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Appraisal Fraud Could Devastate Many Americans
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April 26, 2005
LOS ANGELES -- A newly released report
titled, Home Insecurity: How Widespread Appraisal Fraud Puts Homeowners At
Risk, shows evidence that numerous American homeowners and home buyers risk
mortgage appraisal fraud. As a result of this type of fraud, countless
homeowners have borrowed in excess of what their homes are actually worth.
Research was made and the subsequent report released by Demos, non-partisan,
public policy group headquartered in New York, New York.
The refinancing boom seen in recent
years due to historically low interest rates has helped companies that originate
home loans realize massive profits. Subsequently, many real estate appraisers
who work in a highly competitive market have bumped actual property values
assessed for the lenders' purposes of buying or refinancing homes.
The data and findings of the report
were based on numerous sources. Of these, included are:
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National Association of Realtors
statement before a Senate subcommittee (March, 2004).
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Petition sent by some 8,000
residential property appraisers to the Federal government with complaints
that the lending industry overall has applied undue pressures to exceed
actual values.
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Testimonials of individual
appraisers about various abuses.
The report's key findings included:
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Significant conflicts of interest
pervading the mortgage industry. Lenders, brokers and real estate agents
have an incentive to inflate values of residential properties to bring loans
to fruition.
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Appraisal fraud encourages
homeowners to borrow more than their homes are actually worth, putting these
owners at risk of being unable to sell for prices high enough to pay off
their existing mortgages.
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Half of all real estate appraisers
have made reports indicating the existence of pressure from lenders or
brokers to overstate property values. Uncooperative appraisers not sub
missing to tactics by lenders to elevate valuations have not been paid for
services and have been blacklisted from panels of approved appraisers.
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Inflation of home values through
appraisal fraud may be somewhat catalyzing real estate prices upwardly, many
to unsustainable levels contributing to the current housing "bubble."
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Predatory lending targeting
minority and low-income aspiring homeowners often involves appraisal fraud.
Developers collude with dishonest appraisers in the aggressive marketing of
new homes offered at inflated prices.
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Government oversight of the
appraisal process is woefully inadequate.
The report highlights some uneasy
ground lying below a seemingly picturesque view of home ownership. An example:
Adjustable rate mortgages accounted for 34 percent of loans in 2004, leaving
borrowers dangerously vulnerable to a interest rate hikes. Even though
home ownership today stands at a record 69 percent, Americans actually own less
of their homes than they did 30 years ago due to the drop in homeowner equity
that fell from 68 percent in the early 1970's to 55 percent in 2004.
The report makes it abundantly clear
that appraisers feel they have no choice but to go-along with lender requests to
meet estimated property values. This is a bad spot for the appraiser, as he or
she depends on a steady influx of work orders to come from lenders and
mortgage brokers they are routinely
hired by. Failing to deliver lender targeted home values means that the
originating source simply moves-on to more lenient or dishonest appraisers whom
are more than happy to value at target in order to obtain the business. The
bottom line to this news is that if there is a leveling off, or a decline, in
property values the wake from this type of appraisal fraud will inevitably
devastate millions of Americans.
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