Mortgage fraud increased in the U.S. for the fifth consecutive year, according to a press release by the Appraisal Institute. The institute, an organization of 25,000 real estate appraisers, reported a 7% increase in fraud reports from 2008 to 2009, citing a study conducted by the Mortgage Asset Research Institute (MARI). The increase was sizable but much smaller than the 20%-plus jumps the market saw each year from 2005 to 2008.

“These results are further evidence that lenders need to reconsider who they engage to perform appraisal assignments,” said Appraisal Institute president Leslie Sellers.

Fraud Still Rising, But Not As Quickly

The report was not good news for the real estate industry, but it was better news than the mortgage fraud numbers have brought in recent years.

According to the Appraisal Institute, between 2005 and 2010, mortgage authorities took 2.6 times as many disciplinary actions as they did in the previous five years. The most substantial increase of that time frame came between 2006 and 2007, when mortgage fraud punishments went up 41.4%. Compared to those numbers, this year’s 7% bump is relatively small.

The most commonly reported kind of fraud was appraisal fraud. Appraisal fraud occurs when a home’s appraised value is intentionally overstated or understated. Appraisal fraud is especially damaging because it creates a ripple effect within communities: If one home’s value is artificially inflated, other appraisers could use that value as a benchmark for other homes in the neighborhood.

Florida Home To The Most Fraud

For the third time in the past four years, Florida was rated the top state for mortgage fraud by the MARI study. Florida experienced the most fraud in 2006, 2007 and 2009. Rhode Island replaced it at the top of the list in 2008. Florida’s mortgage fraud rate in 2009 was almost three times as high as what would be considered normal, given the amount of total loans granted. New York and California placed second and third in 2009. New York City’s mortgage market was the most fraudulent, as the Big Apple alone was responsible for 12% of the nation’s mortgage fraud penalties.

How To Avoid Appraisal Fraud

FraudGuides.com published an article on mortgage appraisal fraud that included some steps to avoid becoming a victim.

FraudGuides suggested making sure your appraiser is state certified. The Appraisal Institute offers information on the state-by-state options for certification, so you can check your appraiser’s credentials. Also, ask for references from banks or other home sellers the appraiser worked for previously.

Did you enjoy this article? Yes No
Oops! What was wrong? Please let us know.

Ask a Question

  • aldayd

    If fraud in appraisals betwen 2006 and 2010 existed, why are the building giants such as DR HORTON not being held responsible. Who Iis responsible for pursuading appraisal companies to inflate the appraisals in order to inflate their building prices and profits.If the appraisals were fraudently done to sell homes at higher prices then why should the homebuyer have to be the one that is the loser. Someone should be held responsible and be sued.

  • Peter007

    The fraud exists with the Appraisal Institute. The Institute used to be the primer Appraisal organization until licensing came about 20 years ago. Since then, they have been conducting a campaign against appraisers. Their motive is to get more legislation that will require appraisers to get more education hours. Education hours is what the Institute sells and lately they aren't making much money. Appraisal fraud has never been a major problem in the lending industry. Although it exists, it hasn't changed much in 50 years. The Institute does not represent the majority of Real Estate Appraisers and their vindictive campaign should be exposed for what it is. A shameless attempt to get get legislators to pass a law which will only benefit them.

  • Mike

    You make a really good point about how appraisal fraud can impact an entire neighborhood. Making sure the appraiser is state certified also makes good sense. The sad thing is that the amount of fraud in the idustry keep going up. Can't there be more safeguards to prevent this type of fraud>?

  • Peter007

    The fraud exists with the Appraisal Institute. The Institute used to be the primer Appraisal organization until licensing came about 20 years ago. Since then, they have been conducting a campaign against appraisers. Their motive is to get more legislation that will require appraisers to get more education hours. Education hours is what the Institute sells and lately they aren't making much money. Appraisal fraud has never been a major problem in the lending industry. Although it exists, it hasn't changed much in 50 years. The Institute does not represent the majority of Real Estate Appraisers and their vindictive campaign should be exposed for what it is. A shameless attempt to get get legislators to pass a law which will only benefit them.

  • Mike

    You make a really good point about how appraisal fraud can impact an entire neighborhood. Making sure the appraiser is state certified also makes good sense. The sad thing is that the amount of fraud in the idustry keep going up. Can't there be more safeguards to prevent this type of fraud>?