Commentary and information about public safety and security, intelligence and counterintelligence, open government and secrecy, and other issues in northern Idaho and eastern Washington.

Location: Coeur d'Alene, Idaho, United States

Raised in Palouse, WA. Graduated from Washington State University. US Army (Counterintelligence). US Secret Service (Technical Security Division) in Fantasyland-on-the-Potomac and Los Angeles. Now living in north Idaho.

Saturday, December 08, 2007

Real Estate Appraisal Fraud

With the nationwide housing slump, the number of residential foreclosures is increasing. The subprime lending business is transitioning to the subprime lending scandal. So serious are the consequences for not only homebuyers but for everyone else in the housing industry that the President has taken steps to control the damage.

Inevitably, victims ask "why" and "how" could this occur? How could the home they purchased for $250,000 now suddenly be valued at well under $200,000?

One answer is that the home was overpriced to begin with, and the mortgage lender enticed a dishonest appraiser to inflate the home's value to correspond with the seller's asking price or to the price offered by the buyer.

To better understand the consequences of appraisal fraud, read Home Insecurity: How Widespread Appraisal Fraud Puts Homeowners at Risk. The report was prepared by Demos, a New York think tank.

Though the report deals with residential appraisal fraud, the same deceptive and dishonest techniques are slightly modified and used in commercial property appraisal fraud. Since urban renewal agencies like our own Lake City Development Corporation also rely on property appraisals, the agency's community and therefore its taxpayers may become the ultimate victims of commercial appraisal fraud.

For those interested in learning more about mortgage fraud and appraisal fraud, see the FBI's 2006 Mortgage Fraud Report and Rachel Dollar's Mortgage Fraud Blog.


Anonymous Anonymous said...

Of course for any individual home the accuracy of the appraisal is determined by the underwriter who decides to approve any lien based upon that appraisal. Any group who determines to defraud the system by inflating appraisals, obtaining loans and then letting them default really has a big job on their hands and one that leaves a big paper trail. No doubt personal transactions done outside the usual pathways will leave some openings for funny transactions including puffed property values. With the lender, the developer and the seller all in cahoots anything is possible and the property appraisal likely just part of wider scheme to defraud. This is even more tempting when the funds are tax based and the auditor is in league with the scalliwags.

10:39 PM, December 08, 2007  
Anonymous stebbijo said...

Here is a modest fixer upper that is affordable

...and it's on a bigger and better lake with real winters!

The same house my father bought years ago in Clark Fork, Idaho for $5000 is my marker. My mother sold it for $10,000. It sold again recently for over $125,000. I am flabbergasted.

It only had two bedrooms and is very old and very small - if you want to live in Clark Fork where there are no jobs.

It's insane here.

11:34 AM, December 09, 2007  
Blogger DanG said...

I had my home appraised back in 2003 for a home equity loan. It was a "drive by" appraisal. The guy never went into my home. He literally drove by and said, "Your home is worth $X." I was floored. The industry is paying for that kind of foolishness now. They deserve it.

12:37 PM, December 09, 2007  
Anonymous Anonymous said...

The level of appraisal done is relative to the size of the lien being applied for. Home values are derived from recent comparable sales of similar homes. So if 6 homes of similar size and location sold during the previous six months for an average of $200K then your home would appraise for around that much. If all your asking for is a $50K loan on a $200 property then a drive by appraisal would suffice. If you're asking for a $180K loan then a full hard appraisal will be required because the loan to value ratio is high. It is not the appraiser who decides it is the underwriter for the lender that chooses the type of appraisal. They are also who quality checks the validity of any appraisal. If they don't like the looks of numbers they can ask for additional info or second appraisals. Appraisers rarely drive market fluctuations because their data is almost always historical. R.E. agents may ask an appraiser to meet a certain value and they may do their best to. But if the appraised value cannot be historically supported the underwriter will shoot down the appraisal (and black mark the appraiser too). The main reason values around here have skyrocketed is because buyers have come in with money. They buy homes for what is being asked for them and they do not have to appraise that high to get any loan. For example they buy a home for $350K, put down $200K and carry a $150K loan. Well the house might only appraise for $275K and the deal will still close and the loan to value is still under 60%. Then the next home that sells will have that closing at $350K on the books to use as a comparable.

1:38 PM, December 09, 2007  

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