Here is an important article from the Wall Street Journal today regarding your mortgage lender and the appraisers they utilize to value your property and loan you money. Side deals between lenders and appraisers are the mortgage industry’s dirty little secret. While completely unlawful this kind of stuff happens – in metro markets as well as resort markets. Appraisers want the business and sadly they allow themselves to be influenced by the mortgage lenders who want to write inflated loans. Everyone makes money on the transaction and the buyer gets into their dream home at a price they think is fair market value!
Read on. Be aware. Thanks for visiting today,
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Daily Real Estate News | July 26, 2006
Bad Appraisals Lead to Big Problems Later
There are concerns that many of the mortgages originated in recent years involved inflated appraisals, leaving homeowners owing more than their property may be worth.
These owners could encounter problems of they seek to refinance adjustable-rate loans to avoid higher monthly payments. Meanwhile, sellers might have to slash their asking prices, and lenders could post substantial losses if borrowers are forced into foreclosure.
Much of the problem stems from conflicts of interest, as appraisers are hired by loan officers and mortgage brokers, and appraisers depend on them for repeat business.
These loan officers and mortgage brokers are compensated only for completed transactions, prompting some to pressure appraisers to achieve a particular valuation that will allow a transaction to go through.
Research indicates that brokers orchestrate 50 percent of mortgages, and they are not governed as strictly as lenders at the state level. Inflated appraisals also result from the inclusion of comparative home sales data in the valuations, as it is virtually impossible for appraisers to know if such things as landscaping and closing-cost assistance are included in new-home prices.
As a result of these concerns, Congress is considering increasing regulation of appraisers.
Source: The Wall Street Journal, Ruth Simon, James R. Hagerty (07/23/06)