Appraisers Under Fire

People are going to lose their homes.
More people qualify for bigger, more expensive mortgages than any time in history. But for many new homeowners, the American Dream of homeownership may turn into a nightmare. Skyrocketing revolving debt, new entrants into the mortgage lending space and a "musical chairs" style secondary mortgage market are contributing to unprecedented instances of overappraised homes, according to a June, 2005 study by the National Community Reinvestment Coalition.

Millions who would have been denied a loan altogether just five years ago get loans they can’t afford now, according to Home Mortgage Disclosure Act (HMDA) data. But it would be millions more without an ethical, professional force of real estate appraisers who "just say no" when pressured to "make the deal work."

Professional, independent appraisers are part of the solution.
Appraisers – who unlike other visible participants in the mortgage process do not work on commission – are the auditors of the home buying transaction. Stakeholders in corporations, especially public companies, have imperfect information about the nature of their investment. Auditors perform the essential function of assuring them that they can believe what little they can see. Shareholders have CPAs, and home buyers have real estate appraisers.

In the last few years we've seen what can happen when a corporation colludes with its auditor to exaggerate value. Many Enron employees and stockholders have yet to recover from the most notorious case. Without a reliable, credible watchdog, today's housing market risks the savings, equity and future of millions more than were impacted by Enron, Worldcom, Tyco, Global Crossing and Adelphia scandals combined. A professional, independent force of real estate appraisers is that watchdog.

Independent, accurate and thorough auditors protect homeowners.
A home buyer deals with several parties to the massively complicated mortgage transaction who have a great deal more information, and certainly far more expertise, than they do. Most of these parties are interested in closing the deal at the highest rate or balance or in the fastest time possible. While the current appraiser regulatory scheme was designed to stabilize the mortgage finance industry (and protect the taxpayers who had to bail it out in the 1980s), appraisers provide a crucial service to home buyers: peace of mind that they're getting what they're paying for.

Once they’re in the house, with an accurate appraisal, homeowners know that if unforeseen circumstances arise and they have to "sell out from under" an expensive mortgage, they’ll be able to pay off their obligation. When that appraisal is inaccurate on the high end, illness, job loss, divorce or other common difficulties can lead to disaster for homeowners.

Any threat to appraisers' independence, accuracy and thoroughness threatens American homeowners and the American Dream of home ownership. Fortunately, only small steps are necessary to address these threats and protect homeowners and the housing economy.

Learn about the issues facing residential appraisers: Undue Influence, False Advertising, Appraisal 'Alternatives', Copyright Protection