A new report by the Federal Housing Finance Agency’s Office of the Inspector General reveals a process plagued with unnecessary inspections, record-keeping errors and even doctored photos. The findings “cast doubt on whether performing pre-foreclosure property inspections adds value,” the report stated.
Pre-foreclosure property inspections begin automatically when borrowers fall 45 days behind on their mortgage payments. Property inspectors are supposed to determine whether a home has been abandoned, and if so, whether the home needs any emergency repairs. According to a Huffington Post report, banks ordered 15 million of these inspections in 2011 and 2012, passing the costs along to Fannie Mae and Freddie Mac.
But property inspectors – often independent contractors – aren’t doing the job particularly well, the OIG found. The analysis yielded evidence of “inspection reports with inconsistent and inaccurate information; missing or blurry photographs; manipulated date and time stamps on the photographs; and unnecessary inspections that did not provide useful information about the properties.”
Moreover, numerous cases have been reported in which pre-foreclosure inspectors “unlawfully removed legal occupants from their homes by breaking into occupied houses, locking the occupants out of their homes, removing their personal property, and shutting off utilities in the home – often in spite of evidence that the properties remain legally occupied,” the report stated. The servicers who ordered the inspections also had “inconsistent” policies on determining whether inspectors had criminal backgrounds.
The OIG placed much of the blame for the shoddy inspection process squarely at the feet of Fannie and Freddie.
“The scope of Fannie Mae’s oversight of its servicers’ controls over pre-foreclosure property inspections is limited to determining whether the required inspections were appropriately ordered,” the report stated. “…After ordering the inspections, Fannie Mae relies on its servicers to ensure that controls are in place to minimize the risk of inconsistent, inaccurate, and incomplete property inspections and reports, and to ensure that inspections are useable for their intended purposes.”
While the OIG’s report found Freddie’s oversight to be a bit more stringent, Freddie still doesn’t require servicers to make sure property inspection reports are accurate.
And the lack of oversight is an invitation for fraud. The report found that one property inspection company had falsified up to 70% of its inspection reports between 2007 and 2012, receiving millions of dollars for work never performed.
“This overall lack of controls has already resulted in one breakdown of significant consequence when a property inspection company, American Mortgage Field Services (AMFS), fraudulently submitted over $12.7 million in claims for reimbursement of property inspections,” the report stated.
While the report found that properly-performed inspections could be beneficial, the current lack of oversight meant the process was doing more harm than good.
“The lack of quality controls diminishes the inspection report’s integrity and casts doubt on whether these inspections are working and necessary,” the report stated.
The pre-foreclosure inspection process is so rife with incompetence and corruption that it may need to be scrapped altogether, according to a government watchdog.