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The good, the bad and the ugly: LoanIQ evaluates appraisals

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Using a system that could be described as "the good, the bad and the ugly," First American Real Estate Solutions‘ LoanIQ evaluates loans to help mortgage lenders avoid real estate loan fraud.

"Loan IQ performs a triage function," said Robert Walker, executive vice president of First American Real Estate Solutions. "First – let’s put all those appraisals in one file and call them relatively safe. And then let’s take those appraisals whose valuations look spurious or artificially high and let’s put those in a pile that says ‘Need further scrutiny.’"

LoanIQ, a Web-based loan quality analysis and fraud detection product, focuses on appraisals, Walker said. This is because though mortgage fraud has many elements, "the heart of the matter is an artificially inflated appraisal," Walker said, echoing a belief shared by many in the industry.

Residential real estate loan fraud is a national epidemic, costing communities nationwide an estimated $1 billion in 2005, compared to $429 million in 2004, according to the Federal Bureau of Investigation. Mortgage industry experts recommend a combination of employee training and other techniques along with technology such as LoanIQ to help fight mortgage fraud.

Read Inman News’ White Paper on mortgage fraud, "Inside Real Estate’s Fraud Crisis: Schemes that hijak the American Dream."

LoanIQ’s statistical model is trained on a database that includes loans of varying quality: good loans, early default loans and known fraudulent loans. This allows LoanIQ to evaluate files using more predictors of loan quality than other, competing products, the company claims.

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"Loan IQ is predominantly intended for the wholesale lender because they have real estate appraisals in loan files in their possession," Walker said.

LoanIQ is designed to sniff out "fraud for profit," which comprises 80 percent of residential real estate loan fraud, according to the FBI. Such fraud is undertaken for the purpose of making money, not obtaining a residence. The other type of fraud, "fraud for housing," is when individuals lie on applications for houses in which they intend to live.

LoanIQ evaluates properties and provides an assessment of collateral valuation risk and market volatility. Like similar products, LoanIQ does the job almost immediately, in less than a minute.

In prefunding settings, LoanIQ provides an instant score that helps lenders decide whether to fund a loan and determine if an automated valuation model is an appropriate choice for collateral valuation purposes. In post funding, quality control and due diligence, analysts can access LoanIQ’s aerial photos and price appreciation graphs to help gain insight into loans of questionable quality.

"Someone tells us 123 Main Street is worth half a million dollars. We use our AVM to value the subject property. We don’t give an alternative value," Walker said. "We run the AVM and compare it with what the appraiser has come up with. If there is a big variance it doesn’t mean the appraiser is wrong. It just means there is a big discrepancy and should be evaluated."

"We’re the biggest AVMs in the business," Walker claimed. "We are the nation’s largest provider of real estate property data."

First American Real Estate Solutions is a member of The First American family of companies. Its database covers more than 2,300 counties representing 97 percent of the nation’s real estate transactions, according to the company.

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