Many Americans have reduced the equity in their home to pay off credit card debts and cover day-to-day expenses. More troubling still is evidence that many appraisers fraudulently what is my home worth? inflate property values during the buying or refinancing of homes. This paper explores the implications of appraisal fraud.

Key Findings:

• Serious conflicts of interest pervade the mortgage industry. Lenders, brokers, and real estate agents often have an incentive to inflate the value of residential properties. The process of appraising a property -- among the most important steps in either the purchase or refinancing of a home - is sometimes done dishonestly as appraisers go along with requests to overstate the value of a home.
  
  
  
  
  
• Appraisal fraud can lead homeowners to borrow more money than their homes are worth, putting themselves at risk of being "upside down" in a home - e.g., not being able to sell for a high enough price to pay off their mortgage - even if there is no home value downturn in the real estate market.
  
  
  
  
  
• Appraisal fraud is not a new problem, but the refinancing boom - in which homeowners have cashed out over $450 billion in home equity since 2001 -- has created fresh incentives for self-interested parties to collude in the overstatement of property values.
  
  
  
  
  
• Up to half of all appraisers have reported feeling pressures from lenders or brokers to overstate property values. Many appraisers go along with these pressures out of fear of losing future work. Appraisers who have not complied with such pressures report not being paid for work and being blacklisted by lenders and brokers.
  
  
  
  
  
• The inflation of home prices through appraisal fraud may be helping to push real "bubble." Some observers believe that appraisal fraud helps explain high foreclosure rates in certain parts of the nation.
  
  
  
  
  
• Predatory lending targeting minority and sub-prime borrowers often involves appraisal fraud. Low-income aspiring homeowners are also targeted by developers who collude with dishonest appraisers in the aggressive marketing of new homes offered at inflated prices.
  
  
  
  
  
• Government oversight of the appraisal process is inadequate. Key participants in the mortgage industry, such as mortgage brokers, are unregulated in many states and oversight of lending institutions is often very weak. State boards that license appraisers and investigate reports of fraud often lack enough resources. New