Role of appraisals in housing bubble - Lenders Pushed Appraisers to Inflate Values

Falsely inflated home appraisals are a widely overlooked factor in the mortgage crisis now affecting the housing and lending markets, No one knows exactly how much of a role hyped appraisals played in the mortgage meltdown.

Pressure on appraisers to inflate values, and appraisers who bowed to that pressure, were a big part of the housing bubble, the Center for Public Integrity reports.

Throughout the United States, lenders for years have pressured appraisers into inflating the value of homes to justify higher mortgages — and higher commissions — according to dozens of appraisers who have demanded better oversight of what they call a flawed system. Dozens of appraisers said they felt such pressure, the report said. "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," it said. "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."

And there’s evidence that Fannie Mae and Freddie Mac, the two largest purchasers of home loans, bought mortgages without ensuring they were issued with accurate appraisals, according to an investigation by New York Attorney General Andrew Cuomo.

New York Attorney General Andrew Cuomo's lawsuit against eAppraiseIT, accusing the First American Corp. subsidiary of caving in to pressure from Washington Mutual to use a list of "proven appraisers" who inflated home appraisals.

Cuomo later subpoenaed Fannie Mae and Freddie Mac, leading to the mortgage giants agreeing to a new Home Valuation Code of Conduct. The code, which takes effect May 1, aims to separate the people involved in originating loans from the process of hiring appraisers.