Appraisers Petition and Appraisal Fraud

I found this Appraisers Petition (perma-linked at right) mentioned over at Ben's blog and thought it needed more exposure:

"The ASC's mission is to ensure that real estate appraisers, who perform appraisals in real estate transactions that could expose the United States government to financial loss, are sufficiently trained and tested to assure competency and independent judgment according to uniform high professional standards and ethics." From the ASC website.

The concern of this petition has to do with our "independent judgment" in performing real estate appraisals. We, the undersigned, represent a large number of licensed and certified real estate appraisers in the United States, who seek your assistance in solving a problem facing us on a daily basis. Lenders (meaning any and all of the following: banks, savings and loans, mortgage brokers, credit unions and loan officers in general; not to mention real estate agents) have individuals within their ranks, who, as a normal course of business, apply pressure on appraisers to hit or exceed a predetermined value.

This pressure comes in many forms and includes the following:

• the withholding of business if we refuse to inflate values,
• the withholding of business if we refuse to guarantee a predetermined value,
• the withholding of business if we refuse to ignore deficiencies in the property,
• refusing to pay for an appraisal that does not give them what they want,
• black listing honest appraisers in order to use "rubber stamp" appraisers, etc.

We request that action be taken to hold the lenders responsible for this type of violation and provide for a penalty on any person or business who engages in the practice of pressuring appraisers to do dishonest appraisals that do not provide for independent judgment. We believe that this practice has adverse effects on our local and national economies and that the potential for great financial loss exists. We also believe that many individuals have been adversely affected by the purchase of homes which have been over-valued.

This petition is just in time as the Wall Street Journal brings appraisal fraud, and all that it means to both buyers and sellers, front and center of the reading public's awareness:

As the housing market cools, Americans are confronting a problem that was easy to ignore during the boom: Inflated appraisals of home values. Critics have long warned that many appraisals are unrealistically high. That’s partly because generous appraisals help loan officers and mortgage brokers, who often choose the appraiser, complete more deals.

Prices are leveling off in many places and falling in some. Some homeowners are finding that the market value is below what past appraisals led them to believe.

For sellers, that can mean being forced to drop their asking prices. Some people hoping to refinance may be unable to lock in new loan terms. Lenders and mortgage investors, too, could take a hit if it turns out the collateral backing their loans is worth less than expected.

Dubious appraisals are a risk for the hundreds of thousands of people who in the past few years have bought homes with little or no down payment, or used almost all of their home equity to finance home improvements or other types of spending. ‘Now it’s pay-the-piper time for people, and they’re finding out they don’t have the value in the house they thought they had,’ says John Taylor, president of a Washington-based nonprofit.