Lenders Clamp Down on Inflated Appraisals

By:Ruth Simon: The Wall Street Journal
Growing concerns about mortgage fraud and speculation, and the belief that rapid price gains are here to stay, have pushed the matter of inflated appraisals to the forefront.

Appraisers say they're sometimes pressured to increase valuations, directly or indirectly, by mortgage brokers, loan officers, and real estate practitioners, who all want to see the deal completed. About 55 percent of appraisers say they have felt pressure to overstate the value or condition of a property, according to a 2003 survey by October Research Corp., a provider of news and information to the real estate services industry.

Many do so to ensure that they remain on a lender's list of preferred appraisers, or because they fear they will lose business.

Lenders are taking action by beefing up the number of in-house appraisers or being more selective about who they do business with. Others are instituting automated systems that red-flag questionable valuations, adding more appraisal audits, or requesting a second appraisal to compare to the first.

To ensuring the independence of appraisers, the Appraisal Institute also is urging lawmakers to pass legislation that would prohibit pressure by industry professionals who are compensated based on loan volume.