Starting today, the educational requirements for California home appraisers will be tougher, but a veteran property evaluator who teaches how to spot fraud says the rules won't alter how many appraisers do their jobs.
The new rules require 67% more hours of training before appraisers are certified at various levels, and define more precisely the curriculum to be used. The regulations are taking effect about two months after California enacted a law making it illegal to pressure an appraiser to inflate a valuation.
But master appraiser Steven R. Smith of Redlands says the changes won't fix what he described as the main problem: high-volume appraisal companies' relying too heavily on computers and trainees rather than legwork and interviews.
At a recent mortgage-fraud seminar in Orange County attended by scores of appraisers seeking to meet the new requirements, Smith said it was common for appraisers to seek comparative prices, or "comps," that match clients' price objectives rather than perform the objective analysis that they are required to do.
If sales in an immediate area don't support the desired price, appraisers look elsewhere, perhaps to a higher-end neighborhood not much farther away, he said.
"We have an army of appraisers that don't know they're wrong," Smith said in an interview. "If you are trained to search for comps based on price, that's what you will do."
That won't change much until appraisers are allowed to take the time necessary for a proper evaluation -- typically a day or two -- rather than rush through two or three appraisals a day as companies often require them to do, he said.
During the housing boom, inflated appraisals could remain undiscovered as rising home prices quickly caught up with puffed-up valuations. But flawed appraisals encouraged recklessness and in some cases fraud, experts say, exacerbating foreclosures and lenders' losses once prices began falling.
The issue isn't new. Inflated appraisals were blamed for enabling savings and loans in the 1980s to make rash investments that ultimately cost taxpayers hundreds of billion of dollars.
In an echo of that fiasco, bad appraisals have contributed to the current mortgage crisis by propping up loans made with little or no down payments and speculative home purchases, Smith said.
"We literally have millions and millions of inflated appraisals," he said.
