Almost 40% of
appraisers surveyed from Sept. 15 through Nov. 7 reported experiencing pressure
to inflate values, according to Allterra Group LLC, a for-profit
appraiser-advocacy firm based in Salisbury, Md. That figure was 37% in the
survey for the previous year.
“If you thought what
was happening before was an embarrassment, wait until the second time around,”
said Joan Trice, Allterra’s chief executive and founder of the Collateral Risk
Network, which represents appraisers employed by lenders and other companies
and has been meeting with regulators to discuss concerns about appraisers being
pressured into inflating values.
– From the Wall Street Journal article: Dodgy Home Appraisals Make a
Comeback
When in
doubt, just make shit up.
That seems to
be the mantra of the U.S. real estate industry. A place where home values
must always rise no matter what. After all, there’s nothing better for an economy
than pricing out average citizens from their means of shelter.
As the WSJ reports, inflated home
appraisals have become such a concern that the Office of the Comptroller
of the Currency is looking into it. Which means precisely nothing will be done
to stop it. After all, it is official government policy to encourage risky loans
to keep housing bubble 2.0 inflated. Recall: Mel Watt, Federal Housing
Finance Agency Head, is Pushing Banks to Make Extremely Risky Home Loans.
Home appraisers are
inflating the values of some properties they assess, often at the behest of
loan officers and real-estate agents, in what industry executives say is a
return to practices seen before the financial crisis.
An estimated one in
seven appraisals conducted from 2011 through early 2014 inflated home values by
20% or more, according to data provided to The Wall Street Journal by Digital
Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and
consulting firm based in Maitland, Fla., was hired by some of the 20 largest
lenders to review their loan files.
The firm reviewed more
than 200,000 mortgages, parsing the homes’ appraised values and other
information, including the properties’ sizes and similar homes sold in the areas
at the times. The review was conducted using the firm’s software and staff
appraisers.
Bankers, appraisers
and federal officials in interviews said inflated appraisals are becoming more
widespread as the recovery in the housing market cools. While home
prices are increasing generally, their appreciation is slowing, and sales have
been weak despite low interest rates. The dollar amount of new mortgages issued
this year is expected to be down 39% from last year, at about $1.12 trillion,
according to the Mortgage Bankers Association.
That has put
increasing pressure on loan officers, who depend on originating new mortgages
for their income, as well as real-estate agents, who live on sales commissions. That in
turn is raising the heat on appraisers, whose valuations can make or break a
sale. Banks generally won’t agree to a mortgage if the purchase price or the
refinancing amount is higher than the appraised value.
Almost 40% of appraisers surveyed from Sept. 15
through Nov. 7 reported experiencing pressure to inflate values, according to
Allterra Group LLC, a for-profit appraiser-advocacy firm based in Salisbury,
Md. That figure was 37% in the survey for the previous year.
“If you thought what was happening before was an
embarrassment, wait until the second time around,” said Joan Trice, Allterra’s
chief executive and founder of the Collateral Risk Network, which represents
appraisers employed by lenders and other companies and has been meeting with
regulators to discuss concerns about appraisers being pressured into inflating
values.
Digital Risk found that some appraised values
were off the mark based on discrepancies that appeared unintentional, though,
“at other times, the appraiser’s selection of [comparable properties]…is very
hard to justify,” said Thomas Showalter, chief analytics officer at Digital
Risk. The firm saw cases where values
for decades-old homes were determined based on sales prices for newly
constructed ones, and homes blocks from shorelines were compared with
waterfront properties, he said.
Brandon Boudreau, chief operating officer at
Metro-West Appraisal Co. LLC, a national firm based in Detroit, says he and his
appraisers often feel pressured by aggressive real-estate agents.
Much of the pressure,
appraisers say, is being applied by companies hired by banks to assign appraisal
work, known as appraisal-management companies, or AMCs. A much
larger share of appraisals have been filtered through these companies since the
introduction of new financial rules and other requirements that seek to
prohibit appraiser coercion.
Tom Allen, who says he has been an appraiser for
44 years, recalled appraising a house in April for about $450,000 for a loan
application with J.P. Morgan Chase & Co.
About a week later, Mr. Allen, 68 years old, says he received a request from
the appraisal-management company to use two different properties as comparables
that had recently sold for around $525,000 and $540,000. Mr. Allen says he
refused because the homes were larger, in a more expensive neighborhood and
built about 10 years after the property in question. Since then, Mr. Allen says
he mostly accepts appraisal requests for homes that have several similar nearby
sales.
A J.P.
Morgan spokesman declined to comment. Of course they did.
Freddie Mac has found cases of appraisers submitting a suspiciously
high number of reports in one day, as well as reports for properties in places
where they aren’t certified or licensed to operate, according to a spokesman. It has also
received tips from employees at lenders and other insiders warning of inflated
valuations, he said.
Is there any price in this economy that
isn’t completely rigged?
http://www.zerohedge.com/news/2014-12-03/housing-fraud-back-%E2%80%93-real-estate-industry-intentionally-inflating-home-appraisals
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