Highest and Best Use

In todays marketplace, I am left wondering exactly what the highest and best use of a residential real estate appraisal really is. It would seem that I have finally reached a point in my life where I have lost my Mojo for the profession.

Intellectually I can say that the use of the real estate appraisal is as valuable today as it was back when lenders were actually lending their own money and really cared about receiving an honest opinion of value.

At that loans were sought, but only in situations of need because someone needed to buy a home or a building for a very specific reason. Entire generations of people were content to stay out of debt and save for their dream home. In a large percentage of cases, lives would be spent saving money only to have to roll to the next generation. People who were finally able to buy their homes took pride in the actual unencumbered ownership.

If an appraisal was required for tax, insurance, mortgage, estate or “God forbid” divorce purposes there was not a tendency to pressure the outcome because people genuinely wanted to know the value of the home.

In contrast today, people do not save for anything. If they do not have cash they find a way to afford the payments for what they want from clothes, to toasters, to cars, to houses. We live in an instant and disposable society and if an honest appraisal is conducted that does not meet the whim of the consumer then, the appraiser is labeled as “bad” or barraged with reconsiderations until such time as they cave in or flip off the client.   Of course when the loan goes bad, the lender is not judged, the borrower is not prosecuted. The appraiser is labeled as “bad” and if they are lucky they only lose future work. If the make too many deals, the FBI gets involved.

Am I suggesting that America has made its own brand of criminal “the appraiser” and the prosecuting them for following the pressure that was imposed upon them? Actually, yes that is exactly what I am suggesting.

For the record, I have fired more clients than I can remember and because of my sense of honor and ethics my wife and children have been deprived some of the finer things in life so that I could hold my head up without shame when I look myself in the mirror each morning.

But as I pour over file after file after file, I can not help but ask myself what exactly did all of my folderol accomplish in fighting the good fight and standing firm for my sense of right and wrong?

Lenders simply found other appraisers to make the deals. When I changed my practice to fraud investigations, all I really did was find myself surrounded by literally tens of thousands of appraisal reports that presented appraisal opinions that were gladly accepted by the lenders until things got challenged and then the “bad” appraiser caused the bank to fail.

I would like to think that this just burn out talking, but it seems to me that for the purpose of mortgage lending the highest and best use of the appraisal is to line the bottom of the loan file until they need someone to blame.

See you around the water cooler!


2011 – Mortgage Fraud Update

It has been seven years since the FBI targeted mortgage fraud as one of the nation’s leading problems of crime. California and several other states have created a Mortgage Fraud Task Force and yet according to several news sources, the instances of mortgage fraud are on the rise. “How can this be?”, after all the money, time and resources the government has spent on tracking, analyzing, and prosecuting mortgage fraud, “How is it possible that crooks don’t just stop trying?!”. Of course, I am being a bit sarcastic. I believe the real problem has yet to be unearthed. This type of white-collar theft takes a very long time to detect. Unlike the passé bank robberies of the late 1800’s and early 1900’s, thieves are no longer required to just use tommy guns and wheel-men. With a good acrobat adobe and a lack of a moral center, people are able to abscond literally millions of dollars, and if they are smart, they leave the country to someplace without extradition.

The problem is not as simple as finding better appraisers, or educating loan officers or mortgage underwriters, or having a risk analyst look at the loan prior to funding. Although all of these steps are good ones, the resources should be set in place to enable a potential lender to check a loan file through a federal database that is driven through the analytic machine of FNMA, the FBI and the IRS. These three leaders in fraud detection and prosecution have the data for the majority of the players and schemes that are being perpetrated. If there was a central base of intelligence for mortgage fraud and all loan profiles were run through this system, much like a background check, then looking at the major players, routing numbers for transfer etc., the fraudsters would have to work a lot harder to steal “the banks” money.

This of course is just the personal ranting of a tired real estate appraiser/fraud investigator. But I continue to live in the hope that sense, like courtesy, will some day become common once again.

See you around the water cooler!

Is it possible to commit fraud unknowingly?

I have recently read several different posts and articles on the Internet stating that some appraisers have committed fraud unknowingly. Some describe instances of stating condition to be average when the property needed work, or “tweaking” the numbers to make the deal work.

First of all it is important to note, The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.” By that definition, such fraud can clearly be committed by both lenders and applicants, even though the latter may not think their misrepresentations or omissions are significant enough to be a concern.

This definition has been transmitted around the Internet and has been widely used to accuse appraisers of wrong doing. It is equally important to note that in order for a charge of gross misrepresentation to become a convict-able offense of fraud the claimant must prove that the defendant intentionally committed such a grievous transgression. Fraud my intentional omission is of course as bad as fraud by wording a report to mislead, or gearing a value towards a prearranged goal.

Appraisers must always be vigilant to make sure they have not compromised their objectivity or lost their independence during the appraisal process. Equally review appraisers must stray from calling misstatement of that is uncovered during the appraisal review, “fraud”. Fraud is a term that the judge hands down with conviction. An appraiser is not guilty of committing fraud until he or she has been convicted of such an offense.

It is my considered opinion, that review appraisers who place in their reviews charges of appraisal fraud are setting themselves up for a libelous suit from the appraisers who are being labeled fraudulent appraisers by the client and as a result are losing business due to the label.

Is it possible to commit fraud unknowingly? No. The simple answer is no. The appraiser needs to have intent in order to be convicted of fraud. This is not to say an appraiser can not, or should not his or her licensed removed if he or she show a trend of producing appraisals that are materially incorrect or misleading, even if there was not intention of fraud. But this is another discussion for another day.