The inspectors who decide whether homes have been abandoned and are ready for foreclosure are doing such a terrible job that the whole system requires a major overhaul, and maybe should be scrapped altogether, a government watchdog warned on Tuesday.
Property inspectors hired by banks and other mortgage companies are routinely doctoring photographs to make it look as if they have visited a property when they actually haven't, among other serious record-keeping errors, according to a report by the inspector general of the Federal Housing Finance Agency, the nation's top housing regulator.
What's more, federal requirements that inspectors pass criminal background checks have been "inconsistently adopted" by the dozen or so mortgage companies that hire inspectors, according to the report. The Huffington Post has previously reported on how property inspectors, some with criminal backgrounds, are accused in hundreds of lawsuits of breaking into occupied homes and stealing or trashing people's possessions.
The inspector general review concerns so-called pre-foreclosure inspections, which automatically begin when borrowers fall 45 days late behind on their mortgage payments. The inspections are made to determine whether a home has been abandoned, and if so, whether it requires any emergency repairs. Banks and other mortgage companies ordered 15 million of these inspections between 2011 and 2012. Those costs are passed on to homeowners, the federal government and Fannie Mae and Freddie Mac.
Property inspectors are independent contractors, typically working for one of scores of companies that emerged from the wreckage of the foreclosure crisis to tend to the nation's vast inventory of distressed homes.
Once directed to a property, they are supposed to take photos, talk to neighbors and take other steps to determine if a home in default is abandoned. Too often, homeowners and state officials allege, inspectors and other workers sent to fix broken windows or shore up a house against cold weather are disregarding obvious signs of habitation, such as mowed lawns and electric meters still running, and forcing their way into homes still in the legal possession of their owner. Once inside, some help themselves to whatever they find -- heirlooms, artwork, or even a kid's piggy bank.
Last fall, the Illinois attorney general sued Safeguard Properties of Valley View, Ohio, which is responsible for half of all inspections performed in the U.S., alleging that company contractors were unlawfully emptying out houses they knew were still occupied. Internal Safeguard documents obtained by HuffPost also revealed widespread homeowner complaints about the company.
The inspector general report released Tuesday does not directly address the issue of break-ins, but it does identify many of the same weaknesses in oversight and training previously described by this publication.
The industry is "largely unregulated," and there are "no specific federal or state laws that govern property inspections," the inspector general found. Fannie Mae, Freddie Mac and the mortgage companies the enterprises hire to service home loans for the most part don't have quality controls in place to prevent abuses, the inspector general found.
Universal training and educational standards don't exist, the audit found. Pay is also low, less than $20 per inspection, the report found. (HuffPost found that many inspectors earn just a few dollars per inspection).
As part of the audit, the inspector general reviewed 84 property inspection reports. More than half contained some form of documentation error. For example, one inspector appears to have filed the same report for seven months, each stating that a property's grass height was exactly eight inches high. Another billed for a year's worth of inspections even though the inspector never gained access to the gated community where the house was situated. Others manipulated the time stamp on photos, to disguise the fact that they were filing old pictures in new reports.
The "severity of risk" in the industry was highlighted, the report finds, by the recent conviction of the owner of American Mortgage Field Services in Brooksville, Fla., north of Tampa. The owner pleaded guilty to creating fraudulent inspection reports for work that was never done over a three-year period, overbilling Bank of America, which hired the company to inspect Fannie Mae and Freddie Mac properties, by $12.7 million.
These findings "cast doubt on whether performing pre-foreclosure property inspections adds value," the report concludes. The report does not go so far as to specifically suggest that the practice be stopped.
The Federal Housing Finance Agency, in a letter written in response to the report, said it will direct Fannie Mae and Freddie Mac to "assess and manage risks" relating to property inspections.
The housing agency, however, appears to discount the inspector's general conclusion that the problems identified are severe enough to warrant new regulations. "The [housing agency] does not believe that the report findings and examples of deficiencies provide compelling support for the imposition of uniform standards," the regulator said.