The Center for Public Integrity has a new report on problems in the home-appraisal industry--problems that are no news to real-estate experts, appraisers, and old-time (like, from the 1980s) mortgage bankers, but might surprise other folks.

The gist: Lenders and mortgage brokers pressure(d) appraisers to find higher values for houses, so that the lenders could write bigger mortgages and collect more fees.

In the old days, banks kept appraisers on staff. Back then, banks wanted accurate appraisals because they lost money on bad loans that went into foreclosure. In more recent times, banks (and brokers and other lenders) sold off their loans to Wall Street securitizers (who in turn sold them to pension funds and stuff), so that the mortgage lenders' business model changed from "make good loans" to "make lots and lots of loans." As The Center reports:

The game was so big and so ubiquitous that it's pointless just to go after "bad actors" in the industry and claim that they committed fraud. The fraud is built into the system--it is inherent in the relationship between the mortgage originators and the appraisers, and in the way the players get paid. This point seems lost on the Justice Department, which a couple of months ago announced with fanfare a big crackdown on mortgage fraud. As the CPI notes:

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Regulation is lax and scarcely improving. New York Attorney general Andrew Cuomo has a lawsuit aimed at appraisal practices. But his new rules--slated to go into effect May 1--would appear to fall short. They place an "appraisal management company" between lenders and appraisers. Independent appraisers point out that such companies are just as capable of pressuring appraisers as the banks themselves are:

Hmmm. The solution is the same thing that got us here? Why does that sound familiar?

Here's an idea: Make the appraisal and the name of the appraiser public records. Then it'll be easy to see when, for example, someone attests that a crappy rowhouse shell in Baltimore

. Sunlight disinfects.

For a close look at how a scam works, check out the nonprofit Voice of San Diego's "A Staggering Swindle."

is the best anatomy of a mortgage fraud I've seen in the media. Everybody talks (except the central scammer). Part two explains

.

The nonprofit site has reported another mortgage-scam case in which the FBI is charging everyone involved

--the Racketeer Influenced and Corrupt Organizations Act--just like the mafia. It is rare that straw buyers and other minor players get charged under RICO.

describes how a street gang member created a vertically integrated real-estate empire to reap fees and commissions, plus construction contracts, on fraudulently appraised homes sold to straw buyers.

What is remarkable is the business model: If not for the fraud, these companies--which feature close ties between lenders, realtors, construction companies, and the title companies, appraisers, and other ancillary service providers--would be perfectly normal. Has anyone asked why these guys were legally allowed to assemble their little property-flipping conglomerates in the first place?

The other amazing thing is the cheapness of the appraisers. Without them the scams can't work. And yet the appraisers seem to make the least money of anyone involved.

In this case, the appraiser, Esteban Valenzuela, allegedly received only $35,000 for the "more then 40" bogus appraisals he allegedly provided the gang. Compare that to the realtor, who the indictment says made $1 million on the deal. Under the RICO Act, both face the possibility of 20 years in the stir.

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