Published: September 20, 2007 11:20 pm         

National fraud article has local mortgage industry talking

From phony appraisals to consumer lies about income and employment, mortgage fraud is on the rise in the United States.

There are numerous schemes and purposeful misrepresentations used by buyers, sellers, mortgage brokers, real estate agents, appraisers and other industry professionals for financial gain from property sellers and legitimate lenders, according to Mortgage Asset Research Institute, a research arm of Mortgage Bankers Association.

That same institute released figures in early summer that put Enid on the radar screen to those who investigate and analyze mortgage fraud numbers. The MARI report ranked Enid second in the nation in potential mortgage fraud involving subprime loans.

That number caught the attention of an editor of a national real estate appraisers trade magazine, who has been writing a series of articles on valuation fraud and appraisers. Some local real estate appraisers told the editor of Communicator magazine about collusion and fraud going on in Enid with regard to real estate appraisals and pressure from lenders and real estate brokers to “make value” on property.

Their stories resulted in a five-page cover article in the magazine, which is circulated to about 140,000 real estate professionals nationally.





What does ‘make value’ mean?



Garfield County Assessor Wade Patterson explains it.

“If you want the house to sell for $100,000 and the appraiser comes in and does an independent appraisal and finds, according to the comps, (comparable sales of property in a designated geographic area) the house is worth $95,000, that is what his appraisal comes in,” Patterson said. “That could kill the deal. If the appraisal says it’s only worth $95,000, (the lender) can’t loan $100,000 on it.”

That’s where the pressure comes in to make the house appraise at the selling price.

So, who gets hurt if appraisal prices for property are inflated?

Because of their long-term nature, mortgages often are sold after they are brokered. Companies purchasing those mortgages have to be confident the note they’re buying is worth what they’re paying for it. That’s where a possible subprime connection may come into play — if a property owner received a no-money-down loan for an over-valued property and now can’t make those payments, the company with the mortgage ends up holding the bag.

Patterson said, in a large-scale sense, if appraisals on properties have been over-inflated systematically for a number of years, that could trickle down to everybody’s property taxes. It could influence his opinion of value.

He said when he analyzes sales for property assessment purposes, he throws out any sales that look out of the ordinary — whether they are too high or too low.

“I’m looking at the midpoint of the market” for assessment purposes, he said.

Patterson also points out he has not seen a large jump in housing values in Enid.

“Enid has typically been a stable-growth type of community,” he said. “I’ve talked to assessors in other counties where they’re going through the roof, but they’re also building a lot. We don’t have that kind of market in Enid. Ours is more of a stable growth. Nothing has alarmed me as abnormal.”





Realtors group responds



The association executive for Enid Metro Association of Realtors said the article in the Communicator magazine is all hearsay.

“If the allegations are true about fraud, I would think all entities would be investigated,” Carolyn House responded in an e-mail to the News & Eagle. “I purchased another home last year, and I did not know when or who was doing the appraisal until after the fact. The lender took care of that, not my real estate agent.”

She said it is not common practice for an agent to select an appraiser.

“Our Realtors work very hard to be honest in their transactions,” she said. “Enid is a wonderful place to live, and our members give a lot back to the community.”





Handling complaints



There are many gatekeepers in the real estate business tasked with enforcing ethics at all levels and working to make sure the system is honest and above board.

One of those entities is Oklahoma Real Estate Appraisal Board, which hears complaints regarding appraisal fraud.

Lee Caesar Jr., vice chairman of the state appraisal board, said his board is handling more complaints overall; however, he couldn’t point to Enid in particular being a specific problem as far as appraisal fraud complaints.

“It alleges everything in pseudonyms,” Caesar said of the Communicator article, which states the names of those interviewed were changed on advice of the magazine’s attorney.

Caesar pointed out, however, many people don’t know there is a recourse if they suspect wrongdoing from an appraiser or any other aspect of a real estate deal.

“There is a process in place by which the board tries to deal with these things,” he said. “A complaint has to come to us first. A lot of complaints lodged go to hearings and then to revocations. Anytime someone feels there is something wrong, they need to bring it to our attention.”

Oklahoma Insurance Department, which oversees Oklahoma Real Estate Appraisal Board, also is concerned about the allegations in the article.

Lance Thomas, a department spokesman, said he doesn’t anticipate there will be an independent investigation of Enid by the department or the real estate appraisal board because of the article.

He reiterated investigations likely will be handled only on a complaint basis.





Dealing with the pressure



Both Caesar and Thomas acknowledge there is pressure on appraisers by help make these loans and real estate deals happen.

“In a real estate transaction, the only person not in it for themselves, who doesn’t have a stake in the property, is the appraiser,” Thomas said. “That’s the way it’s supposed to work.”

However, real estate appraisers do have to get referrals in order to make a living, and the Enid appraisers in the article allege they are missing out on business because they won’t inflate appraisals.

“There is definitely a concern about appraisers who are honest but are not getting business,” Caesar said. “There have been some legislative issues put forth to try to deal with coercion and pressure, but we’ve not made any headway through Congress.”

Caesar said a lot of the pressure on appraisers comes from within the mortgage industry, which is governed nationally.

Rep. Spencer Bachus, R-Ala., has introduced a predatory lending/subprime lending bill that would strengthen enforcement against mortgage fraud schemes and improve the integrity of the appraisals.

Third Congressional District Rep. Frank Lucas, R-Okla., on House Finan-cial Services Committee, said Thursday legislation has received support from the Bush administration. In fact, his committee heard testimony Thursday from cabinet officials and Ben Bernan-ke, Federal Reserve chairman.

“Clearly there are some questions over the last five years about this ever-increasing property market, value-wise, about how appraisals were handled and how decisions were made based on those appraisals,” Lucas said.

The congressman also said the nation has not seen yet the full effect on the overall economy. Just as bankers, mortgage companies and investors were more enthused about housing values when they were on the rise, he believes there is going to be a drastic clamping down in the industry and a higher degree of sensitivity to the integrity of appraisals.

“This is in some ways a self-correcting problem,” he said. “But, just as things were too slack, now things may tighten up too tight, and even the person with the best credit or trying to sell the best quality property may have trouble.”