BANK DEMANDS INFLATED APPRAISALS - Appraiser Refuses, Lawsuit Follows!
VETERAN APPRAISER IN CA REPRIMANDED FOR DESCRIBIING "DECLINING" VALUES!
It's been no secret, for many years now, that some appraisers, under pressure from banks who want a successful loan closing, sometimes inflate the value of properties they are appraising to make sure the loan goes through. With thousands of loans now in default across the U.S., and many hundreds here in Chicago and across the suburbs, many in the business blame inflated appraisals as one of the culprits contributing to eventual loan failure.
In California, a veteran appraiser, Jennifer Wertz, has now sued one of the largest U.S. mortgage providers, Washington Mutual, claiming that she was put on a blacklist for refusing to provide inflated appraised values despite market values in decline.
The suit comes on the heals of a similar action in New York State. Here, the state sued First American e-AppraisalT for supposedly giving in to pressure by WaMu to inflate their appraisals.
In May, 2007, after submitting an appraisal indicating "declining" market conditions for one of her subject properties, Wertz was ordered by her manager to change the evaluation to "stable" so the loan would get approved.
When Wertz refused, citing federal and state law and professional ethics requiring her to provide only accurate, objective appraisals, free of outside influence, she was effectively barred from doing future appraisals from the bank. Wertz's lawsuit has been applauded by other appraisers across the country, who echoed similar instructions from their employers and larger lenders.
In Bakersfield CA, appraiser Gary T. Crabtree indicates pressure to inflate values "has been endemic, industrywide" and is a "significant contributing factor" in many mortgage fraud cases and foreclosures nationwide.
Crabtree continues that every appraisal that was inflated in the stronger real estate market of a couple of years ago provided comparable property data for appraisals to follow - and helped fuel a pattern for considerable over-evaluation in many neighborhoods. Susan Wachter, a University of Pennsylvania Wharton School of Business professor, estimates appraisers contributed to inflating mortgage values by $135 billion in 2006, according to appraisal industry trade publication Valuation Review.
According to Crabtree, only now, after many properties have been foreclosed upon, reverting ownership to the bank who held the mortgage, are valuations beginning to come back to earth. In Bakersvield, an estimated 45% of all listed properties are owned by banks after default by the borrower, commonly known as Real Estate Owned, or "REO's."
Congress in considering legislation to severly increase penalties for interference with an appraisal, inflating property values, or offering inducements for higher appraised values, or punishments for appraising with a lower value.
Kenneth R. Harney's story in yesterday's Chicago Tribune provides more detail.
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