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National Mortgage Professional
Jun 26, 2008

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]
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