Making the loans work

From MarketWatch:

The dubious value-add of appraisers

The solicitation that Texas real-estate appraiser Jim Amorin fielded came with a quid pro quo. If he’d appraise a mixed-use Austin subdivision for $25 million, the mortgage broker promised to steer 15 more major deals his way.

“After I asked a few questions, it became clear the real value was closer to $15 million,” says Amorin, vice president of Atrium Real Estate Services. “I told him I’d accept the assignment but not with a predetermined value, so he kept looking for someone who would.”

Amorin works for a large appraisal firm that can afford to turn away business. That’s not so easy for many of the 115,000 U.S. real-estate appraisers who, as independent contractors, often rely on mortgage-industry referrals.

The pressure on appraisers to “make loans work” — the industry parlance for hitting the number that a lender wants on a closing contract — has been ratcheted up as U.S. home sales and mortgage refinancing have tumbled. By law, appraisers are required to render impartial judgments.

Federal and state authorities are now pushing for tighter regulation, licensing standards and criminal penalties to keep all players in the real-estate transaction process on the level.

“Mortgage and real estate brokers are paid on commission, so they have a vested interest in seeing that loans get funded,” says Ted Faravelli, manager of the California Association of Real Estate Appraisers and an appraiser for 23 years who testifies as an expert witness in mortgage-fraud cases.

“If an appraiser speaks to the facts and indicates a market is declining and in oversupply, there’s a good chance deals won’t be consummated and referrals will dry up.”

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