Many appraisers are responding to increased pressure from loan originators in a highly competitive marketplace by inflating property values during the buying and refinancing of homes, according to a report from the public policy group Demos.As a consequence, homeowners have borrowed more money than their homes are really worth, says "Home Insecurity: How Widespread Appraisal Fraud Puts Homeowners At Risk," the new Demos report. "Appraisal fraud is part of a bigger, more ominous picture," said David Callahan, author of the report and director of research at Demos. "As home prices have continued to increase above inflation, even nearing 20% per year in some cities, American homeowners are vulnerable as never before to financial ruin if home prices fall to their natural market value." Demos said more Americans have reduced the equity in their home to meet rising living expenses, like education and health care, or to pay off credit card debts. From 2001 to 2004, homeowners pulled out a staggering $485 billion worth of equity, and the trend is expected to continue. Adjustable-rate mortgages accounted for 34% of loans in 2004, leaving borrowers dangerously vulnerable to a rise in interest rates, the report said.

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