On the front lines against mortgage fraud
Ethical appraisers are a homeowner's, and a lender's best front line defense against mortgage fraud. Like the vast majority of appraisers, we will never agree to go along with a scheme to defraud lenders and homebuyers so bigger commissions can be had.
Mortgage fraud has made headlines locally and nationally. Most of the time, mortgage fraud involves identity theft or fraud, making a borrower appear to be somebody else: somebody with a better job, more income or fewer debts - somebody more creditworthy.
Some mortgage fraud involves a broker or loan officer telling both the borrower and the mortgagee — the lender — that the house is worth more than it is. This way, they can close a larger loan and make a bigger commission. Since real estate agents also usually make a percentage of the sale as commission, sometimes they can be involved. In reality, most loan officers, mortgage brokers and real estate salespeople are ethical and would never think of engaging in it, but mortgage fraud of this type always originates with one of the parties who makes a commission on a closed sale.
Sometimes, fraud like this can be committed without an appraiser involved. Accurate professional appraisal reports can be altered. Honest, certified appraisers’ signatures can be forged. A complicitous appraiser can facilitate mortgage fraud. At the same time, the best defense against mortgage fraud, for homeowners, lenders and the economy in general, is an appraiser.
Appraisers are paid a set fee for their work whether a deal is closed or not. They are hired by and work for the lender. That lender is interested in an objective, third-party professional opinion of the true value of the home, because the collateral used to secure the loan — the house — may or may not be enough to cover the lender's loss.
Appraisers do not work for individual commissioned loan officers, mortgage brokers or real estate agents. If they did, there would be too much pressure to "make the deal work," rather than arrive at a professional, considered opinion of the market value of the property. Appraisers also do not work for borrowers, at least in the context of a mortgage loan. Borrowers do work closely with mortgage brokers, loan officers and real estate agents, and they benefit the most from a third-party objective valuation of the home they want to buy.
If something catastrophic happens, such as job loss, illness, divorce or death, and a borrower can no longer make payments on the mortgaged home, the home must sell for enough money to cover the balance of the mortgage. It is easy to see how nobody benefits more from an appraiser's professional opinion of a home's value than the new homeowner, even though there is no direct client relationship.