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April 16, 2009

Appraising the appraisers' role in the housing bust

Lenders, mortgage brokers, Wall Street wizards, buyers, sellers, real estate agents and the federal government have all come in for a share of the finger-pointing after home values began rapidly falling. The Center for Public Integrity, an investigative journalism group, suggests adding the appraisal process to that list.

Dozens of appraisers tell the center "that for years lenders across the United States have pushed them into inflating the value of homes to justify higher mortgages. ... In addition, the Center has obtained copies of lenders’ 'blacklists' containing the names of thousands of appraisers; some appraisers say lenders used those lists to exclude those who refused to inflate home values."

The Center also found many appraisers who say they bowed to lender pressure to “hit the numbers” in order to remain in business. These appraisers, along with the lenders who pressured them, helped pump air into the housing bubble that led to widespread economic devastation, according to dozens of appraisers, lenders, and others with intimate knowledge of home loan practices.

The Home Valuation Code of Conduct, which takes effect next month, is supposed to deal with such problems by, for instance, banning "loan origination staff from ordering appraisals directly" for mortgages Fannie Mae and Freddie Mac can purchase. But appraisers tell the center that this will do nothing but direct business to them through middlemen who can pressure them just as effectively as the lenders did.

So what's the solution? Weigh in.

Posted by Jamie Smith Hopkins at 11:31 AM | | Comments (3)
Categories: Appraisals
        

Comments

What can be done, if you know someone who purchased a property that was appraised for far more than it was worth.The Insurance co. , the bank no one sounded an alert to this couple because they happened to have good credit. Not one property within a 20 blk. radius of the property purchased ,sold for much more than half of what they paid. Is there any recourse. America's Silly ways

Buyers have to watch out for themselves. If you cannot afford something - don't buy it!! I don't care if you have the best credit in the world and hundreds of thousands of dollars in the bank- I will try to make you spend that cash on something I am selling! Get out there and spend people! Recession is over. Housing prices going to triple this spring season! We are all in on it (Appraisers, real estate agents, lenders, government). Don't overthink. Give us your money. You need a place to live. You need a bigger place to live!

I used to be an appraiser back in the 80's, twenty years later and nothing has changed. The have made appraisers get licenses etc. and still pressure to hit the number exists. Mortgage companies cannot be allowed to select the appraiser. There should be some type of "blind selection" of appraisers for each appraisal. Also I would recommend that the appraiser not know the sale price of a property but appraise the property "blind" and if the value falls within a certain percentage of the sale price then the appraisal is acceptable. This would take away the need to "hit the number". Remember an appraisal is an "opinion of value" not something that is written in stone and if you do not like someones opinion go get another one.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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