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Appraisal Fraud Adds to Foreclosures

The National Community Reinvestment Coalition is calling for legislation to clean up the appraisal process after seeing more and more "predatory" loans with inflated appraisals that its special rescue fund can't restructure.

NCRC president John Taylor said the problem of undo influence on appraisers from lenders and real estate agents is widespread.

"We think the solution relies on Congress enacting anti-predatory lending legislation that would create more independence for appraisers, more arms-length transactions," he said.

NCRC issued a report last week that documents problems its local organizations are seeing in their communities, including referrals to its National Anti-Predatory Lending Consumer Rescue Fund.

In the past year, the rescue fund has received 750 loan referrals and about one-third involve problematic appraisals, including "upside-down" mortgages, according to NCRC executive vice president David Berenbaum.

In some cases, the loans can be refinanced if the securitizer will agree to take a hit.

"But frankly, in the majority of cases, we are not able to restructure the loan because of the overvaluation involved," Mr. Berenbaum said. "It is frustrating for us. We have a good record at working through problem loans."

In its report, "Predatory Appraisals: $tealing the American Dream," NCRC points out that federal and state efforts to oversee the appraisal process are totally inadequate to deal with lender pressure on appraisers.

"Despite the soaring number of homeowners that have been cheated because of appraisal fraud, regulations to curb this practice have remained weak and ineffective," the report says.

NCRC will be lobbying Congress to enact stronger federal and state regulation of appraisal practices and standards and stronger penalties to prevent appraisal fraud by lenders, appraisers and real estate agents.

Key House Financial Services Committee members have introduced two bills to curb predatory lending.

A comprehensive predatory lending bill (H.R. 1295) drafted by Reps. Bob Ney, R-Ohio, and Paul Kanjorski, D-Pa., includes an appraiser independence provision that is supported by the Appraisal Institute.

But like most consumer groups, NCRC claims the Ney-Kanjorski bill has too many exceptions and loopholes.

The NCRC supports an alternative predatory lending bill (H.R. 1182), sponsored by Reps. Brad Miller, D-N.C., and Mel Watt, D-N.C.

While the Miller-Watt bill does not address appraisal issues, Rep. Miller agreed there are problems with inflated appraisals. "I certainly don't object to that topic being considered at the same time as other abusive practices in mortgage lending are considered," Rep. Miller said in an interview.

Appraisal Institute spokesman Don Kelly welcomed the NCRC report. "The report highlights many of the problems we have been talking about," he said. He was disturbed, however, to see references to "predatory appraisers" in the report.

Mr. Kelly pointed out that the Ney-Kanjorski bill would require federal regulators to issue regulations that hold lenders accountable for coercing, intimidating or threatening an appraiser to come to a predetermined value.

The NCRC report lists several recommendations for curbing fraudulent appraisals, including "whistleblower" procedures that would allow appraisers to report complaints of lender pressure to federal regulators. If complaints were directed to one central agency, "appraisal fraud would be detected more quickly and effectively and state agencies would be able to better investigate these claims," the report says.

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