It would be nice to be able to say that appraisal-related fraud is going the way of the measles and dial-up Internet access, but that is unfortunately not the case. Many of the common mortgage frauds out in the real world require values to be influenced in order to succeed. It is rare that appraisers themselves are involved—most often the appraisers are manipulated by the perpetrators. Either way, lenders are vulnerable, but there is good news: technology is helping turn the tables in favor of the mortgage industry.
Technology is also helping the fraudsters—with documents easier to falsify and photos easier to alter—but the good guys have tools to outflank them. Using readily available technology platforms, lenders can gain the upper hand with transparency, solid appraisal management capabilities and anti-fraud measures that test even the cleverest swindlers.
While it is evident that loans are receiving a great deal of scrutiny these days, it is also true that appraisal reports are generally viewed most closely for the value they recommend, not the detail they contain. The fraudsters use accomplices capable of producing convincing appraisals, along with repeated sales among spurious parties and dummy corporations to muddy the waters.
Murky comps and questionable sales are more easily included to inflate values when there is not an experienced appraisal professional available for quality review. Lenders, servicers and investors are often so busy looking the other way at the myriad of regulatory and legal distractions they deal with every day, that appraisal-related fraud is as much a fact of life as overpriced gasoline, identity theft and the Kardashians.
The best way to fight loan fraud is to know appraisers well, manage them carefully and backstop them with solid quality control options. Creating panels of appraisers has become quite simple these days, but some lenders have been reluctant to use appraisal management technology to truly take control.
Whether lenders want to order reports through appraisal management companies, create local and regional panels of qualified appraisers, or manage their appraisal effort with a combination of both, improved security is amazingly easy to accomplish today because of technology.
In addition to selecting individual appraisers in full compliance with Dodd-Frank guidelines, appraisal management technology can manage vendor rotations, identify appraisers with particular skill sets and geographic expertise, and handle quality control on each report. All this makes appraisal-related fraud far more difficult to perpetrate and simpler to detect. At the same time, administrative costs are minimized through ordering and handling automation, and transparent reporting and analysis on the overall appraisal effort are made much easier.
Fraud will always be with us; it is an inevitable, unpleasant fact of life. But industry technologists are working hard to find ways to thwart cagey criminals—and we’re getting better at it all the time.
