Appraisers are taking matters into their own hands as they fight back against lenders and other real estate professionals who want them to pad appraisals in order to meet what they feel are unrealistic sales prices of homes. Some are saying that they are sick of reporting fraud to their boards and seeing nothing done to stop it. Others are contacting the FBI where the fraud can be investigated as mail fraud.
The reason the FBI is interested? According to a report in the Baltimore Sun in January, mortgage fraud complaints more than doubled in 2004. "Nationally, the bureau received 17,127 reports of mortgage fraud in the fiscal year that ended Sept. 30. In the preceding fiscal year, 6,936 reports were received," said the report.
One reason they say nothing changes is that the boards are made up of bank members who don't want to see the practice change. Appraisers who don't play ball are quickly benched.
"I have reported numerous violations to the Oregon Appraiser Certification & Licensure Board, some are acted on, some are not," says one appraiser.
He recounts that for a number of years the Oregon Board has a senior vice president of a major bank who served on the Oregon board.
"In the early 1990's, I provided about 100 appraisals to this person's bank," recalls the appraiser. "Three of those appraisals did not come in high enough for the deals to close. On two of those deals, this board member was the loan officer. Both times he asked me to "look at the property again." I provided new comparables both times. Both times the value was unchanged from my original report. Subsequent to the second time, I ceased to get any work from the bank, but no one at the bank would tell me why I was no longer used as an appraiser."
"I find it certainly possible that the "lender representatives" on the Oregon board could have used their positions to protect appraisers who always provided the desired valuations," he adds.
The problem with inflated appraisals is not everyone makes out, suggests Minnesota agent Kevin Marois , particularly homebuyers.
"I''ve been a licensed agent in Minnesota for seven years now and am sickened by this "what came first, the chicken or the egg" stuff. It's not fun for agents to look at a seller who's now in trouble with an inflated mortgage," says Marois. "I recently just about lost a listing opportunity when I laughed at a $639,000 appraisal on a home - my high numbers were $550,000. This scumbag appraiser used comps from lake homes 10 times better and an hour away! The funny thing is a rookie/starving agent will write that thing up for whatever the seller wants. We all know the usual results - it gives the whole industry a black eye."
He says, "The bottom line is if someone is willing and able to buy at a given price, isn't that how we determine market price? That's "chicken or the egg theory at its best."
Appraisers who don't meet sales prices are often severely punished - by not being paid for their work at all. That's a problem that trickles down to real estate agents who are looking for accurate appraisals.
"I, too resigned my license a month ago," says former Texas appraiser William J. Rose. "You cannot participate in the real estate business without committing felonies. I complained to the boards, and they tried to stifle me. According to the FBI, this is the new Mafia. The things I have seen deserve prison sentences. I filed a complaint with the local FBI office and they are acting on it."
"It covers the entire industry from loan officers, mortgage bankers, some real estate agents and some bankers," says Ray Miller, an appraiser with Land & Live Stock, Co. LLC. "If they thought the savings and loan crisis was a problem, they have seen nothing yet."
Miller says, "I am owed over $30K on appraisals that did not meet the mark. I have friends who are owed upwards of over $60K. I have had more appraisal management companies drop me because I don't meet the number of their clients."
He adds, "My work now is mostly RE0's, ERC's, personal property, divorce and private work. Where numbers do count. But this is even getting slim pickens as more and more appraiser try and move out of the mortgage banking business."
Warns appraiser Terrel Shields, "Those of us who do not bend to the kind of blackmail put on us by mortgage brokers have very little mortgage business. And all too often, even review appraisers are overwhelmed by the pressure to rubber stamp these lousy appraisals. The financial day of reckoning will come. When it does it will be like the early 80's when Realtor after Realtor consolidated, downsized, or disappeared. Allowing prices to be raised, not by economics, but by price spiral caused by increasingly inflated prices from bad appraising and equity milking by borrowers will collapse the market far worst than a normal trend would do."
With the situation reaching what some appraisers call a crisis, some are taking action.
"As a residential review appraiser with 14 years experience, I see appraiser fraud weekly," says a northeastern appraiser who says he is working with the FBI. "In 2003, I turned in 17 fraudulent reports performed by different appraisers into my real estate commission. Each report had no less than four Uniform Standards of Professional Appraisal Practice violations and significant value differences when real comps were applied. Over the course of the next year, I received 17 letters back from my real estate commission stating that they didn't find anything wrong with these reports. One of the real estate commission's state investigators sat in my office and admitted to me that they didn't really know how to read an appraisal report, and stated that our state doesn't have the funds to send them to proper training. So, the real estate commissions, for the most part, don't have the funding or the intestinal fortitude to go after these crooks/fraudsters.
"Also in 2003, I attended an NAIFA class called, 'Fraud, Flips & The FBI,'" says the source. "When I described my frustration about lender pressure and the appraisal fraud I was seeing, the instructor looked me squarely in the eye and told me forget about contacting my real estate commission with fraudulent field reviews because the politics of it all could backfire on you. He told me right then and there to go to the FBI if I wanted anything done about it. I didn't at the time, but this morning, I have contacted the FBI.
"At the same time I was turning in these 17 fraud reports, I was warned by a prominent Appraisal Institute member not to submit those of a certain ethnic race appraiser because he was well politically entrenched and it could backfire on me," notes the source. "Also, at the same time, I confided in a local Member of the Appraisal Institute (MAI) about the appraisal fraud both in my local area and inside his local AI residential membership. This MAI later told me to be careful because I could die by the same sword I was wielding (a professional death, not physical death)."
Suggests Virginia appraiser Gil Rogers , "The way to fix this problem would be to create a wall of separation between the loan officers and the appraiser. Allow the appraiser to do their job with minimal interference from the LO's and their agents and homeowners. Most pressure does not come from the agents, but from the loan officers. FDIC has done their part in trying to maintain the independence of appraisers by asking lenders to have one person who is responsible for ordering appraisals. Unfortunately, the final solution may be found in something that is an anathema to many appraisers: the appraisal management company. Some AMC's are operated very well, others ask the appraiser to reduce the fee and then constantly harass the appraiser with phone calls.
"This also creates another middleman for the consumer to pay."