Reflection: Money Corner: DOW plunges: NY investigates inflated appraisals

The problem of inflated appraisals becomes a ticking timebomb in the cycle of home mortgage securitization-----when the time comes for a homeowner to be foreclosed, the home is nowhere near worth what the lender had presumed. When the homeowner who is in financial trouble seeks alternative financing, he is checkmated by any straightforward appraisal that might have helped finance his way out of the situation. Hence, Freddie Mac, or Fannie Mae, the two government mortgage agencies have an interest in making sure that the home is appraised properly in the first place. So does every single homeowner in America. However.....

That being said for the record. Inflation of home appraisals is a national problem. In my view, it is a circle of silence that is only uncovered in the situation of tragedy such as we confront today. The bank...the builder....the appraiser, the insurer.....none of these has a motivation to be the whistleblower to overappraisal. Yes. It is true that the appraiser has an ethical obligation to lower as well as raise the appraisal of properties that are reviewed. You could put that measure of ethical obligation in a thimble and ...there is a debate of how much room might be left. There is no way that the appraiser, who is not loved anyway by folks, would ask for problems with the very bank that hired him, or financed the property, since to discover a very low valuation might jeopardize current banking interests in the property.

So----the headline today that the two government agencies are being investigated was big news----and it sends a fear through the market that this problem is just the tip of the iceberg.

This problem of overappraisal may be more pronounced in areas of "hot" real estate, such as Florida and California and not in the Midwest. My impression is that the traditional lending institutions in the Midwest are historically very conservative. However. There are exceptions.

That is how I see it. And you?