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Report Reveals Lenders' Pressure on Appraisers to Inflate Value of Homes During Bubble

May 7, 2009

Pressure from lenders and overly cozy relationships drove "rampant corruption" in the property appraisal industry before the housing downturn, appraisers charged April 14 in a report from the Center for Public Integrity. The appraisers told the center, a nonprofit investigative journalism organization, that they were asked to value homes using inappropriate estimated prices or inappropriate comparison properties, then sometimes asked to reevaluate the home if their numbers didn't match up. Those who did not comply were blacklisted, they said -- putting financial pressure on the appraisers, who are paid by the job, to lie.

Lenders hire appraisers to ensure that their mortgage loans are secured to property with an appropriate value. That way, if the borrower defaults, the lender's losses are still fairly low. However, once lenders began to "securitize" loans -- bundle and sell them as investments -- their risk was passed on to investors. That left them free to fudge loan values upward, which increases the commission paid to loan originators --loan officers and mortgage brokers. After housing values plummeted and borrowers began defaulting in record numbers, many of those mortgage loans were revealed as "toxic." This contributed to the housing bubble and subsequent devastation, the article said.

According to the mortgage industry workers interviewed for the article, the pressure to inflate appraisals was subtle rather than overt. Lenders would give appraisers an estimated value for a home or a list of comparable properties before they began their work. Some outright asked appraisers to meet that estimated values; others punished those who came back with lower numbers by simply not hiring them again. Banks keep blacklists of appraisers who are ineligible for hire due to incompetence; the article charges that these lists were swollen with names of those who wouldn't play ball. In fact, one appraiser found himself on a list maintained by a lender he had never worked for, suggesting that they traded information about blacklisted appraisers.

As the article says, homeowners are now paying the price. By inflating the value of homes, the corrupt players forced homeowners to take on more debt than they needed -- debt that many are now struggling with. At Howard Law, our Orange County loan modification attorneys see numerous homeowners who were sold unsustainably expensive mortgages, including subprime mortgages, by real estate professionals they thought they could trust. In many cases, we can find evidence of fraud or predatory lending practices that force the lender to talk seriously about changing the terms of the loan.

Based in Anaheim, Howard Law LLP represents homeowners all over Southern California who need help negotiating meaningful changes to their mortgages. Even if your bank is ignoring your request for a loan workout or endlessly transferring your calls, we can help. Not only do our Fullerton loan modification lawyers understand your legal rights and the lender's responsibility -- but they can and will enforce those rights with a lawsuit, if necessary. Our goal is to lower our clients' monthly payments to a realistic number that lets them keep their homes. If you're in this situation and you're ready to take action, please contact Howard Law online or call 1-800-872-5925 today for a free, confidential consultation.