Sunday, March 12, 2006

Appraisal Fraud - "We See it All the Time"

I found this article referenced over at Ben Jones' blog. I've been avoiding dealing with appraisal and lending fraud but now more and more people are coming out and admitting to an industry steeped in fraud. It's all about the refi and living beyond one's means. This cannot end well.

Some choice quotes:
“Not a week goes by that appraiser John Meyer does not get a request to ‘hit the number’ on a home’s value to ensure a loan goes through. ‘I had a guy from New Jersey last night call, and he wanted me to do the appraisal if I can assure him I would hit $800,000,’ Meyer said recently. ‘I told him I couldn’t do that.’”

“Walker appraiser Fred Vander Wal has similar stories. ‘I had two last week screaming at me about what they wanted me to do,’ Vander Wal said. ‘It was a 7-year-old home, and it was just trashed, holes in the walls, carpeting all ruined. They said, ‘They’re not going to loan on this if that’s the real condition. Can’t you tone it down a little bit?’”

“That would be appraisal fraud, and Meyer said it’s ‘one of the primary problems out there.’ A recent example is the $325 million settlement by lending giant Ameriquest for what 49 state prosecutors call deceptive lending. Many of those allegations included inflated appraisals.”

“Marge Eppes believes her Holland home was subject to an inflated appraisal. In 2002, she was trying to refinance the loan on her 3-year-old, three-bedroom home at a lower rate. The appraisal came in at $148,000. Eppes said the mortgage company told her it was not enough to cover the refinance.”

“‘Two months after that, they sent another person out,’ Eppes said. ‘They said it was worth $175,000.’ The closing fell through for other reasons, and Eppes has since refinanced with another organization, but she was troubled by the difference in values.”

“Appraisers across the country say they are asked to do it. A recent survey by Ohio-based October Research Corp. found 55 percent of appraisers reported being pressured to overstate home values. ‘We get the requests all the time,’ said Meyer in Kentwood. ‘They say, ‘Unless you can come up with another $20,000 more, we’re not going to pay you.’”

“‘We run into it all the time,’ said Fred Skidmore, an associate broker. ‘They’ve refinanced within the past year and a half, and the refinance appraisal came out higher than what we’re able to sell it for today.’ To settle with their lender, ‘they’d have to come to the table with money,’ he said.”

“Remember the savings and loan debacle of the late 1980s that required a $200 billion taxpayer funded bailout? ‘A lot of appraisers were complicit in that,’ Meyer said.”

“Vander Wal said much of his business is reviewing others’ appraisals, many of which are problematic. He declined to name companies requesting them or the original appraisers for fear of losing business. ‘Out of the reviews I’ve done in 10 years, easily 95 percent of them had serious problems,’ he said. ‘They would overvalue the properties by 20 or 30 percent.’”

“‘We’ve reviewed some in which we looked at the appraisal, and everything looked right,’ he said. ‘We pulled the listing cards (with the sale information) and every one of the sale prices was inflated by $20,000 over what they really sold for.’ He did not know the motive, but the extra money may have given the owners some extra spending money or allowed a buyer to have a 100 percent financing on the house without the mortgage lender realizing it.”

8 Comments:

Blogger Athena said...

That's what I'm talking about!

I am telling you... people don't talk enough about this.

These guys have a regular backroom plot going on.

They are the ultimate kingmakers in this game... when real estate prices are dependent on nothing but a fool's game... how are these guys going to instill any fiscal sanity?

What determines the value of a house?

As long as the value of a house is primarily based on the buyer's willingness to pay the price... what is the real purpose of an appraiser?

I mean as long as there is a buyer willing to buy it... then that is validation of the price... and the appraiser does nothing to dispell that.

How does an appraiser explain when houses jump in value up 70% in one year?

What happened there? where were the appraisers then saying this was not real value and therefore could not justify the costs of the house?

Where are the appraisers speaking out against the over-valued real estate?

oh... right... do you hear that sound? Its called silence and it is deafening.

Silence is consent. The appraisal industry is complicit in this... if they are not only in bed with the banks and mortgage companies... but they have their hands all in the pants of the real estate industry.

Nothing but a pat my back bob game going on here.

Mar 12, 2006, 11:05:00 AM  
Blogger Former Apt. Broker said...

The appraisal "profession" is a joke. In the old days direct lenders wanted to know what a property was "worth", but today since most lenders (even banks) sell the paper they want the property to "hit the number" so they can make the fee and sell the loan. If an appraiser can't "hit the number" most of the time he will not make any money ever again...

Mar 12, 2006, 5:03:00 PM  
Anonymous Anonymous said...

i have been trying to make an honest living as a loan broker for 10 months now,and have killed more deals than i have made by being straight,my first week the world savings rep told me his underwriters would put the file on his desk,tell him how much more income was needed,he'd call me and "we'll fix it" i told him it wasn't my style.values on homes are based on market prices,with a willing buyer etc.einstein said the second infinity was human stupidity....appraisers are human and i would say that 20% are both honest and competent,as opposed to lawyers.

Mar 12, 2006, 5:18:00 PM  
Anonymous Anonymous said...

i have been trying to make an honest living as a loan broker for 10 months now,and have killed more deals than i have made by being straight,my first week the world savings rep told me his underwriters would put the file on his desk,tell him how much more income was needed,he'd call me and "we'll fix it" i told him it wasn't my style.values on homes are based on market prices,with a willing buyer etc.einstein said the second infinity was human stupidity....appraisers are human and i would say that 20% are both honest and competent,as opposed to lawyers.

Mar 12, 2006, 5:19:00 PM  
Blogger fredtobik said...

The world is full of morons, the rest of us try not to get infected by them.

Mar 12, 2006, 6:08:00 PM  
Blogger Athena said...

I just can't get over this. Homeowners get sucked into fudged appraisal refinancing... and their home then has a "value" of inflated x. Their exotic refi arm adjusts and they sell their house... they are certainly not going to sell it for less when the market is good... so they ask for 20% more than what they owe- which was already fudged... and boom... their house value had now increased the values of the other houses in the neighborhood.

The Jones' next door are doing the same thing... they see what the Smith's house sold for- and they call up loose lender and ask for a refi and their appraisal comes in at X over the sale price of the Smith's... then they sell when they realize they now can qualify for an even bigger McShack... and they ask for 20% more than what THEY owe...

Why are so few people talking about this crooked elephant in the living room?

And who is it that is still wondering how the bubble took flight?

Mar 15, 2006, 12:03:00 AM  
Blogger Marinite said...

Athena -

What you describe IS the bubble. It is happening all over. Marin and Sonoma are just as affected as any other bubble areas.

And on top of this is speculative buying which increases the "demand" and thus the purchase rate and thus increases the rate at which fraud is being committed. Marin is less affected by speculation than places like Las Vegas but it is still very significant; just talk to people over the last few years and hear what they are doing; this is not rocket science. I bet specualtion is a bit higher in Sonoma and Napa counties than here. But what you describe is why the "real", nonfudged values of houses around here is 30-40% of their current prices.

Mar 15, 2006, 9:57:00 AM  
Anonymous Anonymous said...

Marin is less affected by speculation than places like Las Vegas but it is still very significant; just talk to people over the last few years and hear what they are doing; this is not rocket science. I bet specualtion is a bit higher in Sonoma and Napa counties than here. But what you describe is why the "real", nonfudged values of houses around here is 30-40% of their current prices.
Marinite,
I started out as a "doubter", but your unbiased view (at least in this post) is really changing my view.
Thank you.

Mar 15, 2006, 11:36:00 PM  

Post a Comment

Links to this post:

Create a Link

<< Home

Terms of Use: The purpose of the Marin Real Estate Bubble weblog (located at URL http://marinrealestatebubble.blogspot.com/ and henceforth referred to as “MREB” or “this site”) is to present and discuss information relating to real estate and the real estate industry in general (locally, state-wide, nationally, and internationally) as it pertains to the thesis that recent real estate related activity is properly characterized as a “speculative mania” or a “bubble”. MREB is a non-profit, community site that depends on community participation and feedback. While MREB administrators do strive to confirm all information presented here and qualify all doubtful items, the information presented at MREB is neither definitive nor should it be construed as professional advice. All information published on MREB is provided “as is” without warranty of any kind and the administrators of this site shall not be liable for any direct or indirect damages arising out of use of this site. This site is moderated by MREB administrators and the MREB administrators reserve the right to edit, remove, or refuse postings that are off-topic, defamatory, libelous, offensive, or otherwise deemed inappropriate by MREB administrators. You should consult a finance professional before making any decisions based on information found on this site.

The contributors to this site may, from time to time, hold short (or long) positions in mentioned and related companies.