Home Equity Loans – Beware Of Appraisal Fraud
By Charles Essmeier
A new report by the independent Demos group has revealed what may not be
a surprise to many people – corruption is rampant in the home appraisal industry.
The bust in the dot-com market of some five years ago has left would-be lenders
with a surplus of cash to lend. This has led to a huge boom in both mortgage
and home equity loan lending. That’s not a bad thing; a record 69% of Americans
now own their own homes. Owning a home is easier than ever; in 2004 the average
down payment was a record low of only three percent.
So if everyone is buying a home, and loans are easier to obtain than ever,
what is the problem? The problem is that nearly 55% of the appraisers polled
in the survey said that they had been pressured by lenders to deliver appraisals
that met a “target” value. The appraisers said that failure to meet the “target”
value resulted in either their not being paid, or not being hired again. Since
most appraisers want to keep working, they have had a tendency to meet the
target value, even if it means that they have overestimated the value of the
property. This drives prices artificially higher and leaves many homeowners
with mortgages that may be worth more than the homes they were meant to finance.
This problem becomes acute should the owner need to sell the home, only to
discover that it isn’t worth as much as he or she owes on it.
The worst-case scenario to result from this would be a burst in the current
real estate “bubble” and a nationwide collapse in home values, leading to
massive foreclosures. This probably will not happen, but there are several
things prospective borrowers can do to avoid being caught in the appraisal
trap:
# *Become educated about the appraisal and lending process. The more informed
you are, the less likely you are to be caught in a scam.
# *Be aware that refinancing your home isn’t a cure to all problems. It may
seem appealing to use the equity in your home for such uses as debt consolidation
but if the result of that is that you owe more on your home than it is worth,
you probably haven’t gained anything.
# *Be active in the appraisal process. Talk to the appraiser, and ask to see
the finished appraisal, along with the data used to create it. Appraisals
are based in part on the sales of similar properties in your area. Check them
out yourself and compare the home you saw with the stated appraisal value.
# *Be bold. Ask your lender if they pressure their appraisers to provide inflated
values. You might not get an honest answer, but pay attention to how they
respond. You might be able to determine if they are lying.
Ultimately, if you take out a home equity loan or a mortgage for more than
your home is worth, you are the one that suffers. That can be easily avoided
if you simply pay more attention to the process and educate yourself about
the possible pitfalls. The last thing you want to lose is your home.
About the Author: ©Copyright 2005 by Retro Marketing. Charles Essmeier is
the owner of Retro Marketing, a firm devoted to informational Websites, including
http://www.End-Your-Debt.com/
and http://www.HomeEquityHelp.net/
Source: www.isnare.com
