I heard a report on the radio on my drive in to work about a mortgage broker that had facilitated a $25MM fraud scheme- really involved story, but the news item is here.
National Mortgage News has started a fraud eNewsletter. Click here for coverage of a scheme by Phillip Hill and Marcus Alcindor. Why not, the stories prove fascinating- who hasn't ever wanted to get money for nothing. And there are tons of stories, well publicized and not. Estimates are that there is possibly as much as $4B worth of fraud out there to be found.
That is an endless source of riviting story telling. But the question I have is how could a lender or investor know that there was fraudelent activity being involved?
I think one thing that should happen- and its one of my pet peeves about the mortgage process- that the lender funding the mortgage should be the one to order and pay for the appraisal.
I bet this would fix a lot of fraud. Really, who does benefit from the appraisal? What is the purpose of the appraisal? It determines the value of the property?
Why? Because the lender doesn't want to lend more than the property is worth.
So why does the borrower pay for this? Because it protects the lender?
Granted, you wouldn't want to be ordering appraisals on properties that don't turn into actual loans. But then I would look to use an AVM to decide whether to offer credit, and then have a on staff appraiser, my own employee, go out and do a live, on site appraisal for the property.
I've got to imagine that investors would love this kind of loan- they're is an extra degree of certainity against fraud. And as such, I would expect that investors either might pay more for the loan, or pay less for loans that don't have a similar appraisal process.
In fact, if investors insisted on having loans done this way, a lot of fraud would simply go away.
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