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Fraud Study Shows Importance of Competence, Ethics

CHICAGO, April 26, 2010 — A new study indicating reports of mortgage fraud in the United States increased 7 percent from 2008 to 2009 shows why lenders need to hire competent, ethical appraisers, Appraisal Institute President Leslie Sellers, MAI, SRA, said Monday.

"These results are further evidence that lenders need to reconsider who they engage to perform appraisal assignments," Sellers said. "The best way to mitigate real estate valuation fraud is to hire a competent, ethical appraiser."

The Appraisal Institute is the nation's largest professional organization of real estate appraisers. Sellers was reacting to the 12th Periodic Mortgage Fraud Case Report by Mortgage Asset Research Institute, a LexisNexis' service, issued today at the Mortgage Bankers Association's annual National Fraud Issues Conference in Chicago.

The Appraisal Institute's own research found that disciplinary actions against appraisers, as reported by the Appraisal Subcommittee, have increased each year since 2005. There were 2.6 times as many disciplinary actions from Jan. 1, 2005, to April 1, 2010, as in the previous five-year period. The Appraisal Subcommittee of the Federal Financial Institutions Examination Council, created by Congress in 1989, oversees the real estate appraisal process as it relates to federally related transactions.

The Appraisal Subcommittee reported 162 disciplinary actions in 2005, 198 in 2006 (a 22.2 percent increase from the previous year), 280 in 2007 (41.4 percent increase), 337 in 2008 (20.4 percent increase) and 413 in 2009 (22.6 percent increase). Through March 31, there have been 78 disciplinary actions reported this year.

"Regardless of how many of these disciplinary actions were fraud-related, these figures further drive home the point that appraiser competence and ethics are vital," Sellers said. "The Appraisal Institute prides itself on its education, publications and other tools to enhance appraisers' competence and ethics."

Although Appraisal Institute members represent a large proportion of the total U.S. appraiser population, they have been much less likely to be subject to disciplinary actions by the states than other appraisers. In fact, non-Appraisal Institute members received more than eight times as many disciplinary actions than members did during the past five years. Appraisal Institute members comprise about one-fourth of the U.S. appraiser population.

The Appraisal Institute's research is based on an analysis of data found in the Appraisal Subcommittee National Appraiser Registry.

To see the Mortgage Asset Research Institute's fraud report, click here.

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