From the WSJ:
Home appraisers are inflating the values of some properties they assess, often at the behest of loan officers and real-estate agents, in what industry executives say is a return to practices seen before the financial crisis.
An estimated one in seven appraisals conducted from 2011 through early 2014 inflated home values by 20% or more, according to data provided to The Wall Street Journal by Digital Risk Analytics, a subsidiary of Digital Risk LLC. The mortgage-analysis and consulting firm based in Maitland, Fla., was hired by some of the 20 largest lenders to review their loan files.
The firm reviewed more than 200,000 mortgages, parsing the homes’ appraised values and other information, including the properties’ sizes and similar homes sold in the areas at the times. The review was conducted using the firm’s software and staff appraisers.
Bankers, appraisers and federal officials in interviews said inflated appraisals are becoming more widespread as the recovery in the housing market cools. While home prices are increasing generally, their appreciation is slowing, and sales have been weak despite low interest rates. The dollar amount of new mortgages issued this year is expected to be down 39% from last year, at about $1.12 trillion, according to the Mortgage Bankers Association.
That has put increasing pressure on loan officers, who depend on originating new mortgages for their income, as well as real-estate agents, who live on sales commissions. That in turn is raising the heat on appraisers, whose valuations can make or break a sale. Banks generally won’t agree to a mortgage if the purchase price or the refinancing amount is higher than the appraised value.
Almost 40% of appraisers surveyed from Sept. 15 through Nov. 7 reported experiencing pressure to inflate values, according to Allterra Group LLC, a for-profit appraiser-advocacy firm based in Salisbury, Md. That figure was 37% in the survey for the previous year.
Freddie Mac has found cases of appraisers submitting a suspiciously high number of reports in one day, as well as reports for properties in places where they aren’t certified or licensed to operate, according to a spokesman. It has also received tips from employees at lenders and other insiders warning of inflated valuations, he said.
The firm is looking “into whether or not some of the lines have been crossed from compliance to noncompliance with regard to appraisal independence,” he said. “We are watching it closely and are very aware of the issues.”