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Definitely not true... there are many checks in place to ensure this doesn't happen

http://www.freddiemac.com/loanadvisorsuite/loancollateraladv... http://www.freddiemac.com/loanadvisorsuite/faq/loancollatera...

This doesn't even take into account the process for appraisal management companies (third parties).

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You seem to think these industry controls are effective. Maybe they prevent an appraisal from being, say, 10x higher than the recent sale prices on either side, but they don't prevent the equally bad event of a series of 10 sales on the same block each being 10% higher than the previous. Every one of those houses in Las Vegas that turned out to be worthless in 2007 was appraised for at least the sale price the year before. The appraisers in those cases didn't do a damn thing, for example they didn't come out to the house and write down "this neighborhood is in a desert with no access to water where the unemployment rate is 20% and the employed people make minimum wage therefore this cannot be a neighborhood of $850000 houses." They just said "the last house sold for $800000 and this market seems pretty hot so $850000 okey dokey."

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