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A Better Bullseye Is Not Enough To Stop Bad Appraisers From Being Bad

In Erick Bergquist’s article GSEs Restructure Appraisal Documents to Clarify Liability [American Banker] [1], he discusses growing appraisal and mortgage fraud, both GSE’s are requiring the use of new appraisal forms to be more direct on who has the responsibility (liability) and therefore make it easier for Fannie Mae, Freddie Mac and state licensing boards to go after the bad apples.

Here’s the portion of the article that expresses my concern over the false comfort that this action will provide. FNMA is under incredible pressure right now from many different angles so I believe they are anxious to promote this as a step in the right direction, to show they are doing something about fraud. Well it is a right step. I just hope its not the only step.

Jonathan Miller, the president of the New York appraisal firm Miller Samuel Inc., said he had mixed feelings about the changes.

“From a big-picture perspective, it makes the appraisal industry more accountable,” he said. “The fraudulent appraisers have more of a bull’s-eye painted on their back for future litigation.”

However, Mr. Miller said there is only so much the changes can do. For one thing, “this is just a form, and if people are making up information and being misleading on the old forms, it’s optimistic to expect this will have a significant impact on the integrity and quality of appraisals submitted.”

Also, he said the update is “a baby step” that does not address the main cause of faulty appraisals: the lender-appraiser relationship. “Loan officers or anybody paid on commission should have no direct contact with the appraiser whatsoever.”

Though Mr. Miller called one of the new certifications – a warning that appraisers can be subject to civil fines and penalties – “highly commendable,” he had reservations about the other one, which reads, “The borrower, another lender at the request of the borrower, the mortgagee or its successors and assigns, mortgage insurers, government-sponsored enterprises, and other secondary market participants may rely on this appraisal report as part of any mortgage finance transaction that involves any one or more of these parties.”

That certification, as it is worded, could significantly increase appraisers’ liability to almost anyone else in the mortgage process, he said.