According to a 2007 report from the financial service companies National City Corp and Global Insight, Bend, Oregon overtook Naples, Florida to earn a dubious distinction as the metro area with the most overvalued real estate in the nation. The median single-family house price had nearly doubled to $324,000 over the previous four years. Overall, the report estimated Bend real estate listings to run 78.7 percent over the survey's valuation price.
Mortgage brokers originated 70-90 percent of the loans, so Hagar places the largest share of blame on the unscrupulous in their ranks, though also points out many had to be complicit in order for the bubble to reach such extremes. A modicum of vigilance would have immediately recognized corruption in the process, so the banks allowed it to happen, he says. Most real estate agents wouldn't have known any better, but if they had figured it out, they wouldn't want to lose the higher commissions they enjoyed from the overvaluation.
At the request of state law enforcement officials, Hagar began making quarterly visits to Bend in 2005, offering his seminar on the basics of mortgage fraud to anyone who would attend. Unsurprisingly, many locals did not like him.
Blog postings and chain emails trying to discredit his work circulated through real estate industry networks. One time in late 2006 or early 2007, a Bend real estate agent reached him on his cellphone, launching into a full-throated tirade as soon as he answered. "She yelled, 'There's no fraud in Bend. You can't say that. We're not scammers. We wouldn't do that. You'll destroy our real estate market,'" Hagar recounts, adding his own response: "Hmmm, actually, you're destroying your market."
That real estate agent, it later turned out, was representing a major housing developer (now bankrupt), which had begun offering illegal incentives to help close deals with prospective buyers--not an uncommon practice, but also, technically, a form of fraud. Hagar guesses the woman didn't even realize she was personally engaged in fraudulent practices, ignorance being one of the primary causes for the crime's prevalence.
A legal team pursuing a mortgage brokerage accused of predatory lending in Bend recently requested Hagar review the company's files for evidence of fraud during the discovery phase of proceedings. Hagar randomly reached into cabinets and started pulling out stacks of files. He'd found his first clear example of fraud within 15 minutes. By the time he worked his way through the files, Hagar had discovered about 80% of the loans involved some form of fraud, a percentage he says is in line with what the FBI discovered in a national audit of closed loans.
Those cases could represent a wide variety of fraud, but Hagar brings it back around to the role of appraisers, estimating, "There would have been 50-70% less fraud if appraisers had done their job."
Off the top of his head, Hagar can think of at least 30 Bend residents who would deserve to be indicted, tried, and convicted for their role in the fraudulent activities that artificially inflated the local community's housing bubble. However, he says, "The reality is only about 5% will ever be caught."