Audits by Quality Mortgage Service indicate that many demands by financial institutions that lenders buy back mortgages are based on fraudulent appraisal schemes in an attempt to increase the success of repurchase claims.

The Brentwood, Tenn.-based quality control and assurance company believes some appraisers are systematically being pressured to use a subset of market data that skews the calculated market value of the property backing the disputed mortgage.

QMS says the scheme, which it calls FRAFing, or field review appraisal fraud, is often found in appraisals when mortgage repurchase demands are pushed backed to lenders for a claim based on a field review appraisal value. 

“The appraiser or someone is manipulating data and/or information in sections of the appraisal to obtain a targeted value result,” QMS President Tommy A. Duncan says. “They are ignoring the higher value of comparable so that a lower value is supported in the appraisal.”

The data used to compare to the property is nearly always restricted to the bottom 20% to 30% of sale prices in the market area, Duncan says.

“What we are finding, when supporting repurchase defenses, is a concerted effort to base an opinion of market value on the lower one-third of market data that produces erroneous estimates for approximately 65% of the properties appraised — assuming equal market distribution,” he adds.

Financial institutions are FRAFing because of intense pressure to successfully push back loans for repurchase, Duncan claims. “It is a conclusion I am making because it does not make sense for an appraiser to overlook the obvious,” Duncan says. “Therefore, the act must be based on pressure and not sloppy work.”

The QMS repurchase defense audit compares the information contained in mortgage loans and supported material in the claim usually at the lender’s second attempt to defend. QMS employs human analytics and asymmetrical methodology in its review to ensure that the document has been prepared correctly and that the information reported is accurate.

Duncan recommends mortgage lenders perform the highest level of due diligence when field review appraisals are used to support a repurchase claim in order to combat FRAFing.