Inflated appraisals helped fuel the surge in foreclosures on credit-strapped borrowers

Inflated appraisals helped fuel the surge in foreclosures on credit-strapped borrowers.

Why do appraisers inflate appraisals?

The main reason is money: the appraiser gives the loan officer whatever value is needed for a loan, so the loan officer will use the appraiser again and again, inflating the value of numerous properties. But when the homeowners attempt to refinance, if they use a different mortgage company, the legitimate appraiser will value the property at its actual (not inflated) value. This may cause a significant decrease in value, sometimes to the point where a client owes more on the mortgage than what the property is worth. The homeowner is “upside down” and this can cause significant problems.

The four largest trade groups representing appraisers say inflated appraisals helped fuel the surge in foreclosures on credit-strapped borrowers. Such appraisals at the core of many mortgage-fraud schemes, and they are asking federal financial regulators to crack down on lenders and loan officers who put pressure on appraisers to raise valuations to allow overpriced deals to go through.

Led by the 22,000-member Appraisal Institute, the groups told regulators April 11 that subprime lenders experiencing high rates of foreclosures often have been guilty of "systematic inattention" to the accuracy and the sources of the valuations backing the mortgages they funded.

The main problem with the inflated appraisal?

There may be no accountability on any entities' part. The lender can blame the loan officer for submitting a bad appraisal, the loan officer can blame the appraiser, and the appraiser can blame the market, location, timing, etc.

The conspiracy

Many fraudulent loans with inflated appraisals end up being a conspiracy between the loan originators the appraiser and the mortgage lender. The lender is ultimately responsible for the fraud because the lenders underwriter turns a blind eye or is duped into buying a loan on the word and documentation of the loan originator. They all have a fiduciary duty to the borrower to be fair and honest.

Prices fall below (inflated) appraised value.

The problem has become so vast that even mainstream news outlets have begun to address the widespread situation. James Hagerty and Ruth Simon of The Wall Street Journal report that, "As the housing market cools, Americans are confronting a problem that was easy to ignore during the boom: Inflated appraisals of home values." When home prices were increasing at high rates (over 10% per year in some areas), the value would catch up to the inflated appraisal. But the slowing housing market has caused some home prices not only to fail to catch up to the appraisal, but fall far below the appraised value. For victims of foreclosure, this means that two valuable options for saving the home are immediately eliminated: selling the home, or refinancing. As the article explains, "For sellers, that can mean being forced to drop their asking prices. Some people hoping to refinance, meanwhile, may be unable to lock in new loan terms because they have less equity in their homes than they thought." In fact, Jacquie Doty of Freddie Mac says that inflated appraisals may lead to more foreclosures.

However, the issue of inflated appraisals put the mortgage and real estate industry in a slump along with the housing market. A cause of concern exists in the housing market if inflated appraisals are not used. Namely, if property values are estimated lower, then the housing market may continue to slow. The lending industry has caused its own financing problem by contributing to an already growing housing bubble and then assisting in the decrease in home values by no longer accepting inflated appraisals.

The potential effects of this could be devastating to homeowners in hardship situations. For example, consider if a lender first accepts an inflated appraisal and gives a purchaser a loan for more than the value of the home. If the borrower then experiences a hardship and falls into foreclosure, they may try to refinance the loan. But with a new, legitimate appraisal, the homeowners may end up owing too much to qualify for a refinance. Then the lender will either have to take a loss by accepting a lower payoff amount because the home is worth less than originally thought, or they will have to take a loss by selling the home at a sheriff sale.

The borrower is not concerned about predatory lending

Another contributing factor to the problem is that most home buyers just want the home, as long as the process is as smooth and easy as possible. The homeowner is not concerned abot predatory lending. Bankrate.com states that "Many homeowners don't think about how loans get done, just whether they're approved." Overlooking the appraisal and just focusing on owning a home is a huge mistake to make. To protect themselves from the consequences of inflated appraisals, the article states that "Borrowers should also get a rough idea of their property's worth before shopping for loans. They can contact local real estate agents or visit one of several registration-required Web sites, including Domania.com andHomegain.com, for such estimates." Also, always ask for a copy of the appraisal the lender is using when applying for a mortgage. The right to receive the appraisal is granted under federal law.

If you are a homeowner who suspects an inflated appraisal, you may want to call an independent appraiser yourself and have the value of your home estimated. If that value and the amount of your loan are far off, you may have been a victim of mortgage fraud. In this case, refinancing may no longer be an option and you may not even be able to sell the home if you wanted to. You are effectively locked into your home.

Although we have known about the problem of inflated appraisals and predatory lending for some time, the trend seems to be growing worse by the day. More and more clients who call me have been the victims of over-inflated appraisals. When the illegal appraisal is discovered, it is usually not too late to hold anyone accountable, even if the homeowner is in foreclosure. According to the Bank Fraud Victim Center, the remedy is to stop the foreclosure and sue the lender for predatory lending practices seeking free clear title and money damages. See: http://mortgage-home-loan-bank-fraud.com

For the full story see: Appraisal Inflation: http://stopforeclosurestop.com/appraisal-inflation.htm

Mr. Kenneth M. DeLashmutt the author of “Discover the Power of TILA”, is a recognized Predatory Lending Defense Specialist and an authority on Mr. Kenneth M. DeLashmutt the author of “Discover the Power of TILA” is a recognized Predatory Lending Defense Specialist and an authority on the subject of predatory lending practices, foreclosure defense and consumer protection.

email: bankfraud@cox.net

website:http://mortgage-home-loan-bank-fraud.com

To get your copy of “Discover the Power of TILA”, click on the following link: http://mortgage-home-loan-bank-fraud.com/manual.htm

http://bankfraudvictim.com is here to educate consumers and to help victims recover their losses and keep their homes. If you are a victim of bank fraud or predatory lending, it is possible to sue your lender for free clear title and money damages. We show you how to stop foreclosure and sue your lender.

Inflated Appraisals: Predatory Lending