Technology Combats Valuation Fraud.(Managing REO)

Byline: Joe Williams

The current state of the real estate industry, not to mention the subprime meltdown, can be attributed to a number of factors, not the least of which is fraud in the valuation process.

Being on the appraisal side of mortgage lending for more than 30 years, and now a system administrator for AppraisalCONCIERGE - databases with 9,000 or more appraisers - I know all too well the influence and pressure put on appraisers to reach a certain value on a property.

Fraud on an institutional level is rare. The real problem stems from the way property values are calculated within the industry. Loan originators, many who are commission-only, sometimes pressure appraisers to fudge their numbers to make mortgages work.

In fact, too often I have witnessed overzealous loan officers or brokers using their favorite appraiser, and asking for a particular value to be met on a home to have a loan approved. In this situation, the appraiser in need of current and future work will do what is necessary to try and achieve that value.

An appraiser under pressure may use comparables that are not truly comparable for a number of reasons. He or she may also ignore sales that do not support the value of the property or inflate the value of the curb appeal of a home or of its view.

A recent article from CNN/Money stated, as the Appraisal Institute recently testified to Congress, appraisers are under increasing pressure from lenders, mortgage bankers and real estate agents to 'hit their number when appraising property. This furthers my point in believing we need to have complete appraisal independence so that true values are reflected and the possibility of fraud can be lessened.