,
their proposed legislation is with the Senate Banking
Committee.
Martinez, who is a former secretary of the U.S. Department of Housing and Urban
Development, was recently quoted saying: "There are some truly
bad actors out there posing as legitimate appraisers. The ripple
effect has worsened the mortgage crisis. [The Fair Value and
Independent Appraisal Act] will protect both consumers and lenders
by improving oversight and putting more checks in place."
By introducing this legislation, it is the next step toward
rewriting some of the bad reviews the mortgage system is receiving
and will ensure greater protection for both consumers and mortgage
professionals.
The next act, at-a-glance
It's unfortunate that there are cases of appraisal fraud in the
mortgage industry. The dramatic storyline for these schemes is
quite simple: The lender needs the value of a property to be at a
certain number to increase the mortgage size. The appraiser, who
needs to work with the lender to get more business, may inflate the
property's value in the favor of his supporting actor. The
unsuspecting buyer signs the overpriced deal. In the end, the
once-happy buyer may find his dream home is worth significantly
less than the price paid and sadly, must go into foreclosure. The
lender is left with a worthless property. The community is
devastated by yet another abandoned home and the scammer walks away
with thousands of dollars in inflated fees. However, with the
introduction of the Fair Value and Independent Appraisal Act, more
homebuyers, mortgage professionals and communities nationwide will
be able to enjoy an alternate ending.
Under the Fair Value and Independent Appraisal Act, additional
fraud checkpoints will be put into place, including:
•Mandating a physical property visit, in addition to a
second independent appraisal for high-interest, high-risk mortgages
offered for properties sold at higher prices within a 180-day
period of its last purchase, to help prevent "flipping"
schemes;
•Prohibiting interested parties from improperly influencing
a property's appraisal to ensure the appraiser's
independence;
•Requiring the mortgage originator to supply a credit
applicant with all appraisal valuation reports no later than three
days prior to the transaction closing date; and
•Increasing civil penalties for violating these
requirements. First-time offenders will be fined $10,000, and an
encore performance will be fined $20,000.
With these checkpoints in place, there will be fewer shifty
players profiting from other people's losses.
In a recent press conference, Biggert reiterated that the "papers
are filled with stories about low-income, elderly and even
mentally-disabled homeowners who have lost their houses to these
schemes. Gang-bangers discovered it was easier to steal mortgage
money than to sell drugs. Fraudulent appraisals are a key component
of almost all of these scams. I strongly urge House and Senate
leaders to act quickly on this common-sense, bi-partisan reform
that can start helping homeowners, and the economy, now."
Avoiding problematic plots To help mortgage
professionals steer clear of questionable appraisals and fraud
scams, consider these characteristics when auditioning your next
appraiser:
Credible and reliable
Today's marketplace has its share of amateur appraisers who are
passing themselves off as having the education, training and
expertise to give a fair and accurate estimate. To ensure you will
receive a credible, reliable appraisal report, only partner with an
appraiser who is accredited, certified and designated by a
reputable university or organization. These appraisers will have
designations such as Accredited Appraiser (AA), Senior Accredited
Appraiser (SAA) or Accredited Master Appraiser (AMA).
Educated
Accredited, certified and designated appraisers are instructed on a
collegiate level on the principles of valuation, personal property
valuation, report writing, research and analysis, appraisal
practice and standards, and other courses on appraisal practices
and ethics.
USPAP adherence
All ethical appraisers who are accredited, certified and designated
follow the standards and practices of the Uniform Standards of
Professional Appraisal Practices (USPAP). Problematic appraisers
may not even know the USPAP exists, let alone attempt to conform to
its requirements. Make sure to ask the appraiser when you receive a
report that it is in compliance with the USPAP.
Verified references
Legitimate appraisers who are of good character and citizenship,
and who follow ethical principals and practices should be able to
readily provide you with a list of verified professional references
to demonstrate their experience. Ask for a copy, and follow up on
them.
Authorization in multiple states
For mortgage professionals who are originating and closing loans in
multiple states, consider teaming up with an appraiser who is
authorized to appraise property values in those states as well, to
help ensure an accurate appraisal by an ethical partner you
trust.
Best practices deserve a standing ovation
While a few bad actors are on the mortgage scene, there are many
ethical, hard-working appraisers who are dedicated to partnering
with brokers and lenders to put their best practices to work in
providing honest, legitimate appraisals for potential homebuyers.
With the possible introduction of the Fair Value and Independent
Appraisal Act to help protect both consumers and mortgage
professionals, the mortgage industry is sure to produce even more
home-sweet-home buying happy endings.
Allen Johnson is vice president of sales and marketing for
Ariston, a Credit Plus Inc. company. He
may be reached at (800) 569-9951 or e-mail
[email protected]
