Finding Solutions To Mitigate Appraisal Fraud
Mortgage fraud is a growing problem and a threat to the stability of property markets nationwide. With mortgage and appraisal fraud growing in the United States, lenders and buyers are suffering billions in losses. A popular type of mortgage fraud is appraisal fraud. Unscrupulous appraisers artificially inflate the value of properties so that they, along with mortgage brokers, property flippers, real estate agents and closing attorneys can profit. Appraisal fraud also can be seen in markets where appraisers are pressured to inflate property value estimates.
Taking steps to help solve the problem of appraisal fraud begins with legitimate lenders and buyers who verify the mortgage originators, real estate professionals and appraisers with whom they do business. This can seem like a daunting task, but there are some tools that will assist those with due-diligence succeed in helping to fight mortgage and appraisal fraud.
Check and Monitor Appraiser Licenses
Lenders should begin by using services that check and continuously monitor professional licenses
for appraisers and appraisal services. Appraisers must be licensed by any state
in which they intend to appraise property.
Check Mortgage Brokers
A second aspect of the appraisal fraud issue often relates to fraudulent dealings
by a mortgage broker. A majority of mortgage loans nationwide are originated by mortgage brokers.
A mortgage broker profits by brokering loans between buyers and lenders. If a fraudulent appraiser
is willing to artificially inflate the price of properties, the mortgage broker makes greater
profits. The buyer and the lender then are left to deal with market fluctuations that could
include housing depreciation, financial losses due to inadequate housing values and increased
buyer loan defaults resulting from appraisal fraud. Lending institutions that verify and credential
their business relationships can mitigate their exposure to risky mortgage brokers and appraisers.
Check Licenses and Qualifications
As with mortgage brokers, lenders should always check on the reliability and qualifications
of any other real estate professionals involved in the mortgage process. Often, appraisal
fraud is perpetrated repeatedly by the same individuals in identifiable patterns. Lenders
should check the license status of all appraisers and real estate agents with whom they do business.
The federal government has begun to better track unscrupulous real estate professionals
and appraisers that operate from state to state. Even so, the best protection against appraisal
fraud for banking professionals is to use trusted appraisers and real estate personnel that come
with positive referrals.
Many lenders and other mortgage entities continue to collaborate with other lenders and the federal government to report and investigate instances of mortgage fraud. Appraisal fraud investigation often is at the heart of these instances. Mortgage banks that cooperate in such collaboration stand a better chance of avoiding mortgage and appraisal fraud schemes.
