Deal Nears to Curb Home-Appraisal Abuse, Coumo, Freddie Mac and Fannie Mae

[Pamela Crowley (Florida)]

http://online.wsj.com/article/SB120399695172392953.html?mod=googlenews_wsj

Deal Nears to Curb Home-Appraisal Abuse

By AMIR EFRATI
February 26, 2008; Page A3

Mortgage giants Fannie Mae and Freddie Mac are close to a deal with New York Attorney General Andrew Cuomo to make changes meant to discourage inflated appraisals, widely viewed as an important contributor to the mortgage crisis, according to people familiar with the matter.

The proposal, in which the two government-sponsored companies would require lenders they work with nationwide to change their appraisal practices, would cap a year-long probe by Mr. Cuomo's office that has already resulted in a lawsuit against an appraisal-management company, for allegedly submitting to pressure by a big lender to inflate appraisals.

In one change being discussed, according to people familiar with the matter, Fannie and Freddie would prohibit lenders they work with from hand-picking or using in-house appraisers, to curb potential conflicts of interest. The two also would agree not to buy loans from lenders who used appraisals by wholly owned subsidiaries, according to a person familiar with the matter. The deal may also include a provision that Fannie and Freddie, which guarantee or acquire mortgages from lenders and package many of them into securities for sale, require lenders to refuse to rely on appraisals arranged by individual mortgage brokers, that person said.

The agreement may create an independent "clearinghouse" for appraiser information. Lenders would be required to provide copies of appraisal documents to the clearinghouse, which would provide reports to the public and staff a hotline for consumer complaints, a person familiar with the matter said.

Now this is already a major problem:
"The two also would agree not to buy loans from lenders who used appraisals by wholly owned subsidiaries,"
PLEASE do NOT excuse any AMCs no matter who owns any part of them!!!!!

 

[Lawrence R.]

Sounds like a start...I think that if Fannie and Freddie make a fw better standards, we can avoid the whole government mess of petty regulation.

so far, so good.

 

[Kevin Mc]

While it all sounds good.

the idea of the government getting involved on the operational level never sits well with me.

 

[Claude From NY]

media picking up on it

CNBC just ran a line about how "this will change how home valuations are done across the country".

 

[Marcia Langley]

At first read this sounds like lenders can't select/order appraisers/appraisals, can't use solely owned subsidiary AMCs, and can't use MB originated loans.

The only appraisal source left standing is an independently owned AMC unless they set up a government owned AMC. The description of the "clearinghouse" proposal is not very meaty and leaves me to wonder exactly what they mean.

On the one hand, if it were a govrnment sponsored clearing house and independently owned AMCs were just one more appraisal company on the roster, it would not be so bad. On the other hand, what are the odds that the government would be forced (by cost and efficiency) to contract some existing giant AMC to manage the clearinghouse?

Cuomo's suit refers to FA/eApr as an appraisal company. In the same way that my company is an appraisal company. I am happy with that if they are held to the same standards my company is held to.

The past problems and the future danger is when they are treated with exception.

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One would need to know the safeguards involved in the function of the clearing house (and who owns it and who runs it and what they are allowed to do with it) before one could get too excited either way.

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I think there is so much wildly felt demand in every single aspect of the upper levels of authority in our society for compiled data that it is inevitible that some sort of clearinghouse will eventually be accomplished.

 

[Karl]

Governmet involvemenrt really scares me. Notice who it is that wants to get this settled, Fannie & Freddie two that created this mess. Here is a simpler idea. When bad Appraisals are found Fine the bad Appraiser.

 

[Lost Cause]

Good News!

What government involvement? Fannie's not government.

At the very least this ought to do away with the scourge of mortgage broker-ordered appraisals. This obvious conflict of interest has been permitted for entirely too long.

And I want to thank Pam for her part in getting this done.

 

[Randolph Kinney]

It will be interesting to how this is enforced. Having it as a condition of contract with out enforcement ...

 

[Marcia Langley]

On the one hand, if it were a government sponsored clearing house and independently owned AMCs were just one more appraisal company on the roster, it would not be so bad.

The more I think about this, the more I like it.

All of the appraisers who subcontract through an AMC would also be on the roster as an independent appraiser. I'm thinking pressure related to promises of volume would go away. It might signal the demise of the monster AMC model.

 

[Claude From NY]

Anyone have a link to the whole story that doesn't require registration? Thank you.