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Guarantee Insurance Corp. (MGIC) and Commonwealth Mortgage
Assurance Corp. (CMAC).
The private mortgage insurance companies thoroughly
investigated the risks presented by EPIC's business. For
example, in June 1982, after EPIC had changed the nature
of its limited partnerships, representatives of MGIC's
appraisal department and underwriting evaluation department
made a risk management study of EPIC. The study sets forth
a detailed description of EPIC's business and the under-
writing risks presented to MGIC from that business. As
part of the study, MGIC had conducted spot checks of EPIC's
appraisals and had found "inflated property values". The
report states as follows:
Based on our spot checks Epic's appraisals had
inflated property values. The value estimates
made 2 or 3 years ago by Epic's appraisers are
higher than the value estimates as of the date of
contract and the current value estimates of the
properties. It is not known if Epic Mortgage is
aware of this over-valuing in as much [sic] as
they do not have an appraisal department to
review the appraisals.
* * * * * * *
Based on MGIC's 25 spot checks there is over-
valuing by Epic that has resulted in inflated
property values and 14 properties with loan to
value ratios in excess of 95%, up to 112%.
a. We can only speculate at the reason for the
overvaluing because Epic Mortgage utilizes
independent fee appraisers. The appraisers
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