The Rocky Mountain News reports from Colorado. "Erin Toll's top priority as the new director of the Division of Real Estate for Colorado is to shut down appraisers who are artificially inflating home values, contributing to the state's escalating foreclosure crisis."

"She agrees with many in the real estate industry who believe inflated appraisals are contributing to rising foreclosures in Colorado and nationwide. Toll said she expects to unveil an investigation next month of an appraiser she said has inflated the value of homes by as much as $100,000."

"'Overinflated appraisals hurt everybody,' said Toll. 'Consumers are hurt when their property values are artificially inflated in price when they go to sell them.' Colorado has the highest foreclosure rate in the nation, according to national studies."

"'And lenders, who trust the appraisals, are often victims, too,' Toll said. Others, however, say that lenders often pressure appraisers to artificially inflate properties so they can justify making loans and collecting fees."

"A lot of fraud is committed by appraisers who want repeat business from lenders, said Ivor Hill, who heads Pueblo-based IJ Hill Appraisal Services. If the lenders don't get the amount they want for the loan, they will 'blackball' the appraiser and hire someone who will provide that amount, he said. 'They commit fraud to stay in business,' Hill said."

"When a house whose appraisal has been inflated is used as a comparable by other appraisers, those buyers will pay too much for homes, creating a domino effect, Hill said."

"Demos, a New York City think tank, quoted an unidentified Denver appraiser who wrote on a Web site that 'finding a mortgage broker client who wants a fair market value on one of their deals is like finding a needle in a haystack these days.'"

"The appraiser suggested that the 'real estate market in Denver was artificially propped up by dishonest appraisal practices following the tech bust and the economic downturn of 2001, with homeowners now paying the price.'"

"Matt George noted he has completed more than 20,000 appraisals since 1974 and said that 'fraud is rampant in our industry.' He often reviews appraisals completed by other people for lenders. He said he has found that more than 50 percent are inflated."

"In one case, a house that couldn't sell for $500,000 was appraised at $550,000 for a refinance, George said. It later went into foreclosure. 'The lender was furious,' he said."

The Denver Post. "Today's lenders (are) moving to riskier loans as the housing market heads south. Things have gotten so bad that people now buy homes with monthly payments that don't even cover the interest due."

"'Every case is different,' said Boulder real estate lawyer Jon Goodman. 'Some loans are explained by mortgage investors irrationally chasing high yields. In other situations, the loans are caused by people downstream in the money chain fooling people upstream.'"

"But with lenders packaging dog loans among huge portfolios that they sell to institutional investors, such as pension funds, the bad guys often get rich and leave the misery to retiring teachers and firefighters, former Securities Exchange Commission accounting chief Lynn Turner said."

"'Appreciation,' Goodman said, 'covers up a lot of bad lending. Depreciation reveals negligence and sometimes loan fraud.' Turner's SEC experience 'is that bankers have been able to get away with murder before auditors call them on it.'"

"In their first months or years, option ARMs let homebuyers pick how much they want to pay on their mortgages. Lenders, meanwhile, book the maximum payment as revenue. According to Business Week magazine, three of the country's big mortgage lenders; Countrywide Financial, Washington Mutual and Golden West, counted nearly $1.5 billion in 'net deferred interest' as revenue in fiscal 2006. "

"If borrowers default on those loans, the lenders will never see the money. Still, Turner said, accounting rules let companies 'record as interest income that you think you probably will collect.' So for the time being, executives can pocket bonuses, then bail before the crunch comes."

"That, I now understand, is the guiding principle in the increasingly ugly business of mortgage lending. The real trick as the housing market collapses under its own greed and suspension of disbelief is to leave someone else holding the bag."