Home Equity Loans – Beware Of Appraisal Fraud

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: http://www.isnare.com