Appraisal fraud was so easy to accomplish in the housing boom because there was (and is) no oversight to catch the bad apples. According to an AP report that has come out by Mitch Weiss today, appraisers do have a specific set of criteria to follow and remain within the law.

The problem is when the law is broken the individual states never hired a sheriff to prosecute the crimes. Combined with an unethical lending environment (get the customer the biggest loan possible) you had arms race.

The really sad thing about this is that the ethical appraisers were left on the curb because they would not play ball. When the mortgage companies made their lists of approved appraisers, they left off the honest ones because they provided to much grit to the machine. The mortgage lenders wanted volume without friction, just write the damn loan, that has created the mess now.

And the appraisers that went along had no fear of retribution if you read the findings in Weiss’s report. It was the Wild West…

• Since 2005, at the height of the housing boom, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year. Some complaints sat uninvestigated for as long as four years. As a result, hundreds of appraisers accused of wrongdoing remained in business.

• The only tool federal regulators have to force states into compliance is so draconian — it would effectively halt all mortgage lending in a state — that it has never been used.

• Both state appraisal boards and the federal agency tasked with their oversight are chronically understaffed, many with only one full-time investigator to handle the hundreds of complaints that arrive each year. Some don’t even have an investigator.  via SearchChicago Homes

Related posts:

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2. Countrywide’s Mozilo Charged With Securities Fraud and Insider Trading by S.E.C.
3. FHA New Lending Standards For Mortgages and Home Refinances
4. Angelo Mozilo To Be Charged With Fraud By The SEC