A lack of enforcement at the state level is a major reason appraisals remain at the root of mortgage fraud, said panelists at a symposium sponsored by the Appraisal Foundation earlier this month. A third of the states "are doing a great job" at responding to cases alleging fake, false or erroneous appraisals, Mark Simpson of Fannie Mae told the conference. And another third are "so slow that we don't know what to think. They sit on referrals for three years." But the other third don't even do anything, Mr. Simpson testified. "They take no action whatsoever," he said. "One state was sent 60 cases in a single week, but has yet to take action. We were told to make a formal complaint and hire an appraiser to testify." During an 18-month period between 2001 and 2002, Fannie Mae's director of property standards also reported, his company referred 860 cases to state regulators. Of those, some action was taken in 391 -- 118 appraisers lost their licenses and 273 were sanctioned in one way or another. But as of this month, nothing has been done regarding the remaining 469 cases. Fannie Mae still refers complaints to state agencies "because we think it's the right thing to do," Mr. Simpson said. But the lack of consistent and effective enforcement "is frustrating." The Fannie Mae official stopped short of calling for the creating one regulatory agency at the highest level of government to police the appraisal business. But Douglas Vincent, executive vice president and chief collateral officer at Countrywide Bank, did not. "It all comes down to accountability," he said. "The mortgage industry needs a single federal agency" to enforce the rules. Mr. Vincent said most instances of appraisal fraud go unreported because there is no central agency to which complaints can be transmitted. And even when suspicions are reported, state regulators as well as the federal appraisal subcommittee "lack the funds and staff" to investigate most of what they are told. Appraisers who commit fraud need more than just slaps on the wrist, they "need to be punished" by having all their assignments taken away, the industry spokesman said. Valuations may be subjective, he explained, but fraud is not. "Fraud is an intentional and material misrepresentation. A faulty or even fake appraisal is at the basis of most fraudulent mortgage transactions." Richard Powers, president of the Appraisal Institute, agreed that state regulators lack the money and the manpower to effectively oversee the business. In some states, he noted, a single agency polices "each and every license" granted within their borders, from hair dressers to contractors. They have so much responsibility, he added, that they can't possibly be effective. Mr. Powers said that his group opens its own investigation of an appraiser every time a case of suspicious activity is reported to a state. But even though the penalties are severe if someone is found guilty -- membership in AI can be suspended or revoked, and names can be published on a do-not-use list -- even that falls short because most appraisers are not members. Of the country's 90,000 licensed and certified appraisers, only a third participate in a professional organization. The rest are unaffiliated, Mr. Powers said. At the federal level, The Appraisal Institute is backing legislation -- H.R. 1295, the Responsible Lending Act -- that would prohibit coercion and give regulators more enforcement power to issue fines and levy penalties against anyone who pressures appraisers to produce fraudulent valuations. The trade group also wants the Treasury Department to develop suspicious activity reports for non-lenders, and give appraisers clear points of contact so they can turn in their colleagues who fail to follow the rules. At the state level, AI is calling on local lawmakers to enact appraiser independence statues that provide for reporting and investigating allegations of fraud and for strict penalties for those who are found guilty. It also wants mandatory licensing of appraisers. So far, Mr. Power said, only four states -- Utah, Michigan, North Carolina and Arkansas -- have made it illegal to coerce appraisers into making false valuations. And while 33 states require licensing, there are "a lot of holes" in many of the regulations. A recent AI study found that more than half its members felt pressured to overstate their valuations. And the over-riding reason they go along, said Santa Rosa, Calif., attorney Rachel Dollar, an expert in the lending business in general and mortgage fraud in particular, is to keep from being blackballed by brokers, lenders and realty agents. Indeed, she reported, they do it largely to remain in business, not to become rich. "The majority of appraisers convicted of or disciplined for mortgage fraud related offenses did not receive any of the 'proceeds' beyond their customary fees," she told the conference. "Typically, that's between $350 and $450." But pressure is neither an excuse nor a defense, Ms. Dollar also said, adding that the solution for appraisers is to "just say 'No.'" "The buck must stop here," the California attorney said. "Appraisers must refuse to accept assignments that require values to be pushed. The profession won't stop committing fraud for $400 until the professionals stop committing fraud for $400." Speaking for Uncle Sam, John Arterberry, executive deputy chief of the fraud section in the Treasury Department's criminal division, said that while mortgage fraud is a national priority, the Feds can't stop it by themselves. "We're doing what we can to fight a problem that has gone from bad to worse. But when we arrive on the scene, everything is broken and nothing else is working," he said. "There is always going to be times when there is a failure in the system; that's when law enforcement shows up. But prevention and other measures make a lot more sense. Professional organizations need to adopt standards and find ways to strengthen their memberships." | 
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