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Mortgage Fraud: Time Adjustments Can Underwrite Reality [part 2 of a series]

Freddie Mac’s Weekly Primary Mortgage Market Survey for September 1st [1] shows fixed rate mortgages dropping for the 3rd consecutive week. Bankrate.com shows that this trend has continued since the first week of August and mortgage rates took a steep drop after Hurricane Katrina hit. [2] The federal government OFHEO released 2nd quarter housing stats [3] that showed a 13.4% increase in prices over the past year. Granted I have some issues with OFHEO stats [4], but they do show an important trend.

Then why do most appraisals we review show no time adjustments?

The answer is usually, “the underwriter wouldn’t accept the report with the adjustments included.” However, the sales price or refi estimated value was reached in the final report anyway. How? Other amenities were over or under adjusted to make the number, thats how.

A form of appraisal fraud and appraisal pressure

This a form of appraisal pressure or fraud that occurs so frequently that many underwriters and appraisers don’t even realize that this violates lending and licensing regulations. According to USPAP, the appraiser is not supposed to present a report that is “misleading” to the reader. [5] Characterizing a rapidly rising real estate market as “flat” fills the definition of misleading.

Our firm receives this sort of pressure nearly every day.

The solution: do not remove your time adjustments if they are clearly supported by the market. Time adjustments are an underwriting issue, not a valuation issue. The appraiser is reporting an existing market condition. If the appraiser chooses to comply, then the appraisal must be made subject to a “hypothetical condition” per USPAP. [5]