Appraisal Technology Leads To Fraud

[Pamela Crowley (Florida)]

Posted on Sat, Mar. 26, 2005

Misuse of appraisal technology leads to fraud cases

Schemes use software tools to artificially inflate property values

http://www.charlotte.com/mld/observer/livi...me/11235325.htm

Bending the numbers on home valuations is often referred to as appraisal inflation, and appraisers say it's common for colleagues to do this in order to satisfy clients and stay in business. Appraisers nationwide say commission greed among their clients is feeding the corruption. This is the last in a three-part series examining the problem and what the industry is doing to try to stop it.

Not all appraisal technology is misused, but the lack of regulation over who's using what raises questions about the real value of homes being appraised this way. In many cases, appraisal technology has made the lending process more time and cost efficient. But like all technology, it can be manipulated, corrupting the data that eventually is used in another home appraisal.

The most common appraisal-technology tools are automated valuation models, known as AVMs, which increased in usage during the mortgage refinance boom of the last few years. AVMs are statistical algorithms that gather information surrounding a property and return a value estimate based on the data from properties in the area.

Some appraisers willingly bend numbers on home valuations to satisfy their clients and get more work, a practice known as "appraisal inflation."

In its most destructive form, appraisal inflation can assist predatory lending practices and can play a role in flipping schemes, in which properties are fraudulently assessed to win a high loan amount and then resold for even higher prices. Exaggerated appraisals can lead to inflated home prices, increasing the risk of loan default and foreclosure and placing homes out of reach for some prospective buyers.

AVMs in some cases could help eliminate this problem, but if they are misused, they could end up contributing.

 

[Edd Gillespie]

I counted at least 12 "appraiser" or "appraisal" words just in the quotes. I wonder if the average reader of average intelligence and education will get the drift its the lender crowd that is the problem. Wish the author would have said lender-mortgage broker, lender-mortgage broker, lender-mortgage broker, lender-mortgage broker twelve times since that's what we keep thinking is the genisis of the abuse. But, I'm glad somebody wrote something. I guess it ain't what he wrote its the way he wrote it.

 

[Tawfik Ahdab]

Pam, I spotted that article before and commented about this particular passage:

The most common appraisal-technology tools are automated valuation models, known as AVMs, which increased in usage during the mortgage refinance boom of the last few years. AVMs are statistical algorithms that gather information surrounding a property and return a value estimate based on the data from properties in the area.

The AVM is not at all an appraisal-technology tool. It is a valuation-technology tool.

The writer mixes up the two concepts, as certainly will the public at large.

 

[The Matrix]

In my opinion, homeowners that have suffered financial losses resulting from inflated values stated by AVM's, may have grounds for a class action suit against the lenders and the AVMs.

 

[Carnivore]

Originally posted by Tawfik Ahdab@Mar 31 2005, 06:24 PM
Pam, I spotted that article before and commented about this particular passage:



The AVM is not at all an appraisal-technology tool. It is a valuation-technology tool.

The writer mixes up the two concepts, as certainly will the public at large.

Twafik,

Good point! The problem is that the words appraiser and appraisal are synonymous with Home values. We are the Micky D's of the real estate world.

Its not ever going to change. I like it that way.

 

[Karl]

IMO There have been as many bad Appraisals as there have been bad AVM's lets accept some of the blame so others reading these threads realize MANY of us KNOW that a PORTION of the problem is US.

Talked to a Investigator that works for one of ther largest lenders in the U.S. He can't believe the number of Appraisers that do not realize that they have a pretty good Idea how much a property is worth by documentation they have PRIOR to seeing the Appraisal. "The problem with a misleading Appraisal IS NOT at the time it is submitted. The problem comes when IF the loan goes bad." As long as SOMEONE is making the payments the lender has NO Problem. The Appraisers NOT THE LENDERS problem comes when payments strop coming in.