On June 10th, Bloomberg.com published a hard-hitting report about “flopping” (which they described as a “…scheme” in which “…investors or home buyers hire brokers to assess a home for less than its market value and convince banks to accept a sale at that level. The buyer conceals from the lender that he has lined up a higher offer and then quickly resells the property for a profit…”. 

Bloomberg quoted Ann Fulmer, vice president of Interthinx (a California company that sells mortgage fraud detection software) as saying that: “Investors often use real estate broker opinions, which may rely on drive-by inspections instead of full appraisals, to persuade lenders to sell at a low price”.  Ms. Fulmer illustrated her point by suggesting an Internet search for “How to influence a broker price opinion”.  The article suggested that this search yielded 74,800 results.  When we made this search on Google, it yielded 54,600 results; however, when we made the search “How to influence a BPO” it yielded 188,000 results!

The Bloomberg.com article noted that the special inspector general for the Troubled Asset Relief Program (TARP), Neil Barofsky, reported to Congress that by allowing BPOs, taxpayers were exposed to $49 billion of government bailouts for housing.  Bloomberg quoted Mr. Barofsky as saying that: “As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal…No program of this type and scale can be considered well designed without robust protection of taxpayer funds against the predation of criminals, particularly given the inconsistent treatment of home valuation.”

The Bloomberg.com article describes a Connecticut case in which two real estate agents pled guilty in a fraudulent scheme and the entire article can be viewed by clicking on the following link:
Banks Face Short-Sale Fraud as Home "Flopping" Spreads

Once again, we at Appraiser Help want to note our support for the positions taken by the four appraisal organizations which authored the March 8th and April 20th letters that we have previously discussed opposing the use of both BPOs and BOVs (Broker Opinions of Value of Commercial Real Estate).  Read the April 20th letter here:
Letter to State Appraiser Board Chairs

We also again request that Andrew Cuomo take one final action as Attorney General, before his coronation as Governor of New York, to read our letter dating back to August 4, 2009 (go to www.EndBPOsNow.com to see) and use the powers at his disposal to help bring an end to these unseemly financial practices.

Official US Bank Press Release

U.S. Bank Incorporates New Collateral Valuation Report into Product Pipeline CVR Identified as a More Credible and Accurate Valuation Compared to BPOs

Minneapolis, MN— June 2, 2010—U.S. Bank, the nation’s fifth largest bank, announced today that it will start to incorporate a new statistically supported appraisal, the Collateral Valuation Report (CVR™) as part of its ongoing efforts to use best-of-breed valuation products for its lending solutions.

Forsythe Appraisals, LLC, the largest independent provider of residential real estate appraisals in the United States and Valocity, LLC, a leading nationwide valuations provider, have been selected by U.S. Bank to provide the new CVR appraisal report on a nation-wide basis.

The CVR is an innovative, USPAP-compliant appraisal product that incorporates regression analysis performed by the appraiser to support the value conclusion. The valuation report and software was developed by Bradford Technologies, Inc. headquartered in Silicon Valley, as part of their suite of AppraisalWorld Services for appraisers, appraisal management companies and lenders.

Forsythe Appraisals, Valocity and Bradford Technologies have partnered to provide the CVR as a much more reliable alternative to Broker Price Opinions (BPOs) and Automated Valuation Models (AVMs) which typically require little or no appraiser interaction.

Tony Pistilli, U.S. Bank’s Chief Retail Appraiser for Consumer Banking Risk Management noted that the CVR’s attractiveness to U.S. Bank is its accuracy and reliability. “We believe the CVR will provide a more accurate and more reliable valuation with additional analytical features compared to anything else currently in the marketplace. The value of the CVR is seen as a better way to ensure objectivity and to deliver a valuation with a minimum of valuation bias”.

Tim Forsythe, CEO of Forsythe Appraisals, a veteran appraiser was enthusiastic about broadening his firm’s existing relationship with U.S. Bank. “Obviously we’re thrilled to be working with U.S. Bank to provide products and services that meet a broad range of lending needs. We anticipate it being a real help to them and hope that we can provide the CVR solution for other needs in the future. Valuations based on regression analysis performed by appraisers who are the local market valuation experts is the way all appraisals in the future will be performed. We are enthusiastic about leading the industry alongside U.S. Bank.

Mark Linné, EVP of Education and Analytics at Bradford Technologies, echoed Mr. Forsythe’s sentiments saying, “Transparent statistics will be a part of all appraisals in the future. We are adding science to the art of appraising and we are very pleased that U.S. Bank recognizes the value that statistically supported valuations will bring to their risk analysis and decision making process”.

He continued, “We’re making every effort to educate the marketplace on the CVR and the great value it offers. We are making a difference one lender at a time. We are also currently training and certifying hundreds of appraisers on the use of regression analytics to meet the coming demand.”

For more information on the CVR contact Alan Hummel, SRA, Senior Vice President and Chief Appraiser at Forsythe Appraisals (651-765-9512) or Mark Linné, MAI, SRA, CRE, CAE, ASA, FRICS, Executive Vice President, Education and Analytics at Bradford Technologies (303-995-0899)

Banks Are Ordering CVRs In Your Area

Two regional banks and one credit union looking order CVR reports as soon as possible. CVR certified appraisers are needed in the following states – FL, AL, MS, OR, WA, CA.

Mark Linné Appointed to the Appraisal Practices Board

Trustees of The Appraisal Foundation, a congressionally authorized non-profit organization dedicated to promoting professionalism in appraising through the establishment of appraisal standards and appraiser qualifications, announced Saturday May 22, 2010 the appointment of Mark R. Linné to its newly established Appraisal Practices Board (APB).

In 2009, with the unanimous consent of The Appraisal Foundation Board of Trustees, it was agreed that a new board be established, similar in structure and composition to the already existing independent boards, the Appraiser Qualifications Board (AQB) and the Appraisal Standards Board (ASB). According to the Foundation:

The purpose of this third board is to issue voluntary timely guidance to appraisers on emerging valuation issues that are occurring in the marketplace. This guidance will be of assistance to appraisers, appraiser regulators and educators. The new Board will enlist the help of market surveys to identify issues that need to be addressed and will empanel small groups of volunteer Subject Matter Experts (SMEs) to draft the guidance for review and approval by the Board.

The need for this type of guidance was underscored with the onset of the declining real estate market. Many appraisers had not previously faced this type of market condition and the impact of foreclosed properties and short sales. Because a majority of state licensed and certified real estate appraisers do not belong to a professional society, they had limited access to guidance.

Mr. Linné, who is the Executive Vice President of Education and Analytics for AppraisalWorld, Inc, had previously served a representative to The Appraisal Foundation’s Industry Advisory Council (IAC) and served on its Appraisal Form Task Force and Alternative Valuation Task Force. The Appraisal Practices Board is expected to begin meeting in July, 2010.

Mark Linné Quoted by Reuters

Mark Linne was recently quoted in an article published on the Reuters website.  The article talks about the housing demand for this upcoming summer. Here is an excerpt from the article:

The retreat in the U.S. housing market after the government halted its hefty tax credit in April should be short-lived, analysts say, and the market may resume its path to stability...

Read the complete article on Reuters.com