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Who’s to Blame on the Over Appraisal Scam?

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By : Andy Denton    99 or more times read
Homeowners need not worry about getting duped by appraisers who over inflate their home’s value. Such swindling has been rampant during the real estate boom when America was on a borrowing binge and subprime mortgages were still a fad.

Just recently, the Home Valuation Code of Conduct of Fannie Mae and Freddie Mac was revised to discontinue this malpractice among appraisers. Businessweek reports, “Starting on May 1, lenders that want to sell their loans to the two industry behemoths must follow the new guidelines. Mortgage brokers and Realtors are no longer able to choose appraisers. They will be selected by lenders, which are not allowed to influence appraisers by withholding payments or promising future work. If lenders have in-house appraisers, the bank's loan-origination department is not allowed to influence their valuation decisions or supervise their work.”

So who should hold responsibility for this mess? Each party has its own accusations. Appraisers have often complained about being pressured by lenders to overstate values or else they’ll be on the next day’s employee chopping block. That leaves an appraiser with no other choice but to follow orders in order to keep earning. Since over appraisal can benefit the brokers and lenders through larger commissions and profits from each sale, it was the easy way to ride the greed in Wall Street during the property boom.

On the other hand, some are accusing the appraisers for planning this fraud. A lot of poorly trained appraisers have conducted valuations for a hefty fee because of competition among these professionals. Because fees vary from one to another some were willing to charge less even though they are bogus appraisers or less qualified valuators.

Others are blaming borrowers. Some are attesting to the fact that borrowers wanted overstated housing values to receive higher loans even though they knew the risks involved like the inability to sell the home in a much higher value or worse, running a possible foreclosure later on.

Still, there are those who insist that it’s the government that has allowed cheating to proliferate because of weak oversight and lack of immediate measures to prosecute suspects. Up until now, there are state boards that are weak in stemming such practice and without the new policy, no official would lift a finger to straight things out.

By examining closely, the cases for each state are varied. Like it or not, the only ones not to be blamed are the homeowners who were duped into paying for the wrong appraisals (not the homeowners who participated in such practice). One limitation of the revision of the code is that it only applies to the two GSEs’ loans. Congress must be smart enough to address this by enforcing a universal policy to lenders and brokers.
Andy Denton is the COO of

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