HAFA could lead to more fraud, trouble for Realtors…
The Obama administration is proposing yet another solution to the growing foreclosure problems facing American households.Beginning April 5, the Treasury is planning to implement a short sale process where lenders will take the advice of real estate agents to determine the minimum offer to accept on a home, according to the NY Times.
The banks then must accept any offer that comes in that meets or exceeds the minimum established. All participating in the transaction will receive incentive payments; the servicing bank will get $1,000, and another $1,000 will go towards a second mortgage if one exists. The homeowner would also receive $1,500 relocation assistance. The program’s main focus would be to keep bank losses at a minimum and to lessen the amount of abandoned homes.
Just a short time following the Treasury’s program proposal, many leading appraiser groups have expressed much criticism. In a letter from the Appraisal Institute to the Treasury, the concern of a new trend referred to as “property flopping” is discussed. This trend refers to instances where a property is falsely appraised below its actual market value using a broker price opinion instead of an actual appraisal and sold to a related party of the real estate agent. The property is then marketed and sold at its real market value for a quick profit.
The appraisers have deep concerns that allowing this type of arrangement holds too much possibility for fraud. “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 wrote in a letter to Treasury Secretary Tim Geithner. “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.”