Trimming The Fat? Lenders Admit To Lowering Appraised Values

"You face foreclosure. You quickly move to refinance but qualify only for a double-digit subprime rate.  You take it, pay for an appraisal and learn your house is worth $425,000. Then the lender reduces your appraisal by $100,000."   That's the way the Examiner article Low appraisals hurt subprime borrowers begins.

"A loan officer from Quality Home Loans, a lender that downgrades appraisals, said, “Appraisals can be downgraded for a lot of reasons, like market saturation, houses that stay on the market too long, or if when doing a public records search we see that though additions were made to a residence, the proper permits were not obtained. So then we disallow those additions.”

One has to question that practice on a number of levels!

1. Equity - It seems to me that this practice [lowering values] could lead to claims of discrimination if a policy of adjusting appraised values is not adhered to in an equitable manner.   For example, “Imagine your neighbor with the identical house in the same condition gets 100 percent LTV, and not only do you get double-digit interest rates and only 60 to 70 percent LTV, but now they drop the value of your home by tens of thousands of dollars” .
2. Double-Dipping - The reasons quoted above may be legitimate for a value differential, but is an unlicensed loan officer or processor qualified to assess if those issues have already been addressed?  Do the comparable sales already reflect the changing market conditions? Are they qualified to determine the level of adjustment?  AND come on . . .What loan officer is verifiying building permits?!!
3. Legality - I understand the need to make underwriting decisions based on credit reports, appraisals, and other criteria . . .but I don't agree with actually changing the results of those reports.  Where does it stop!   Can a loan officer run a credit report and then change the FICO score? 
4. Responsibility - Who bears the responsibility for that report once the value has been changed?  I can foresee a borrower filing a complaint against an unwitting appraiser for an unsupported "Low" value.

There have always been reports, by appraisers, of clients demanding that appraisals be delivered without any "security" features enabled on the electronic file.  Doing so would make it simple for anyone to alter the report.   Of course they always claim that this is so they can add their watermark (or something similar) and that "We NEVER change your report!".

The Examiner article (click here) gives fuel to the fire that there may be MORE changes going on than one might think?