CHARLOTTE, N.C.:

As soaring home prices set the stage for America's great housing meltdown, a critical step in making sure those home sales were a fair deal — the real-estate appraisal — was undermined from within.

After the nation's last major banking disaster, Congress set up a system to catch rogue appraisers. Their game: inflating the value of homes at the direction of equally unscrupulous real-estate agents and mortgage brokers, whose commissions are determined by the size of the deals.

But a six-month Associated Press investigation found that the system is crippled by both the bumbling of its regulator and their inability to effectively punish those caught committing fraud.

And despite ample evidence appraisers are pressured into inflating home values — sometimes to prices in support of loans that are more than buyers can afford — the federal regulators charged with protecting consumers have thus far made a conscious choice not to act.

''The system is completely broken,'' Marc Weinberg, who was acting director at the federal agency charged with monitoring the appraisal industry, told the AP before he retired this year. ''It's amazing that the system ever worked at all.''

The AP conducted dozens of interviews and reviewed

thousands of state and federal documents, and found:

• Since 2005, at the height of the housing boom, more than two dozen states and U.S. territories have violated federal rules by failing to investigate and resolve complaints about appraisers within a year. Some complaints sat uninvestigated for as long as four years. As a result, hundreds of appraisers accused of wrongdoing remained in business.

• The only tool federal regulators have to force states into compliance is so draconian — it would effectively halt all mortgage lending in a state — that it has never been used.

• Both state appraisal boards and the federal agency charged with overseeing them are chronically understaffed, many with only one full-time investigator to handle the hundreds of complaints that arrive each year. Some don't even have an investigator.

''The appraisal reforms of the late 1980s were good reforms,'' said Susan Wachter, a real-estate professor at the University of Pennsylvania's Wharton School of Business. ''But they were not sufficient to prevent what we have seen . . . because regulation without teeth is not regulation.''

To be sure, there are many causes of the housing crisis. They include lenders who allowed people with spotty credit to buy homes with little or no money down, mortgage brokers who focused on selling loans without regard to the borrowers' ability to repay, and investment bankers who bought and sold risky mortgage-backed securities. A few of the worst offenders — appraisers included — have been put behind bars.

But experts and industry insiders, including appraisers who feel betrayed by colleagues who don't follow the rules, believe the failure to effectively monitor the real-estate appraisal industry contributed to housing's collapse.

There is no doubt, Wachter said, ''that fraud has increased and appraisal fraud has increased in a way to exacerbate the problems.''

This is the way the system is supposed to work:

Typically, an appraiser receives an order from a real-estate agent, lender or mortgage broker to inspect a property. Based on a physical inspection of the home and comparable sales in the area, they develop an estimated value for the property. That figure is used by banks to set the home's value as collateral for the mortgage loan.

Appraisers are supposed to come up with a value free of any outside pressure. But more than three dozen appraisers nationwide interviewed by the AP said they often felt pushed by a real-estate agent or mortgage broker to fraudulently inflate a property's value. They supplied the AP with documents from lenders asking them to ''hit a number.''

''The higher the loan amount, the more money brokers and lenders make in the deal,'' said Ray Haynes, an appraiser from Cherryville, N.C. ''And they threaten you. They say, 'If you don't play ball with us, we'll go somewhere else.' And they do. I've seen my business shrink. They're all doing it. It's hard to stay honest.''

Documents obtained by the AP also show that hundreds of appraisers complained to federal and state agencies about such fraudulent inflation of property values.

The appraisal system has broken down before. In 1989, Congress concluded that ''faulty and fraudulent appraisals were an important contributor to the losses that the federal government suffered during the saving and loan crisis.'' And it passed the Financial Institutions Reform, Recovery and Enforcement Act.

Under the law's reforms, a private group known as the Appraisal Foundation wrote the rules governing appraisers. The law also recommended that states begin licensing appraisers and disciplining those who break the rules.

A federal agency called the Appraisal Subcommittee, an independent federal agency that answers to Congress, would conduct field reviews and audits, and maintain a national registry of appraisers — including dossiers on those who break the rules. But problems plagued the system from the start. It took years for some states to set up the independent review boards to supervise appraisers or hire personnel to probe complaints.

The Appraisal Subcommittee is supposed to help states remove from the system those appraisers who agree to ''hit a number.'' But it has only four employees to conduct field reviews and audits of 50 states and four U.S. territories, and hasn't even had a permanent director since the agency's former chief retired at the end of last year.

Following Weinberg's subsequent departure in February as acting director, none of the agency's current employees — including interim director Vicki Ledbetter — returned more than a dozen messages left by the AP over a period of several months seeking comment.

When the agency does find a state failing to follow the law, the only tool available to force compliance is a death sentence known as ''non-recognition'' — a penalty that would ban all appraisers in that state from handling deals involving a federal agency.

''Do you know what that would have meant? The net effect is it would have effectively shut down mortgage lending in that state,'' said former subcommittee director Ben Henson, who retired in December.

When field reviews began in the 1990s, states were repeatedly warned they were failing to comply with the law — warnings that continue to this day. But without the ability to issue fines or impose a less destructive punishment, the Appraisal Subcommittee is powerless. It has never taken any action.

In Ohio, the Appraisal Subcommittee found in 2005 that 40 percent of the state's 199 outstanding cases were older than a year, many older than two. To help clear the backlog, Ohio began allowing appraisers to sign consent orders — a deal similar to a plea bargain in which an appraiser agrees to the facts of a case in exchange for a reduced punishment. That could be a short-term suspension, for example, instead of a license revocation.

In 2007, 148 appraisers signed consent orders in Ohio, up from 11 in 2006.