Score helps identify inflated property values
By MortgageDaily.com staff
3/14/2002

Real estate finance behemoth Freddie Mac announced this week that it will offer a new quality control technology tool which can identify inflated property values in connection with fraud or misrepresentation. Among other features, Freddie says its "Home Value Calibrator" can identify potential predatory loans, evaluate a batch of mortgages originated by third parties and review large pools of mortgages.

A recent case in the Pocono area has Chase Manhattan Mortgage Corp. facing up to $20 million in "Write Downs," according to a recent story in the Pocono Record. In that case -- which Freddie announced in August it began investigating -- Chase is accused of ignoring signs of the inflated values when alerted to them by a review appraiser.

Twenty defendants were recently convicted in a Chicago-area flipping scam involving more than $10 million in loans with inflated property values. In that case, appraisers were allegedly paid a $1,000 bonus for providing the inflated values.

Using a scoring system, Freddie's technology examines home values generated by an automated valuation model (AVM), borrower data and loan data to predict whether a loan is at high risk, moderate risk, or low risk of a faulty assessment. Freddie said that if a high Home Value Calibrator score is returned, the lender may be able to close that loan faster with greater confidence in the underwriting decision. Conversely, a low score indicates increased probability that the market value is significantly less than the appraised value, borrower's estimate, or purchase price.

"Inflated appraisals are a key component of many abusive lending practices," said Michael Bradley, vice president of Strategic Information Services for Freddie. "The borrower who buys an overpriced home may lose money when they try to sell."

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