| Appraisal fraud is a component of many mortgage | | | | but the states where the appraiser conducts business. |
| fraud schemes. This type of fraud is one of the more | | | | Appraisers must be licensed in each state where he |
| sophisticated techniques being used to commit | | | | or she intends to value a property. To complete the |
| mortgage fraud. As one of the fastest growing | | | | professional check, lenders should look to the services |
| financial crimes in U.S. history, counter measurements | | | | of a company that provides appraiser license |
| to mortgage fraud are required. One of these | | | | verification. |
| measurements involves targeting the appraisers and | | | | 2. Evaluate Mortgage Brokers: |
| verifying the appraisal is accurate. | | | | The second step a lender should complete is an |
| Fraudulent appraisals are leading to lenders and buyers | | | | evaluation of the mortgage broker involved. Nationally, |
| suffering billions in losses in the U.S. The expansion of | | | | the majority of mortgage loans originate from |
| the real estate market in recent years, combined with | | | | mortgage brokers. It is important to understand that the |
| easier access to credit has resulted in additional | | | | mortgage broker profits from the process of brokering |
| attention needing to occur to help mitigate risk from | | | | a loan between buyers and lenders. A mortgage |
| appraisals. | | | | brokers gains when a fraudulent appraiser willingly |
| How Appraisal Fraud Works: | | | | inflates the value of the property, allowing the |
| There are a variety of ways that an appraisal can be | | | | mortgage broker to make an increased profit. |
| fraudulent. This type of scam can occur from a | | | | The fallout from this type of mortgage fraud results in |
| variety of people participating in the fraudulent activity. | | | | the buyer and lender left to deal with the risk of |
| For example, unscrupulous appraisers can artificially | | | | market fluctuations. These fluctuations can include |
| inflate the value of a property so they, along with | | | | housing depreciation, financial loss stemming from |
| mortgage brokers, property flippers, real estate agents | | | | inflated housing values and an increased rate of |
| and attorneys can profit from the higher appraisal. This | | | | mortgage defaults due to the fraudulent appraisal. The |
| fraud can also be found in markets where appraisers | | | | way lenders can help mitigate their risk of this fraud is |
| are pressured to inflate property value estimates. | | | | to verify and credential business relationships among |
| Importance of Due Diligence: | | | | potentially risky mortgage brokers. |
| There are several steps that can help mitigate the risk | | | | 3. Other License and Professional Qualification Checks: |
| of appraisal fraud. It begins with working with legitimate | | | | In the third step, lenders should check the reliability and |
| lenders and buyers. These lenders and buyers must | | | | qualifications of any other real estate professional that |
| verify the mortgage originators, real estate | | | | is involved in the mortgage process. Individuals that |
| professionals and appraisers involved in the real estate | | | | commit fraud often leave identifiable patterns. Before |
| transaction. On the surface, this can seem to be a | | | | conducting business with a real estate agent, a diligent |
| difficult task, but there are industry tools that exist to | | | | lender should check the person's license status. A |
| help with due diligence focused around preventing this | | | | good protection against fraud is for banking |
| type of fraud. | | | | professionals to work with trusted appraisers and real |
| To mitigate the risk caused from a fraudulent appraisal, | | | | estate professionals that come with positive referrals. |
| use the following steps. | | | | The federal government is collaborating with mortgage |
| 1. Appraiser License Verification: | | | | entities and lenders to investigate mortgage fraud. In |
| The first step a lender should take is to perform a | | | | many of these investigations a fraudulent appraisal is |
| check on those conducting the appraisal. By | | | | at the heart of the investigate instance. Such |
| completing a professional check and monitoring | | | | collaboration also helps mortgage banks identify and |
| licenses of appraisers, the lender is conducting due | | | | potentially avoid various fraud schemes. |
| diligence. It is important to verify not only the license, | | | | |