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Banks’ After-The-Fact Appraisals Fuel Buyback Demands

Philip R. Stein

Justin T. Hilley  of HousingWire.com reports that audits done by Quality Mortgage Services (“QMS”) “indicate that many demands by financial institutions that lenders buy back mortgages are based on fraudulent appraisal schemes in an attempt to increase the success of repurchase claims.”

According to Hilley’s report, QMS “believes some appraisers are systematically being pressured to use a subset of market data that skews the calculated market value of the property backing the disputed mortgage.”

Hilley says that QMS has termed this scheme “FRAFing,” or “field review appraisal fraud,” and that it is “often found in appraisals when mortgage repurchase demands are pushed backed to lenders for a claim based on a field review appraisal value.”

QMS President, Tommy A. Duncan, explained to HousingWire.com that the appraiser or someone else “is manipulating data and/or information in sections of the appraisal to obtain a targeted value result,” and specifically that they “are ignoring the higher value” comparable(s) so that a lower value is supported in the appraisal.

According to Duncan, the data used to compare to the subject property is nearly always restricted to the bottom 20% to 30% of sale prices in the market area.

String of Accusations

What we are finding, when supporting repurchase defenses, is a concerted effort to base an opinion of market value on the lower one-third of market data that produces erroneous estimates for approximately 65% of the properties appraised — assuming equal market distribution.

According to Hilley’s report, Duncan goes so far as to ascribe FRAFing to “intense pressure to push back loans for repurchase” because, according to Duncan, “it does not make sense for an appraiser to overlook the obvious” absent some sort of pressure to obtain a targeted value.

This is just the latest in a string of accusations against some of the biggest financial players in the mortgage loan industry in the past few years. Previous accusations, some of which have resulted in lawsuits, prosecutions, fines, settlements, and other consequences, have included charges of so-called “robosigning,” foreclosing without proper documentation, foreclosing with misidentification of the outstanding amounts owed by borrowers, forging documents and signatures, falsely notarizing paperwork, making up job titles to get loans approved, and interfering with government investigations.

Moreover, this accusation further undermines the viability of repurchase demands based on allegedly inaccurate appraisals – already considered by many “about the weakest type of buy-back demand imaginable.”

Deliberate Wrongdoing

As we have emphasized before, typical loan level repurchase claims consist largely of circumstantial, inconclusive, inconsistent and/or opinion-based “evidence,” usually obtained years after the fact. Combined with the many instances of deliberate wrongdoing which have been uncovered over the past few years, including potentially this latest example, recipients of loan repurchase demands have even more reason to remain vigilant and vigorously defend their rights in any loan repurchase disputes.

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