Coralling Home Appraisal Fraud

Who has not had that moment of nail biting when trying to refinance a property with cash out option, hoping that the appraisal will come in high enough to persuade the bank to part with the much needed equity? Have you ever wondered how it is that the appraisal came in just exactly what you needed it to be to qualify? The odds are good that you will not be surprised to learn that professional appraisers have been complaining for a good many years about mortgage brokers.

They claim that these brokers were strong-arming them into manipulating their value assessments of real property and instead of giving an honest accounting of a home’s value they were pressured to come in at what the bankers needed it to be. Since the mortgage meltdown is now calling to task the mortgage brokers and banks, appraisers finally feel a sense of validation. As a matter of fact, in order to prevent such industry practices from resurfacing in the future, new rules are now going into effect.

The goal is to corral the runaway appraisal business and instead once again make it a highly ethical trade that gives professional a free hand to provide honest appraisals, no matter what the banker or customer would like it to be. One suggested way of ensuring that the pressure on the individual appraiser is lessened is simply by providing some artificial distance between buyers, their agents and appraisers, as well as between sellers, their agents and appraisers.

This of course calls into question the practice of bigger institutions that have appraisal departments in house which are at their beck and call. Considering that an appraiser who fails to come in with the numbers the institution needs will have to fear for his future and continued present employability, it is not surprising that there was little the individual appraiser felt comfortable doing to counteract the pressure they were under. Even independent appraisers feel the pressure. After all, if they are contracting with a lender to issue an appraisal and as a result the lender loses the deal, then the odds are good that the appraiser will get the blame and may not receive any future business.

Officials of the Federal Housing Finance Agency have decreed that an adoption of the Home Valuation Code of Conduct is going to influence all their decisions from this day forward, and this would be a good start. The devil is in the details, however, and already the question arises how this kind of relationship can be supervised in the future. After all, rules of conduct for appraisers and bankers alike have always been on the books, but due to lax enforcement and corporate greed, they were routinely ignored.

It is noteworthy that the market currently relies on the truthful appraisal of properties and as it gradually recovers, the need for continued honest appraisals that would then also drive home market values is a must if a reputation of the housing boom disaster is to be avoided.