Mortgage Appraisal Fraud an Ongoing Issue

The issue of “accounting control fraud,” also known as “mortgage appraisal fraud” has reared its ugly head once again, with a Wall Street Journal article indicating bank executives are alarmed about the issue.
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Reporters found from 2011 through 2014 – well after the housing bubble burst – one in seven appraisals inflated home values by 20 percent or more. This was according to data provided reported by Digital Risk Analytics, a mortgage-analysis and consulting firm based in Florida. It was recently hired by nearly two dozen of the country’s biggest lenders to review loan files, and some 200,000 mortgages were considered in the analysis.

However, William K. Black, associate professor of economics and law at the University of Missouri-Kansas City and author of, “The Best Way to Rob a Bank is to Own One,” takes issue with the article’s characterization of bank executives as paragons of virtue intent on weeding out bad practice. The reality, Black writes, is these executives are the ones running the show.

Specifically, bankers “see parallels” to the pre-crisis home valuation practices because they’ve engaged in it on a mass scale at least twice before – and gotten away with it.

Our Miami foreclosure defense lawyers know these practices benefit lenders – who can turn around and sell those risky loans to investors – and increase the risk a homeowner will become mired in a foreclosure.

Note that between 2000 and 2007, there were 11,000 named appraisers who signed and submitted to Washington leaders a petition indicating lenders were pressuring them to inflate property values. Honest appraisers, they reported, were being “blacklisted,” with only those appraisers willing to inflate prices securing jobs consistently.

In 2003, according to a report by the Financial Crisis Inquiry Commission, more than half of all appraisers indicated they had at some point felt pressure to inflate home values. Within three years, that figure shot up to an astonishing 90 percent. Mostly, that pressure came from mortgage brokers, real estate agents and lenders. Borrowers are not allowed to select the appraiser (for obvious reasons) and therefore any termination of contract would be on the part of the “client” – i.e., the lender – if the appraiser did not agree to inflate home values.

Further, a 2007 report from the New York State Attorney General found not only was appraisal fraud “endemic,” it was also “led by the controlling officers of lenders and their agents.”

The savings & loan scandal of the late 1980s and 1990s involved this same kind of action. The major difference between then and the more recent housing crisis is bankers and those involved in the earlier fraud were criminally prosecuted. Today, they are made wealthy.

Black is also critical of the fact that the regulatory agency charged with overseeing this kind of problem has done virtually nothing. An official with the Office of the Comptroller of the Currency was quoted by WSJ as saying it is currently reviewing the mortgages banks are doling out, concerned some may be based on values that are inflated. The agency has already found numerous instances where banks failed to properly oversee such actions, but there has yet to be a single prosecution, administrative sanction or lawsuit against any bank for this in recent years. There is also no mention by the OCC of any new rule it might adopt or criminal referral it might make.

Recognize that if you are battling a foreclosure, you are up against powerful companies with deep pockets. There are steps you can take to protect yourself and your home, but you must consult with an experienced attorney as soon as possible.

If you’re battling foreclosure in Miami or the surrounding areas contact Bruce Jacobs & Associates for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.

Additional Resources:
The Wall Street Journal Still Refuses to Grasp Accounting Control Fraud via Appraisal Fraud, Dec. 2, 2014, By William K. Black, New Economic Perspectives
More Blog Entries:
Top Regulator Says Banks Meant Well; Evidence Suggests Otherwise, Nov. 28, 2014, Miami Foreclosure Defense Lawyer Blog