The Appraisal Bubble In Run Up to Real Estate Bust, Lenders Pushed Appraisers to Inflate Values

WASHINGTON, D.C. April 14, 2009 – Falsely inflated home appraisals are a widely overlooked factor in the mortgage crisis now affecting the housing and lending markets, according to “The Appraisal Bubble,”a new investigative story from the Center for Public Integrity’s Land Use Accountability Project .



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. In addition, the Center has obtained copies of lenders’ “blacklists” containing the names of thousands of appraisers, some of whom say lenders used the lists to exclude those who refused to inflate home values.



The Center 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 such widespread economic devastation, according to 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.



No one knows exactly how much of a role hyped appraisals played in the mortgage meltdown. But as an increasing number of homeowners face foreclosure, many remain unaware that the appraisal they paid for during the purchase process may not have reflected the true value of their investment, and may have caused them to borrow more money than their home was actually worth.