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February 11, 2008
Appraisers coerced
to raise valuations
By Andrew Gomes, Honolulu Advertiser
Homebuyers in Hawai'i may have been given mortgage loans based on inflated appraisals derived under pressure from lending and real estate agents.
Appraiser coercion is described as part of a national problem that quietly evolved over the past decade or so and helped undermine housing markets around the country, though to a much lesser degree than fraudulent loan practices and subprime lending abuses.
Observers believe such coercion may have artificially boosted Hawai'i's rapid run-up in home prices between 2001 and 2006, and put the local housing market at a higher risk of falling.
A state regulatory agency and local appraisers testified about the industry pressure during a recent state legislative hearing on Senate Bill 2407 that intends to make it illegal for anyone with a financial stake in a real estate transaction to influence an appraiser.
"There is something wrong with the system, and we need to fix it," said Jose Diogo, owner of Kaua'i-based Diogo Appraisal Services Inc. "It's a vicious cycle of pressure."
Appraisers play an important role in the residential real estate market because lenders typically won't issue a mortgage for more than a home's appraised value, less a down payment. Appraisals too far below purchase prices can derail sales from which mortgage and real estate agents earn commissions.
Inflated appraisals also could mean people were encouraged to pay too much for homes, which potentially could reduce any gains — or increase any losses — on resales.
MANY REPORT PRESSURE
According to published reports, a 2006 study by Richfield, Ohio-based mortgage and real estate research firm October Research Corp. found that 90 percent of 1,200 appraisers nationwide said they had been pressured to raise valuations, up from 55 percent in a smaller 2003 survey.
In the more recent survey, October Research said 71 percent of appraisers reported being pressured by mortgage brokers and 56 percent reported pressure from real estate agents.
Alan Taniguchi, executive officer of the state agency that licenses and regulates real estate appraisers under Hawai'i's Department of Commerce and Consumer Affairs, said mortgage originators are applying "tremendous pressure" on appraisers.
But Taniguchi said the problem is underreported because of appraisers' fears that they will be blacklisted by real estate lending or sales agents in Hawai'i's small, tight-knit industry.
Sara Thompson, an appraiser on Kaua'i, said in written legislative testimony that on several occasions she was told by mortgage brokers that they would use another appraiser if she didn't comply with their terms.
In one appraisal assignment, Thompson said she was told to remove comments about health and safety issues that she submitted in an appraisal.
"I lost business because I did not succumb to any of these requests/demands," she said in her testimony.
Diogo said most local lending and real estate agents avoid influencing his work. He said much of the pressure is from Mainland lending agents doing business in Hawai'i.
In some cases he said he has been asked to appraise a property at a specific value needed to make a loan work, to appraise property above an agreed-on sale price and to eliminate references to property damage.
"It is a problem that needs to go away because it does interfere with our purpose in the mortgage lending industry," he said. "It seems like the lending industry gained so much power, and they have abused that power."
BANKERS OPPOSE LAW
Gayle Ishima, legislative committee chairwoman for the Mortgage Bankers Association of Hawaii, said appraisers should address the issue themselves.
"It's an ethics issue for appraisers," she said. "It doesn't seem like you would need to add (a law that would punish lending and real estate agents) on top of it."
Richard Hagar, an appraiser from Washington state who tracks mortgage and appraisal fraud and helped write mortgage industry laws in that state, said laws similar to the one being considered in Hawai'i are badly needed. He estimates that around 20 states have laws prohibiting coercion of appraisers, and said several states are considering such legislation now that many housing markets around the country are crumbling.
Hagar, an appraiser for about 15 years and a licensed real estate agent for about 25 years, said pressure on appraisers historically wasn't much of an issue because appraisal orders mostly came from banks.
But he said pressure grew massively in the last decade or so as the mortgage origination business shifted to predominantly independent agents and unlicensed solicitors, while lenders sold more and more of their loans to investors.
Under state regulations governing many real estate industry professionals, including sales and lending agents, it isn't illegal to request or demand that an appraisal be made at a certain value.
Federal regulations governing financial institutions prohibit the practice, while some companies have internal policies against influencing appraisers.
Appraisers say they get pressure mostly from mortgage brokers who, unlike real estate agents and mortgage bankers, aren't licensed and regulated by the state.
"They have nothing that tells them what they can or can't do," said Scot Voronaeff, owner of Kailua-based appraisal firm Premiere Valuation and a past president of the Hawai'i chapter of the national trade association Appraisal Institute. "There definitely aren't any penalties."
For appraisers, too, no laws prohibit accepting assignments offered with implied or expressed conditions to meet a contrived valuation. But appraisers are bound by professional standards to make accurate independent appraisals.
UNSCRUPULOUS WIN
Appraisers said that refusing conditional appraisal assignments costs them business, while ignoring conditions can leave an impression that an appraisal was influenced. In some cases, mortgage solicitors have refused to pay for appraisals that don't result in a loan being granted.
The pressure, appraisers said, fostered an environment that attracted and rewarded unscrupulous appraisers.
Diogo and other local appraisers said there needs to be a law that helps eliminate the source of coercion.
Sen. Gary Hooser, D-7th (Kaua'i, Ni'ihau), introduced SB2407, which would make such influence illegal and subject to penalties. He said he was shocked by initial testimony on the bill, which he said he introduced at the request of a constituent who is an appraiser.
"I didn't really understand the scope of the problem," said Hooser, who is a licensed real estate agent. "I've learned there are some real issues here that need to be dealt with."
The bill was discussed at a public hearing on Feb. 4 by a consumer affairs committee. Hooser said he is proposing amendments to the bill based on testimony. A decision on whether to advance the bill was deferred until today.
Reach Andrew Gomes at agomes@honoluluadvertiser.com.
http://www.kycbs.net/Appraisers-Coerced-HA-2-11-8.htm
June 9, 2006
Mortgage fraud hits close
to home in Nevada
By Jennifer Shubinksi / Staff Writer
It may come as no surprise to those in the real estate industry that Nevada is near the top of the heap when it comes to mortgage fraud.
According to the Mortgage Asset Research Institute (MARI), Nevada ranks seventh when it comes to alleged mortgage fraud and material misrepresentation reported by major mortgage lenders, agencies and insurers to a MARI database.
Instances of alleged mortgage fraud continues to grow and is affecting more companies and communities, MARI reported.
The most recent statistics from the FBI indicate that there was a seven-fold increase in reports of mortgage fraud — from more than 3,000 in fiscal year 1999 to almost 22,000 in fiscal year 2005, the institute reported. The FBI also has reported that federally-regulated institutions reported more than $1 billion dollars in losses because of mortgage fraud in fiscal year 2005, the group reported.
One of the latest problems in mortgage fraud complaints are problems with appraisals, said David Berenbaum, executive director of the Center for Responsible Appraisals and Valuations.
The center was established last fall by the National Community of Reinvestment Coalition of Washington, D.C., a nonprofit group in operation that works to ensure fair lending practices.
"Many people are trapped in an upside-down loan, in that the value of the mortgage exceeds the value of the house," he said. "Valuation issues are of grave concern, and there are growing numbers of appraisal fraud issues in companies' portfolios."
Berenbaum said too often appraisers are pressured by lenders to "come in" at a predetermined number, or risk being black-listed or by withholding payment.
The problem continues even in Las Vegas' cooling housing market, said Debbie Huber, owner of Huber Appraisal Inc. and president of the Nevada Commission of Appraisers.
Huber said she receives several phone calls a day from a lender asking her to hit a target number in an appraisal.
It happens so often that Huber and her staffers have a response posted by every phone:
"I cannot accept the assignment with this condition because it violates professional ethics. You should be aware that I must develop the appraisal before I will know the results. I can only accept this assignment if you remove the predetermined value requirement."
Huber said the callers usually hang up, some are bold enough respond that they'll find someone who will.
"I had one loan officer that told my office manager 'good luck with your business, you're going to need it,' " Huber said.
The Nevada Appraisal Commission only handles disciplinary matters regarding an appraisal. There are few places appraisers can go when they have a dispute with a lender. In some cases they may be able to file a complaint with the state's Mortgage Lending Division.
The Center for Responsible Appraisals and Valuations is hoping that it can become a resource for appraisers nationwide when it comes to disputes between appraisers and lenders, Berenbaum said. The Center's resolution system involves a tiered approach where online negotiation is followed by mediation and, finally, arbitration.
The Center also is encouraging lenders, appraisers, realtors and others in the housing industry to sign a "Code of Conduct" to ensure homebuyers and homeowners receive accurate and fair appraisals for their homes.
Berenbaum said the group also plans to begin tracking complaints filed with the states nationwide.
"Hundreds of complaints are not being acted on by state regulators," he said.
Jennifer Shubinski covers real estate and development for In Business Las Vegas and its sister publication, the Las Vegas Sun. She can be reached at (702) 259-8832 or by e-mail at js@lasvegassun.com.
http://www.inbusinesslasvegas.com/2006/06/09/realestate.html
October 25, 2002
Kamehameha Gets New
Chief Investment Officer
by: Kekoa Paulsen
Kamehameha Schools Chief Executive Officer Dr. Hamilton I. McCubbin announced today that real estate expert Kirk O. Belsby has been named Chief Investment Officer of Kamehameha Schools.
"After two comprehensive, nationwide searches to fill this very important position, Kirk Belsby has emerged as the unanimous choice of our selection committee and also of the Board of Trustees," McCubbin said. "It is important that we took the time to reach a high degree of satisfaction that we were getting the right person for the job, and the Trustees and I are comfortable that Kirk is that person."...
Kamehameha Schools' Endowment Group has 66 employees and is responsible for managing the trust's $6 billion real estate and financial assets portfolio in support of Kamehameha's educational mission.
Belsby was with Arthur Andersen, LLP from 1993 to 2002, ending his tenure there as Western United States Regional Managing Partner for real estate consulting. Prior to that he was managing partner for Andersen's Pacific Southwest business from 1997 to 1998, and senior manager of real estate valuations, Pacific Southwest from 1993 to 1997. He had a direct role in the divestiture of Castle & Cooke from Dole Foods, including conducting a comprehensive valuation of all Castle & Cooke properties on Lana'i.
He was vice-president of real estate valuations for Michael Frauenthal & Associates from 1988 to 1992; a project feasibility analyst and asset manager for American Diversified Capital Corp. from 1984 to 1987, and a stockbroker with Shearson Lehman from 1982 to 1983.
The CIO position was vacated in November 2001 when Wendell Brooks, Jr. left Kamehameha Schools to return to private real estate practice.
Belsby is a Member of the Appraisal Institute (MAI #8999), and is a licensed general certified real estate appraiser in Hawaii, California, Arizona and Nevada. He is also a certified real estate broker in California. He earned a BA in Economics from the University of California-Davis.
Belsby officially begins work January 6, 2003; however, his orientation to KS assets and operations will get underway immediately.
http://www.ksbe.edu/article.php?story=20040907114639800
November 2006
Features - Top 20 Wealthiest Landowners
Hawaii Business News
Meet the Researchers
Hawaii Business thanks Tradewind Capital Group Inc., for providing the research for the sixth annual “Top 20 Wealthiest Landowners” list.
Tradewind Capital is the investment subsidiary of Island Holdings Inc. Tradewind Capital engages in asset-management activities and pursues investment opportunities in real estate and private equity. Its joint venture partner, Dallas-based L&B Realty Advisors, is one of the nation’s largest commercial real estate investment organizations. Among other transactions, L&B recently acquired Kukui Grove Center and Kukui Marketplace for one of its institutional clients.
Bruce M. Nakaoka, Managing Director
Prior to Tradewind Capital, Nakaoka was co-founder and managing director of MN Capital Partners, a firm specializing in private investments. From 1987 to 1996, Nakaoka was director of the Real Estate Investment and Appraisal Division for Kamehameha Schools/Bishop Estate.
From 1980 to 1987, Nakaoka served as assistant vice president with a commercial real estate appraisal firm. Nakaoka received the MAI designation from the Appraisal Institute in 1990. He’s a director of the McKinely High School Foundation and an administrator of the Matsuo Takabuki, Goldman Sachs and William S. Richardson Commemorative Scholarship Funds. Nakaoka earned both bachelor’s and master’s degrees in business from the University of Hawaii at Manoa.
Eric K. Martinson, Managing Director
Prior to Tradewind Capital, Martinson was co-founder and managing director of MN Capital Partners, a firm specializing in private investments. From 1984 to 1996, Martinson was director of Kamehameha Schools/Bishop Estate’s Financial Assets Division, responsible for its globally diversified private capital and marketable securities portfolios.
He is vice chairman of the Japanese Cultural Center of Hawaii, a member of the Sierra Club Honorary Board, a business mentor for the Native Hawaiian Chamber of Commerce and an administrator of the Matsuo Takabuki, Goldman Sachs and William S. Richardson Commemorative Scholarship Funds. Martinson holds a bachelor’s degree in finance from the University of Hawaii at Manoa and an MBA from the Fuqua School of Business at Duke University.
Bernard Villanueva, Investment Associate
Villanueva is an investment associate with Tradewind Capital Group. From 2005 to 2006, Villanueva was an investment associate at MN Capital Partners, after graduating with a BBA in finance and BA in economics from the University of Hawaii at Manoa. Villanueva also holds a BS in information computer science and is a certified Java programmer.
Council Bills and Resolutions Status
DATA FOR THIS RECORD AS OF 12/20/00
Resolution 97-318 CD1, FD2
Introduced: 10/16/97 by: JOHN HENRY FELIX
Re: CONDEMNATION--KUAPA ISLE CONDOMINIUM PROJECT
ACQUISITION. CONDOMINIUMS. FELIX, JOHN HENRY. KUAPA ISLE. LEASEHOLD
CONVERSION.
Present status: Adopted 03/11/98
Title:
A RESOLUTION PROVIDING FOR THE ACQUISITION OF INTERESTS IN LAND FOR
PUBLIC USE, TO WIT: LEASED FEE INTERESTS IN REAL PROPERTY ON WHICH THE
"KUAPA ISLE" CONDOMINIUM PROJECT IS SITUATED IN HONOLULU, OAHU,
HAWAII, AND DETERMINING AND DECLARING THE NECESSITY OF THE
ACQUISITION THEREOF BY EMINENT DOMAIN, AND PROVIDING FOR THE
DISPOSAL OF THE LEASED FEE INTERESTS.
Gist:
Resolution History:
01/13/98 POLICY COUN Committee Rept. No. 14 (1998)
Resolution reported out of committee to lay on the table for one week, be published and
subsequently adopted in accordance with the Charter.
01/28/98 COUNCIL TABLE
Resolution as amended (CD1) was further amended on the Council floor (FD1), 48-hour notice
waived, PCR-14 adopted and Resolution laid on table for one week to be subsequently published
as amended (Resolution 97-318, CD1, FD1).
BAINUM, DUKE Y
DESOTO, JOHN N
FELIX, JOHN HENRY Y
HANNEMANN, MUFI Y
HOLMES, STEVE Y
KIM, DONNA MERCADO Y
MANSHO, RENE Y
MIRIKITANI, ANDY Y
YOSHIMURA, JON Y
02/04/98 PUBLISH
Resolution gist published.
02/18/98 COUNCIL TABLE
Resolution (CD1, FD1) was further amended on the Council floor (FD2) (Noes - JD), 48-hour
rule waived (Noes - JD), and Resolution 97-318, CD1, FD2 laid on the table for one week to be
subsequently published (Noes - JD).
03/11/98 COUNCIL ADOPT
Resolution (CD1, FD2) taken off the table and adopted.
BAINUM, DUKE Y
DESOTO, JOHN N
FELIX, JOHN HENRY Y
HANNEMANN, MUFI Y
HOLMES, STEVE Y
KIM, DONNA MERCADO Y
MANSHO, RENE Y
MIRIKITANI, ANDY E
YOSHIMURA, JON Y
03/12/98 MAYOR PEND
Resolution transmitted to the Mayor for approval. Deadline for Mayor to return resolution is
3/26/98.
03/19/98 MAYOR APPRV
Resolution returned approved by the Mayor.
Related Communications:
CC 51, 1998 by: JOHN DESOTO, CHAIR
Requesting the amount of fees that would have been waived if Council had waited until KSBE's
appeals and the Small Landowners Association's current lawsuits re Chapter 38, ROH, have been
exhausted. (response M-362)...
D 25, 1998 by: HOUSING & COMMUNITY DEVELOPMENT DEPT.
Informing of the necessity of amending Exhibit B by removing one of the residential units listed.
D 110, 1998 by: HOUSING & COMMUNITY DEVELOPMENT DEPT.
Informing of the necessity to amend Exhibit B of Resolution 97-318, CD1, FD1, to include two
additional residential units.
M 1475, 1997 by: NATHAN T. K. AIPA
KAMEHAMEHA SCHOOLS/BISHOP ESTATE
Opposing any action to implement the lease to fee ordinance (91-95) because of an agreement in
which the City agrees to not pass any condemnation resolution relating to Kuapa Isle until
KSBE's challenge to the ordinance is fully resolved.
M 4, 1998 by: RICHARD S. H. WONG
KAMEHAMEHA SCHOOLS/BISHOP ESTATE
Urging the City to defer consideration of Resolution 97-318 and any resolution on Kahala Beach
that may result from the Dept. of Housing and Community Development's actions until conditions
set forth in Councilmember Yoshimura's 07/11/97 letter have been met.
M 14, 1998 by: MANYA VOGRIG
Opposing proposed legislation.
M 15, 1998 by: T. PHYLLIS ZERBE
Opposing Resolution.
M 16, 1998 by: LAUREL ANNE KAUHANE
Opposing proposal.
M 17, 1998 by: THE SMALL LANDOWNERS ASSOCIATION
Opposing condemnation of the Kuapa Isle condominium project and any other similar projects.
M 18, 1998 by: CADES SCHUTTE FLEMING & WRIGHT
KAMEHAMEHA SCHOOLS BISHOP ESTATE
Opposing the consideration of any action to implement the lease-to-fee law and Resolution 97-318.
M 19, 1998 by: DAN MADDEN
KUAPA ISLE FEE CONVERSION GROUP
Asking for support.
M 126, 1998 by: T. PHYLLIS ZERBE
SMALL LANDOWNERS ASSOCIATION
Opposing Resolution.
M 127, 1998 by: ROCHELLE ARQUETTE
KAMEHAMEHA SCHOOLS/BISHOP ESTATE
Opposing consideration of any action to implement the lease-to-fee law and Resolution 97-318.
M 129, 1998 by: MANYA VOGRIG
Opposing legislation.
M 130, 1998 by: LAUREL A. L. KAUHANE
Opposing proposal.
M 132, 1998 by: T. PHYLLIS ZERBE
Opposing Resolution.
M 268, 1998 by: JANE SUGIMURA
HAWAII COUNCIL OF ASSNS. OF APT. OWNERS
Supporting the enactment of Chapter 38, ROH, and urging Council to approve Resolution 97-318.
M 273, 1998 by: GAIL M. TAMASHIRO
M 279, 1998 by: DAN MADDEN
Rebutting arguments posed by small landowners and supporting Council's action to condemn.
(same as M-286)
M 284, 1998 by: MANYA VOGRIG &
Opposing proposal.
M 285, 1998 by: T. PHYLLIS ZERBE
Opposing Resolution.
M 286, 1998 by: DAN MADDEN
Rebutting arguments posed by small landowners and supporting council's action to condemn.
(same as M-279)
M 301, 1998 by: PETER SAVIO
SAVIO REALTY, LTD.
Clarifying facts on lease-to-fee conversions and correcting the mistaken belief that
mandatory conversion means lower prices.
M 322, 1998 by: PETER SAVIO
SAVIO REALTY, LTD.
Clarifying facts on lease-to-fee conversions and correcting the mistaken belief that mandatory
conversion means lower prices.
M 360, 1998 by: JANE SUGIMURA
HAWAII COUNCIL OF ASSNS. OF APT. OWNERS
Supporting Resolution.
M 362, 1998 by: GAIL TAMASHIRO
Responding to Chair DeSoto's 02/20/98 letter (CC-51) requesting information on actual out-of-pocket expense incurred by Kamehameha Schools Bishop Estate as a result of the 07/12/95
designation of Kuapa Isle for condemnation.
M 371, 1998 by: GAIL M. TAMASHIRO
Reiterating opposition to Council's consideration of any action to implement the lease-to-fee law
and condemnation of land under Kuapa Isle.
M 378, 1998 by: MANYA VOGRIG
Opposing Resolution.
M 379, 1998 by: T. PHYLLIS ZERBE
Opposing legislation.
M 380, 1998 by: T. PHYLLIS ZERBE
SMALL LANDOWNERS ASSOCIATION
Opposing Resolution.
M 386, 1998 by: DAN MADDEN
Asking that lease-fee interst in Kuapa Isle homes be condemned.
M 388, 1998 by: KEKOA KAAPU
Urging Council to insist that appraisal should be prepared using the Uniform
Standards of Professional Appraisal Practice and attaching related material.
MM 29, 1998 by: JEREMY HARRIS, MAYOR
Returning Resolution approved.
http://www.co.honolulu.hi.us/refs/bill/status/1997/r318fd2.htm
# # #
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Last update February 14, 2008 by The Catbird