NEW YORK – Dec. 3, 2014 – Maitland, Fla.-based Digital Risk Analytics reviewed the loan files of the 20 biggest mortgage lenders and found that one in seven appraisals bloated home values by roughly 20 percent or more between 2011 and early 2014.
In some cases, "the appraiser's selection of [comparable properties] ... is very hard to justify," says Digital Risk Chief Analytics Officer Thomas Showalter. He cites examples, such as valuations for older properties based on sales prices for new homes; or homes located within a short distance of the beach compared to waterfront residences' values.
Some observers worry that some appraisers may be inflating values at the bidding of loan officers or real estate agents, whose commissions are taking a hit due to weak sales and slowing home price appreciation.
The U.S. Office of the Comptroller of the Currency is reviewing mortgages due to its concern that some are based on inflated values; and Freddie Mac has launched fraud investigations of appraisals tied to mortgages it purchased.
A survey by the Salisbury, Md., appraiser-advocacy firm Allterra Group LLC finds an increase in the percentage of appraisers pressured to inflate values. It's nearly 40 percent now compared to 37 percent a year ago, according to Allterra.
Valuation professionals say appraisal-management companies (AMCs) hired by banks apply the most pressure. While AMCs are expected to help maintain a buffer between loan officers and appraisers, and thus eliminate pressure to inflate appraisals, they increasingly scramble to keep a lender's business.
Source: Wall Street Journal (12/02/14) P. A1; Andriotis, AnnaMaria
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