The Federal Deposit Insurance Corp. estimated this week that the $400 million in real estate mortgages and property it took over in its bailout of the Continental Illinois Bank & Trust Co. last year are worth only about $200 million.

Steven A. Seelig, associate director of the FDIC's liquidation division, told the House commerce, consumer and monetary affairs subcommittee that in many instances, Continental Illinois made loans on property overvalued by appraisers who apparently were willing to give bank officers the figures they wanted rather than an independent assessment of market value.

Some of the appraisals seem to have been "developed to support the proposed loan rather than to give a true current market value of the underlying collateral," Seelig said.

Faulty and fraudulent appraisals like some of those prepared for Continental Illinois are widespread and cause serious problems in the lending industry, federal loan guarantee programs and the secondary mortgage market, witnesses said during two days of hearings held by the subcommittee. Inflated appraisals have caused the decline of 322 savings and loans since 1983, according to a study released during the hearings.

The rise and fall of a Boynton Beach, Fla., savings and loan also "can be cited as an example of rampant growth in real estate lending fueled by inadequate and inflated appraisals," according to Lamar Heath, director of examinations of the Federal Home Loan Bank of Atlanta.

Sunrise Savings & Loan Association started in May 1980 with $3 million in assets, and was state-chartered and federally insured. It grew wildly until the Federal Home Loan Bank Board seized control of it last July. In one instance, Sunrise made a $10.5 million second-mortgage loan on a 620-acre property that was to be developed into 1,600 dwelling sites. The property had been foreclosed on by another institution at the time Sunrise made its loan to the same borrower, Heath said.

Unrealistically high appraisals have played key roles in the recent failures of other lending institutions. A study of loans made by Empire Savings and Loan of Mesquite, Tex., found 411 "faulty and/or fraudulent" loans made by the institution before it collapsed in March 1984, according to Ron Coile, chief district appraiser for the Federal Home Loan Bank of Dallas.

Although real estate loans did not bring down Continental Illinois, the giant Chicago bank's real estate portfolio is a dramatic example of problems that inflated appraisals can cause. Continental, then the nation's eighth-largest bank, nearly collapsed in May 1984 when rumors that it was insolvent touched off a run on its deposits.

It was kept afloat temporarily by a $7.5 million rescue operation launched by the FDIC and other commercial banks until the FDIC put together a plan under which it took over 80 percent of the bank's stock in return for clearing bad loans and injecting new capital to make up for loan losses.

The $400 million in real estate loans make up only a fraction of $3 billion in problem and shaky loans the FDIC took over in its rescue and an additional $1.5 billion in loans the agency agreed to assume if the bank could not continue to carry them, Seelig said in an interview after the hearing. Continental Illinois' worst problems were caused by bad energy loans it bought from the failed Penn Square National Bank of Oklahoma City, he said.

When FDIC officials examined the records of Continental Illinois' real estate loans, they found that in one instance the bank "relied on an appraisal performed for the developer" of the property, and in other cases failed to take into account vacancy rates and unabsorbed inventory and "incorporated an assumption of high appreciation rates yielding high market values in 1988 and 1992 when the loans would become due," Seelig told the committee.

The FDIC gave the subcommittee a list representing 80 percent of its Continental Illinois real estate portfolio that showed the bank's appraisals on 21 properties totaled $518.3 million, while current appraisals valued the same properties at $184.4 million.

Examiners for the Office of the Comptroller of the Currency, however, had a dramatically different opinion of the Continental Illinois real estate loans. In a letter to the subcommittee, the OCC said its examinations "did not disclose any real estate appraisal abuses warranting disciplinary action or criminal referral."

Most of the witnesses before the subcommittee this week, however, cited major faults in the appraisal industry.

Guy P. Reese, a former district appraiser for the Federal Home Loan Bank Board and now a review appraiser for a Dallas savings association, said his department rejected or asked for corrections in 90 percent of the "400 to 500" appraisals it studied during the past 12 months. The "great majority of serious deficiencies" result from appraisers' failure to "provide an unbiased, objective estimate of market value" of the property and their "willingness to become" advocates for their clients, he said.

Appraisers are unregulated and unlicensed, with the only professional standards being provided by about 30 private associations and organizations, witnesses said. In addition, only about 25 percent of the nation's appraisers belong to these organizations, they said.

Appraisal abuses are so "blatant" that one of the professional organizations was swamped with ethics complaints against its members to such a degree that its staff no longer could handle them and had to "send them back" to the groups and individuals who made the complaints, according to Richard Hewitt, former chief district appraiser for the Federal Home Loan Bank in Atlanta.

Two federal agencies that insure home loans, the Veterans Administration and the Federal Housing Administration, also reported problems with appraisals.