During the boom years of the early 2000s, housing prices soared at an unprecedented pace. Demand was high for existing homes, and business was rolling in for appraisers. The system, however, was suffering from deep and significant flaws that would not be revealed until the boom market started flagging in 2007 and went bust during the Great Recession.
In Illinois, appraisers go to the Department of Financial and Professional Regulation to be licensed, and they are guided on a national level by a professional code of ethics called USPAP (Uniform Standards of Appraisal Practices).
However, some found ways around the standards.
“Things got very sloppy a decade ago, where people were doing the bare minimum to comply with USPAP,” says Michael Hobbs, the president of PaRoo Appraisal Consultancy. “In some cases, the appraisers weren’t even complying and the mortgage people didn’t care. Why? Think about the people sitting around that signing table. If that transaction doesn’t happen, a lot of people don’t get paid.”
Lax oversight and casual attitudes about appraisals presented many opportunities for abuse, according to Hobbs. To benefit homeowners hoping to use their real estate as equity – and to benefit the loan officers and institutions that held the mortgages – homes were appraised for much more than they should have been, and at the same time, appraisers were held up as the disinterested party in a transaction, responsible for protecting the lender. Even though, Hobbs explains, the majority of appraisers remained honest, enough gave in to temptation to make increased regulation an appealing solution for lawmakers determined to not let such abuses happen again.