New York State Attorney General Andrew Cuomo dropped his inquiry of Fannie Mae and Freddie Mac after the two companies announced last Monday that they no longer will buy mortgage loans on which the home value appraisal is not independent.
Fannie Mae and Freddie Mac will no longer buy mortgage loans on which the home value appraisal is not independent, the government-sponsored loan purchasers announced last Monday.
The companies, which own or guarantee about 40 percent of mortgage loans nationally, will create new Home Valuation Protection guidelines that are expected to ensure independent appraisals. The guidelines will be in place by Jan. 1, 2009, and will be in effect through summer 2010.
They also will spend $24 million to create an Independent Valuation Protection Institute, which will monitor and study home valuation processes and establish an appraisal fraud hotline for consumers and appraisers.
In exchange, New York State Attorney General Andrew Cuomo has dropped his inquiry of the two companies, which began last November as part of Cuomo’s industry-wide investigation into mortgage fraud. At that time, Cuomo subpoenaed both companies seeking information on loans they purchased from banks including Washington Mutual, which it is investigating for soliciting inflated appraisals from First American Corp. and its subsidiary, eAppraiseit.
Under the new rules, Fannie Mae and Freddie Mac no longer will buy loans on which a mortgage broker or Realtor solicited the property appraisal or on which the appraisal was offered by a lender’s in-house staff.
Massachusetts mortgage brokers will see a “huge” change in the way they do business when they go into effect, said Denise Leonard, owner of a broker-lender business in Wakefield and executive director of the Massachusetts Mortgage Association.
“It will slow down the process incredibly,” she said, and could hurt appraisers who currently work with brokers if they can’t get their names on the right lender’s call list.
“It’s interesting that [Fannie and Freddie] came to a settlement with one attorney general and it affects the entire country,” Leonard added.
An Ongoing Issue
But Steve Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers, said appraisers will welcome the new rules.
“We’ve been aware of the problems of appraiser independence for some time, and have been trying to find a way to curtail them,” said Sousa, whose organization has about 600 members.
MBREA has asked Massachusetts Attorney General Martha Coakley to make false or inflated appraisals a violation of consumer protection law as part of her new mortgage regulations, he added, but that has not happened to date.
A Coakley spokeswoman said, “Accurate appraisals are an important part of the fair lending process,” but declined further comment.
Appraiser independence is an ongoing issue in the industry, said James Kasparian, a 14-year industry veteran who owns Burlington-based Kasparian Appraisal & Consulting. Kasparian said it’s not uncommon for a mortgage company to call several appraisers looking for a specific appraisal value.
Appraisers who want regular business with a company may decide to provide inflated figures, he said, even though such an action could jeopardize their state-issued license.
The new Fannie Mae/Freddie Mac agreement might alleviate the problem, Kasparian said, but he predicted “crooked appraisers” won’t change permanently.
Massachusetts banks and local mortgage companies don’t tend to employ in-house appraisers, but the president of one of the few that does – East Boston Savings Bank – doesn’t think the new rules will affect his bank much.
“We still use outside independent appraisers,” explained EBSB President and Chief Executive Officer Robert Verdonck. The bank’s sole in-house appraiser, Bill Barney, mostly offers opinions for second mortgages, home equity lines and construction loans, Verdonck explained. EBSB sells more of its mortgages to the Federal Home Loan Bank than to Fannie Mae or Freddie Mac, he added.
Some national lenders, including Countrywide Financial Corp., have appraiser subsidiaries that could be affected under the new rules, which forbid lenders to use valuations from on-staff appraisers.
Countrywide spokeswoman Cari Kerns said she’s not sure what will happen to Countrywide appraiser subsidiary LandSafe.
“I’ve asked the same question myself,” said Kerns, who said she would pass the question on to company officials.
Countrywide – whose sale to Bank of America is expected to be completed by the end of September – did not comment further.
