Ah, you proceed from a false premise: it is the very rare financial institution that holds a loan any more. They are packaged up into "mortgage-based securities" ASAP and foisted on Wall Street. The money-maker for the bank these days is, as you wrote, simply to get the loan written and sold off.
Hence the milder form of appraisal fraud: "The buyer has a contract to buy the house at $X contingent on an appraisal. Mr. Appraiser, if you can't make your appraisal come in at $X, we're gonna find somebody who will."
I don't understand. Can you explain that a little more?
As a former residential appraiser, this sums up the B & C market perfectly.
Now, many loan applicants in the A market don't experience the practice, because they're coming into a transaction with a decent down payment and certainly acceptable creditworthiness.
Where this goes on is in the bad credit arena, where borrowers have virtually no money to put down, and want to roll all the costs into the loan. (psst, the loans are at rates that would make you and I run the other way).
So, since a borrower needs about 105% more than the purchase price (to cover all the fees), the mortgage company needs an appraisal at 20-25% more than the property is valued at.
I heard this a multitude of times: "If you come in at a lower number, don't bother sending us the appraisal." This after most of the appraisal work had been completed.
When we bought our current house back in April, every one of the lenders we spoke with was up front in telling us that. Of course we went to *reputable* brokers and banks.
That said the apprasial was pretty much a rubber stamp affair. But we had done plenty of research and were confident that the price was competetive and in line with the local market.
AND, here is the real key, we did not buy at the upper limit of our optimum resources. On the contrary, we bought & borrowed well below what we could have so that we kept enough in savings to cover a couple of years of payments in the event things got tough. If we need to do that it will hurt retirement plans, but we'll keep our home.