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Paul Kiesel
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Fed's New Truth in Lending Rules Not Being Followed, Real Estate Appraisers Still Inflating Values

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The Los Angeles Times reported Sunday that real estate evaluations are still being inflated, despite federal housing legislation that was signed last month tightening appraisal standards that comply with new truth-in-lending rules. These rules ban the interference, bribing or intimidation designed to influence an appraiser’s valuation of a home, however, appraisers and other industry insiders are saying: It’s business as usual.

These dubious real estate practices are what got us in the current housing/mortgage crisis, but it appears that appraisers are still being pressured to expedite transactions to closing, making the inflation of real estate values more and more commonplace, even with housing legislation reform.

A troubling statistic: 90% of appraisers, in a poll conducted by October Research Corp., interviewed almost two years ago stated that some form of interference or intimidation by retail loan officers, brokers or third-party appraisal management firms led to an influence in how appraisers made their evaluations. If the appraisers did not follow the recommendations made by other parties, or place the home’s value at a certain price point, the appraiser would risk his or her employment, as they would be used less, if at all, in future real estate transactions.

Here’s a more recent, subtler example of the interference that appraisers are facing:

In Owings, Md., Michael Tsourounis, president of Calvert Appraisal and Realty Services, recounted a recent experience when he visited a mortgage company in his area. Tsourounis inquired about the possibility of doing appraisal work for the lender.

“The office manager asked me directly: ‘If I sent you out to appraise a million-dollar home and the comps [comparable values] only came in at $800,000 . . . but in your heart you knew it was worth a million dollars, what would you bring it in at?’ “

Tsourounis said he told the manager that “the market is full of million-dollar houses selling for $750,000. Why should I be responsible for adding one more foreclosed property to the already growing list?”

“Not surprisingly,” he said, he’s never heard back from the lender or received an appraisal assignment. “Was that a form of interference? You bet it was,” Tsourounis said. “It was just a little subtler, a little less direct, than it used to be.” (Los Angeles Times, 8/24/08)

Whether appraisal inflation is a problem that can be fixed is up for debate, however, its ostensibly inherent practice in real estate transactions can be avoided, if appraisers are able to be less complicit in the act itself.