WASHINGTON — Have the real estate valuation shenanigans and inflated home appraisals that characterized the boom years disappeared from the marketplace?
Are mortgage loan officers and realty agents — even individual home sellers — continuing to influence or attempting to interfere with appraisals despite new federal rules that ban such behavior?
Ask appraisers and many will tell you: It's still business as usual. Attempts at encouraging inflated appraisals continue to be commonplace, though in some cases the techniques have become subtler.
"Absolutely appraisers continue to get pressured" to hit the numbers needed to push transactions to closing, said Bill Garber, government affairs director for the Appraisal Institute, the country's largest professional organization representing appraisers.
"That has not changed yet," added Garber, even though recently signed federal housing legislation toughened appraisal standards and the Federal Reserve's new truth-in-lending rules ban interference, bribes or intimidation designed to influence appraisers' valuations. The most recent national poll of appraisers, conducted by October Research Corp. two years ago, found that 90 percent of those interviewed reported some form of interference or intimidation by retail loan officers, brokers and third-party appraisal management firms, among others.
Thinking of a number
Gary Crabtree, principal of Affiliated Appraisers in Bakersfield, Calif., says "it hasn't gone away," and there are even some developments on the horizon that could make things worse. Starting Oct. 1, a new federal foreclosure-relief refinancing program begins that will require lenders to write down the value of distressed houses to 90 percent of current market value to enable borrowers to be refinanced.
Some appraisers "could find themselves under pressure to inflate values" on those properties to cut lenders' losses, says Crabtree, even though the federal legislation authorizing the refi program specifically prohibits interference.
Sara F. Schwarzentraub, president of Inter-State Appraisal Service of La Mesa, Calif., recalls how one client left a recorded message on her office phone complaining that, "If you didn't know you couldn't hit what was needed, you shouldn't have taken the assignment." The number needed by the caller — a mortgage company employee — was $50,000 to $60,000 higher than current comparable values in the area could support, according to Schwarzentraub.
In Owings, Md., Michael Tsourounis, president of Calvert Appraisal and Realty Services, recounted a recent visit to a mortgage company in his area. Tsourounis inquired about the possibility of doing appraisal work for the lender.
"The office manager asked me directly: 'If I sent you out to appraise a million-dollar home and the comps (comparable values) only came in at $800,000 . . . but in your heart you knew it was worth a million dollars, what would you bring it in at?' "
Tsourounis says he told the manager, "The market is full of million-dollar houses selling for $750,000. Why should I be responsible for adding one more foreclosed property to the already growing list?"
"Not surprisingly," he said, he's never heard back from the lender, never received an appraisal assignment. "Was that a form of interference? You bet it was," said Tsourounis. "It was just a little subtler, a little less direct, than it used to be."
Signs for optimism
The obvious intent here, according to Frank Gregoire, immediate past chairman of the Florida Real Estate Appraisal Board and an appraiser in the St. Petersburg-Tampa area, "is really to find out: Will this guy play ball? Will he be cooperative when we need him?"
Gregoire says appraisers still routinely receive probing e-mails and phone calls from lenders and brokers designed to elicit the same information: Will an appraiser "pre-comp" a property with a sales contract pending at a specific price? Can a specific valuation number needed for a refinancing — which may be far out of line with current local property values — be reliably reached by the appraiser?
Part of the reason in today's market environment, he said, "is that things are tough, sales volumes are down, and some lenders know that they'll eventually find someone who'll cooperate" — often a newcomer to the appraisal field who badly needs an assignment.
"It's not easy for some of them to say no, especially when they see business go to folks who everybody knows are playing the game."
Only when federal and state governments severely punish unethical appraisers and the people who pressure them "will all this start to get under control," Gregoire said. But he sees some signs for optimism: State regulators in Florida and elsewhere are cracking down increasingly on appraisers, even stripping away their licenses. And the new federal legislation authorizes financial penalties to be imposed by the secretary of housing when appraisers are found to have caved to pressure and cooked the books to inflate values.
E-mail Kenneth R. Harney at firstname.lastname@example.org.