In the run-up to the financial crisis, fraudulent appraisal schemes ran rampant in the housing industry, eventually leading to the complete overhaul of the property appraisal system and the rise of appraisal management companies.
In many cases, property appraisals were dramatically overstated as part of schemes to extract more money from lenders, and by extension, Fannie Mae and Freddie Mac.
As it turns out, schemes like that have not been completely forced out of the industry.
In fact, they appear to be alive and well, at least in one corner of the industry, prompting one government watchdog to issue a stern warning to the housing industry.
In an industry alert published Monday, the Office of the Inspector General for the Department of Housing and Urban Development said that it has identified instances of fraudulent property appraisals being used to increase the loan amount for the refinancing of HUD’s Home Equity Conversion Mortgages.
According to the HUD-OIG, its investigators have uncovered fraudulently overstated appraisals being used to qualify senior borrowers for HECM refinancing.