"People have tried to bribe me. I've been threatened, both verbally and with a gun," real estate appraiser Richard Hagar tells me, recounting the heady days of the Pacific Northwest's housing boom, when unscrupulous loan originators in places like Bend, Oregon would aggressively demand his work confirm a dictated appraisal value, often many tens of thousands above the actual market value. In Hagar's view, "This recession we're in was triggered by loan fraud. That's the end of it."
Situated on the northern tip of the Great Basin at the foothills of the Cascades, with lush evergreen forests to the west and high desert grasslands to the east, the small central Oregon city enjoyed a population boom through the last decade. Retirees flocked to Bend for its clean mountain air and slow pace of life, while moneyed adventurers--mostly from California--came for winter skiing and summer outdoor fun. Ranked the sixth fastest-growing metropolitan area in the country by the US Census Bureau in 2005, Bend's population increased from 50,000 residents in 2000 to nearly 80,000 today.
Now that population is contracting slightly, largely as a result of the rampant wave of foreclosures. In a community with such rapid growth, the bursting bubble reverberates powerful shock waves. By this writing, the number of mortgage defaults had more than tripled from their 2007 end-of-year total. Roughly half the properties currently on the market in Bend are either bank-owned or going through the short sell process, in which the owners close deals for less than their mortgage's value.
So much discussion about the real estate boom and bust focuses on irresponsible buyers, who overextended themselves in purchasing homes they couldn't actually afford, often with dreams of re-selling and making fortune off ever-increasing market values. But during a seminar Richard Hagar gave in Bend Tuesday evening, he pointed his expert finger at one insidious culprit: fraud.
Hagar expounded on this theme for me in a two-hour phone interview last night, after which I hung up somewhat disillusioned that most of the crooks who created the housing bubble would likely escape punishment, while their victims will struggle for years to regain footing after foreclosure, bankruptcy, and complete emotional and financial destitution.
Hagar has more than three decades of experience in the real estate industry, starting out as an agent in the mid-1970s, then becoming an appraiser in the 1980s, eventually earning the highly-prestigious SRA designation by the Appraiser's Institute. He holds real estate investments and still works as an appraiser, though much of his time over the past decade has been occupied by advising government officials on legislative efforts to regulate the mortgage industry, assisting law enforcement with fraud investigations, consulting on related legal cases, and conducting lecture tours to educate industry professionals and the public on how to identify and avoid engaging in fraud.
Real estate and mortgage fraud can manifest in various forms, but the particular variety that significantly infected the market in Bend involved mortgage brokers pressuring appraisers to overvalue properties for sale. According to Hagar, in the early 2000s he first started hearing from his law enforcement contacts about this kind of problem popping up with increasing frequency in Bend. The corruption seemed to grow a little more pervasive with each passing year, until 2004 when it accelerated rapidly. "The definition of market value is a matter of federal law," he says. "If appraisers had been following that definition throughout this growth, we would not have created the problems we now see."
"It's almost unheard of for an appraisal to 'make value,'" Hagar asserts, but throughout the housing boom in Bend, that seemed to be the norm. For the Bend appraisers, "They'd have an order coming in with a 'minimum value needed,' and if you couldn't make the value, the mortgage broker would just go down the street. He wouldn't hire you again, or wouldn't pay you." In Hagar's view, "Almost all the bubble is related to them."