Report and Analysis: Fannie/Freddie, Cuomo Agree to Appraiser Independence
Report and Analysis: Fannie/Freddie, Cuomo Agree to Appraiser Independence
By David Brauner, Editor WRE
For appraisers, March came in like a lion.
As winter turns to spring, appraisers have much to look forward to, as reported in the current issue of Working RE- Turning Tide? Appraiser Independence. Even with the shift to quality in the market and the multitude of new legislation aimed at appraiser independence, no one could have anticipated the landmark announcement last week in which Fannie and Freddie agreed to rein in mortgage brokers and others who exert pressure on appraisers.
The stunning capitulation by Fannie/Freddie to
pressure from New York State Attorney General Andrew Cuomo, announced in a press
release issued by the Office of Federal Housing Enterprise Oversight (OFHEO)
(March 3, 2008), is a clear call for appraiser independence and a victory for
those who stood up and shouted out against lender pressure.
The agreement has the potential to do more good for
cleaning up the appraisal industry than all the other legislation/initiatives
combined. Despite its promise, however, some appraisers are anxious about the
unintended consequences of this independence day. No one can be certain how
things will shake out but the obvious intention of the agreement and the
legislation discussed in the new WRE, indicate a sea of change and offer hope
for a time when being a competent and ethical appraiser is once again good
for business.
History
You may recall the investigation AG Cuomo began in November 2007 into the
appraisal practices of First American Corp. and its vendor management arm
eAppraiseIT, which the complaint accuses of inflating the values of home loans
under pressure from Washington Mutual Inc. All three companies deny the
accusations (Premium
Content
- "I Told you So?" eAppraiseIT, WAMU Blow Up, Fannie, Freddie).
Fall out of the investigation included subpoenas of Fannie Mae and Freddie Mac
for details about WAMU's loans and their due diligence practices related to the
appraisals. As a result of the agreement last week, Cuomo will terminate the
inquiry into Fannie and Freddie.
Terms of Endearment
According to two sources at Fannie Mae
the agreement is nationwide in scope and not restricted to New York banks, as
some had inferred. There is a 90-day comment period with certain changes set to
take effect September 1, 2008 and others January 1, 2009.
Highlights include:
-
Bans mortgage brokers from selecting appraisers.
-
Prohibits lenders from using staff appraisers or appraisers working for appraisal companies they own or control.
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Institutes a Home Valuation Code of Conduct, which all lenders dealing with Fannie Mae and Freddie Mac will have to follow, to end "coercion, extortion, collusion" and other undo pressure on appraises.
-
Establishes the Independent Valuation Protection Institute for oversight, funded by Fannie and Freddie to the tune of $24 million.
-
Sets up a consumer hotline to handle complaints about questionable appraisals. The OFHEO will operate the Institute and hotline.
The mission of OFHEO is to promote housing and a strong national housing finance system by ensuring the safety and soundness of Fannie Mae and Freddie Mac.
(If you have E&O insurance through OREP and have not
registered yet for your free access, email for details
subscription@workingre.com.)