CHICAGO (March 9, 2010) – Citing concerns about increased mortgage fraud, four organizations representing more than 35,000 real estate appraisers today voiced their opposition to changes to an Obama administration program that will encourage short sales of homes. The coalition was led by the Appraisal Institute, the nations largest organization of real estate appraisers.
A short sale occurs when a lender accepts less than the full unpaid balance of a loan rather than foreclosing on a defaulting owners property. The Obama administrations program allows broker price opinions to be used to determine the value of properties to establish a minimum offer of a short sale. Broker price opinions, or BPOs, are estimated values of a property as determined by a real estate broker; they are not the same as appraisals.
We strongly believe continuing to allow broker price opinions (BPOs) in the property valuation component will not adequately protect the public interest (consumer, borrowers, etc.) or the interests of the various parties to the loan (lenders, loan servicers, etc.) and is likely to exacerbate mortgage fraud, the appraiser organizations said in a letter to Treasury Secretary Timothy Geithner. It was signed by the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers.
We urge the Department to reestablish independence in the valuation process to protect the safety and soundness of financial institutions, improve transparency, and safeguard the public trust," the appraiser organizations’ letter said, later adding. "We urge the Administration to revise the [Home Affordable Foreclosure Alternatives] HAFA guidelines to prohibit the use of BPOs for property valuation requirements involving foreclosure alternatives, including short sales.
The appraiser organizations letter notes that law enforcement officials have highlighted loan modification fraud – including fraud involving short sales – as a new form of mortgage fraud. "We believe that such conflicts can and should be mitigated by implementing basic requirements reestablishing independence and competency in the valuation process," the letter said.
Changes to expand the Home Affordable Foreclosure Alternatives program, set to take effect April 5, would allow defaulting owners to sell their homes for less than they owe and would provide them $1,500 in relocation assistance, according to The New York Times.
The Times referred to the plan as "one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions," noting that 5 million households are behind on their mortgages and risk foreclosure. The governments $75 billion mortgage modification plan reportedly has helped few of them.
To read the appraiser coalition’s letter to Treasury Secretary Timothy Geithner, click here.
To read The New York Times March 8 story on the Obama administrations program, click here.
The Appraisal Institute is a global membership association of professional real estate appraisers, with more than 25,000 members and 91 chapters throughout the world. Its mission is to advance professionalism and ethics, global standards, methodologies, and practices through the professional development of property economics worldwide. Organized in 1932, the Appraisal Institute advocates equal opportunity and nondiscrimination in the appraisal profession and conducts its activities in accordance with applicable federal, state and local laws. Members of the Appraisal Institute benefit from an array of professional education and advocacy programs, and may hold the prestigious MAI, SRPA and SRA designations. For more information regarding the Appraisal Institute, please visit www.appraisalinstitute.org.