Refinancing Could Be Timebomb

The historic high levels of refinancing the last few years may have set a trap for homeowners due to inflated appraisals. In a study put out by the public action firm Demos, it stated "Households cashed out $333 billion worth of equity from homes between 2001 and 2003, the beginning of the refinancing boom--levels three times higher than any period since Freddie Mac started tracking the data in 1993".

"One of the most alarming findings in the report is the role that mortgage fraud, in particular appraisal fraud, plays in the refinancing process. There are growing numbers of third-party brokers pressuring appraisers to inflate home values in order to "close the deal" and reap larger fees or bonuses, according to the report. The consequence can be dire for homeowners who refinance and draw out more cash equity than their home is actually worth".