Lew Sichelman at Realty Times looks at appraisal fraud. "A faulty or even fake appraisal is said to be at the basis of every fraudulent mortgage transaction. But not every appraiser is at fault, or at least willingly so. James Blaydes (owner) of a Peru, Ill., appraisal firm says that in many cases, appraisers can't stand up to pressure put on them by mortgage brokers."

"Either they 'hit the numbers' as instructed, he said at the Mortgage Bankers Association's National Fraud Issues Conference in Chicago recently, or they are blackballed. If an appraiser refuses to inflate a valuation, Blaydes said, he won't be getting any more business, at least from that particular broker."

"Speaking for the Appraisal Institute, which has been calling on lawmakers to address mortgage fraud since 1981, when the problem was believed to be in its infancy, the Illinois appraiser said there are plenty of ways to fudge a valuation besides packing the final number."

"Among other things, appraisers can ignore the best comparables, or use properties in better neighborhoods as comps, he said. They also can mis-describe a property. Or they can fail to mention physical problems."

"But appraisers aren't the only ones who commit such flagrant fouls, Blaydes told the conference. Sometimes loan brokers do their own dirty work. They have been known to alter an otherwise honest appraiser's work by changing the values of each comparable, he said, deleting noted physical issues or other undesirable influences impacting the subject property or even forging their own appraisal reports."

"The AI spokesmen said, lenders can help themselves by separating the appraiser selection process from loan origination and by preventing loan officers from having any contact with loan officers. 'That's something we can do ourselves,' agreed Erik Stein, executive VP and director of fraud risk management at Countrywide Home Loans. 'Loan officers shouldn't get to pick the appraiser.'"

"Stein said faulty appraisals are 'the single most important issues in collateralized lending.' 'All fraud is bad, but the reality is, if the house is worth what the appraiser says, if I have value in the collateral, I'm going to break even.'"

"Emblematic of the scope of the mortgage fraud problem throughout the country is what's going on in Illinois, where three out of ten appraisals are found to be forged, according to Robert Gorman, an East Hazel Crest, Ill., appraiser. 'That's a significant number,' he told the meeting. 'And that's only the ones we know of. Who knows what we don't know?'"

"Gorman said in some cases, appraisers who have had their licenses lifted continue to make valuations using someone else's identification. In other instances, he also said, the 'appraisers' were never licensed at all."

"Gorman told of one crew of 13 fake appraisers who are working out of a factory on Chicago's South side. The authorities would like to shut down this appraisal factory, he said, but they can't. 'They're not licensed, so there's nothing we can do,' he said. 'So they are still there.'"