STEPHEN E. SOUSA
Hears ‘frequent complaints’
A slowdown in home sales and mortgage transactions has led to more pressure on real estate appraisers to raise property valuations so deals don’t fall apart, according to local appraisers.
“Certainly from a professional perspective, one of the most frequent complaints that I hear is about the pressure being put on the appraiser to come in at value,” said Stephen E. Sousa, executive director of the Massachusetts Board of Real Estate Appraisers. “The implied threat or promise – depending on how you look at it – is being able to get additional business from that lender or mortgage broker if you do come in at value versus if you don’t.”
That assessment is backed by recent studies that show a significant number of appraisers reported being pressured by mortgage brokers, real estate agents and others. Now, four nationwide appraisal groups are hoping to put an end to coercive tactics designed to make appraisers “hit the number.”
Appraisers have complained for years that they’ve been pushed to match purchase prices in their reports so deals could be completed. But the problem seems to have become more acute with the recent softening of the residential real estate market.
With business down, every loan and transaction is important to banks, mortgage originators and even appraisers, which means that some are pressing for appraisal reports that hit a targeted purchase price, say industry observers.
To illustrate what appraisers are dealing with, Sousa forwarded an e-mail solicitation that some local appraisers received last month from a Los Angeles-based loan officer.
“I am looking for appraisers that know how to push value and get me the best values a property can get in the current market,” the loan officer states in the e-mail.
The appraisal issue has gained particular urgency as more attention is being paid to mortgage fraud and the actions of subprime lenders as well as brokers and others who work with them.
Groups like the Appraisal Institute and the American Society of Appraisers want lawmakers to focus more on the topic, arguing that inflated property values are clearly connected to mortgage fraud.
Those two groups, along with the American Society of Farm Managers and Rural Appraisers and the National Association of Independent Fee Appraisers, sent a letter to Sen. Christopher Dodd, D-Conn. and chairman of the Senate Committee on Banking, Housing and Urban Affairs, urging for a hearing on the topic. The letter describes the pressure applied to appraisers as part of the larger issue of mortgage fraud.
“Currently, the regulation of the mortgage brokers and non-federally insured mortgage lenders is patchy at best, yet both contribute significantly to the appraiser coercion and mortgage fraud problem,” states the letter. “And unlike federally regulated institutions, there are virtually no rules relating to appraisal management and independence at the state level. Overall, we believe any reform effort should effectively insulate the appraisal process from parties with a vested interest in the transaction.”
The letter cites a study released by the October Research Corp., a firm based in Richfield, Ohio, which showed that 90 percent of the 1,200 appraisers surveyed reported feeling pressure. That’s up from the 55 percent reported in a similar study in 2003.
The organizations have offered a series of recommendations to crack down on mortgage and appraisal fraud, including establishing consistent penalties for appraisers, brokers, agents and lenders who are involved in fraudulent transactions.
They also want regulators to remove the appraisal process from parties with a vested interest in the transaction and to define and enforce penalties against appraiser coercion, extortion, bribery or collusion.
The organizations are calling for more resources for state appraisal boards to support better enforcement. The appraisal groups now feel is that there are too few rules and too little enforcement to have any sway.
‘Fairly Honest People’
In Massachusetts, local appraisers agree that appraisers are being pushed when doing appraisal reports.
“There certainly is lender pressure. Some of it is very gentle and it’s probably being done by fairly honest people,” said Shaun Fitzgerald, president of the Massachusetts Board of Real Estate Appraisers and owner of Easton-based Fitzgerald Appraisers.
Fitzgerald said because transaction volume has slowed, some appraisers need any work they can get and therefore feel they need to process reports quickly to get deals completed.
“There’s more people looking for work and at least a few of them are going to succumb to the pressure. In the past, that pressure didn’t make a difference because it was a rising market,” he said.
With home prices escalating in recent years, appraisers didn’t have to worry too much about overstating a property value. And since sales and mortgage activity was brisk, appraisers could rely on steady stream of business. But with the market shift, appraisers have to be more cautious.
Lorrie Beaumont, a Westwood-based appraiser and member of the Boston chapter of the American Society of Appraisers, said problems typically arise when a homeowner who obtained an adjustable-rate loan two or three years ago tries to refinance.
“We are finding that properties are not appraising out for what [homeowners] originally paid for them because the market has declined,” said Beaumont, who is the immediate past president of MBREA. “So now what happens is that you’ve got pressure from the lender who says, ‘We’ve got to get this loan through. We’ve got to get this to work. Can’t you make this work?'”
In some instances, appraisers are using prior property sales to complete their reports instead of comparable sales, according to Beaumont, and stretching their appraisals to make the transaction happen.
“They’re either doing it for the money or they’re doing it for the promise of future work,” she said.
Appraisers can complain about unethical practices to regulators and the attorney general. In addition, complaints about appraisers can be submitted to the state Board of Registration of Real Estate Appraisers, which issues licenses and can penalize appraisers for inappropriate business practices.
Appraisal activity is guided by the Financial Institutions Reform Recovery and Enforcement Act, which gives authority to the Appraisal Foundation – a group that represents over 100 organizations, corporations and government agencies throughout the world – to set rules and standards for appraisers. One critical aspect of FIRREA, say appraisers, is the Uniform Standards of Professional Appraisal Practice, which provide the basics of practice for the profession.
