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Letter Congress about FHA Appraisal Fraud

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Mystery man3

Junior Member
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Jul 26, 2005
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Certified Residential Appraiser
If you agree send it to your representative at http://www.house.gov/

Dear US Reprensentative,

My name is (your name) and I am a FHA appraiser and wanted to alert you to the fact I have seen an increase FHA fraud recently as FHA loans become prominent. I believe this may turn into a significant loss for the United States government.

The fraud occurs as follows loan officers who have a vested interest in seeing a loan go through select the FHA appraiser who they know will bring in the value the highest and ignore problems (like a leaky roof. etc.) with the house. Although this is illegal sometimes loan officers are as flagrant as calling or emailing different appraisers until they find one that will bring in the house at the "right" value. Hence the way the system is set up right now those appraisers who cheat will receive the most work and honest appraisers will not be reused as loan officers will use the appraiser that makes their loan work.

Why this should concern you is that as the FHA makes loans, it is using the appraisals to determine how much money to loan the borrower.

For example, if a house is really worth $250,000 and cheating appraisers appraises the property for $350,000 the FHA will loan up to 97% of the appraised value which is $339,500. If the homeowner never makes a payment the loss to the United States government would be $89,500 which is the difference between what was loaned $339,500 and what the house would sell for $250,000.

Although $89,500 may not sound for a lot of money think of how many houses are out there and how many times this scam could be repeated.

The way to stop this is an appraiser selection process like what the Department of Veterans affairs has in which appraisers are randomly selected by the VA office and not the lender. In this way appraiser independence is restored.

In addition more resources should be devoted to taking unethical appraisers out of the system. Appraisal fraud I believe to be rampant and the source of most of the problems in the banking system.

If these steps are not taken I fear the United States Government may take a significant loss on these loans like many of the banks in our country are suffering at this time.

Thanks for you time,

(Your Name)
 
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FHA does not lend any money.

From reading the broker blogs I'm getting the feeling that FHA loans are too much hassle for most novice brokers and they're losing interest.
 
The FHA insures the loan

Yeah they insure the loan so when there is a loss the FHA pays and not the lender.
 
How about closing down the open cattle call of appraisers for FHA. I truly beleive there need sto be better qualified appraisers doing these things. Certified residential appraisers that actually follow guidelines, and demonstarte specific testable knowledge on specific FHA regulations. Might be too much common sense for them though
 
Yeah they insure the loan so when there is a loss the FHA pays and not the lender.

FHA will make the lender eat the loan and loss if there is a pattern or if retro review(s) reveal that the lender didn't do due diligence etc. It ain't the free pass that most of the scum bag MBs think it is, although they are trying.
 
I agree Rex, but the problem is the individuals, and if they make a collective 500,000 on bad work, they only get a small fine and a few months in min security. Hopefully they fry these guys as far as Title 18 will let them.
 
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