New York’s Longest-Running Real-Estate ‘Joke’

But the system is big business: Manhattan Mortgage brokered $3 billion in loans last year; Mr. Miller’s firm provided property valuations of more than $5 billion in the borough; and Mr. Knobel estimated that his firm did at least $7.5 billion.

Andrew Fautley, a co-founder and principal of another firm, Vanderbilt Appraisal, said he took offense to an industry-wide critique. Nevertheless, things are bad and getting worse: According to a study quoted by Bloomberg News, 90 percent of appraisers feel influenced to do sham work—and that number was only 55 percent just four years ago.

Where will Mr. Cuomo’s investigation lead? And are more subpoenas coming? His office didn’t return several calls for comment.

According to John Brenan, the director of research for the Congressionally authorized Appraisal Foundation, appraisers are legally required to remain impartial and objective. So should mortgage brokers be giving them the number that a client expects from the appraisal—even if that figure is simply a useful illustration of market value?

“The way we look at it is, we’re presenting a guide to where the value should be,” Ms. Cohn said. “We’re not directing them or compelling them to come in at that value.”

Strong-armed or not, mortgage brokers were barely here only a decade ago; most mortgages back then came directly from salaried staffers at banks. Now, Mr. Brenan said, most come from mortgage brokers, who are paid on commission and need the appraisals to go just right in order to get paid.

It isn’t healthy for Manhattan realty when appraisers buckle under the pressure that nine out of 10 say they now feel. “What you’re doing is creating a mortgage system that is based on collateral whose value is not there,” Mr. Miller said.

So, thanks to the loose relations between appraisers and mortgage brokers, Manhattan’s bubbly real-estate market has gotten bubblier.

Mr. Miller pointed out that the politician who fought the hardest to reform that relationship, Congressman Bob Ney, regrettably turned out to have some bigger corruption problems: He has been sentenced to 30 months in prison in relation to the Jack Abramoff scandal.

Something has to change. “The potential is there to have a repeat of what happened with the savings-and-loan crisis,” Mr. Brenan said. When loans are made on inflated appraisals and those loans foreclose, the bank takes a direct hit: “Which, of course, could have a devastating effect on the real-estate market and, in large enough numbers, on financial institutions.”