At the height of the housing bubble, 90 percent of residential real estate appraisers—the people who decide whether the house you made the winning bid on is really worth what you’re about to pay— reported feeling pressured, frequently by mortgage brokers, to increase their estimate of the property’s true value so that the deal could go through.
The value of your house serves as the collateral for your mortgage; it’s the only thing the bank has left if you don’t pay up. Given this reality, you might think that the crash of the housing market would make it easier for appraisers to do their jobs without interference. But while there have been some big changes in the appraisal business, many appraisers say privately that things have gotten worse, not better. And while the Dodd-Frank financial reform bill, which President Barack Obama signed into law this past summer, made a well-intentioned effort to fix the problem, there’s reason to fear that it won’t.
Appraisers have long been the mopes of the U.S. home loan industry. In other countries, such as Mexico, you have to be an architect or an engineer to make home appraisals; here, you just have to get a license, the requirements for which are not at all onerous. One appraiser says that in international forums, he’s seen the Chinese laugh as the U.S. requirements are translated. Appraisers enjoy little status in the U.S. housing industry because they are the “no” people, the ones who stop the deals. No one—not mortgage brokers, ...