They were peeing in their own pool... of mortgage backed securities!

Why would any prudent lender underwrite a loan for someone who couldn't afford it? What prudent lender loans money without knowing exactly what the collateral is worth? Why are so many people upside down on their home mortgages and are either nearing foreclosure or have already experienced foreclosure? Why do consumers pay $300 for a worthless real estate appraisal that isn't worth the paper it's written on? After all, the real estate appraiser IS the ultimate underwriter of the deal and our last line of defense for Fannie Mae and Freddie Mac (TAXPAYER) exposure. These are the questions we must find answers to before any meaningful change in policy can take hold.

The argument that someone purchased a home who "shouldn't have" means that there was a lender out there (or two) who was knowingly underwriting bad home loans. Here's one of many examples of what was taking place - http://www.msnbc.msn.com/id/22425001/vp/25453131#25453131

On the subject of home valuation, consumers are totally unaware of the incestuous relationship between lender and appraiser, it's borderline fraudulent. Years of hiring only "compliant" appraisers and blackballing honest appraisers (refusing work) has come home to roost in the form of a real estate bubble. I'd like to find out how many appraisers in the industry lost work for being realistic about property values. I understand they left the business in droves.

Many honest appraisers knew in good judgement that property values were over-inflated but the consumer was never allowed to hear that voice of reason. Consumers have no choice in who the lender hires. We need to protect consumers from toxic loan products and inflated appraisals. It's as important as making sure our food supply doesn't get contaminated or that poison doesn't make its way into our childrens toys. It goes without saying that having some sort of minimum standards is a good thing for protecting the health and well being of the general public.

So, bottom line - what does a "good" appraiser do? What does a "good" appraisal look like? How do we fix the problem at hand? At a minimum there needs to be disclosure at time of loan application that explains to the consumer their rights and recourse for the product they are purchasing. There also needs to be some kind of agency disclosure explaining the relationship of the lender and the vendors they use for valuation services. If the consumer is not going to be the customer the lender should clearly explain this in advance prior to accepting payment from the borrower for the appraisal.

Consumers should also be well aware of industry terms like Automated Valuation Models or AVM's, Appraisal Management Companies or AMC's, unlocking secure appraisals, appraisal data portals, revenue sharing, comp checks, directed appraisals, appraiser pressure, etc. etc. - there are plenty of shady tactics being employed by the lending industry with the customers $300 appraisal fee.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future