OFHEO, NY Attorney General, Fannie Mae and Freddie Mac Sign Agreements To Combat Appraisal Fraud

Washington, DC March 3, 2008 – OFHEO Director James B. Lockhart announced agreements with OFHEO, New York State Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac (the Enterprises) to strengthen the independence of the appraisal process. For mortgages the Enterprises buy or guarantee, the agreements seek to enhance appraisal and evaluation services that are critical to the residential mortgage process.

Flawed appraisals artificially inflate home prices and are often a sign of mortgage fraud and undue influence on appraisers.

"Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae, Freddie Mac and the mortgage market," said Director Lockhart. "These agreements build upon existing federal and state laws and regulations to further strengthen the single-family home appraisal process."

"The agreements should help restore confidence in the mortgage market by enhancing underwriting practices, reducing mortgage fraud and making home valuations more reliable. I thank the Attorney General, Fannie Mae and Freddie Mac for their strong roles in this important effort."

There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including:

• eliminating broker-ordered appraisals,
• prohibiting appraiser coercion, and
• reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages.

The agreements also enhance quality control in the appraisal process and establish a complaint hotline for consumers. The agreements include a Home Valuation Code of Conduct that the Enterprises will apply to lenders selling mortgages to Fannie Mae or Freddie Mac. The Code becomes effective on January 1, 2009.

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The parties also agreed to establish and the Enterprises fund an Independent Valuation Protection Institute designed to supplement current efforts to provide an appraisal complaint process, mediation of appraisal disputes, and mortgage fraud reporting. The agreement seeks the comments and concurrence of the federal banking agencies and solicits the comments of market participants that will be considered in making amendments to the Code during the implementation process.

“Attorney General Cuomo and I understand these are strong steps which will improve our mortgage finance system,” said Lockhart. “This Code is one way of ensuring that homebuyers and secondary mortgage market investors get the fair and independent property valuations that they expect and deserve. At the same time, I will be closely monitoring the nine-month period prior to implementation. OFHEO is committed to working closely with fellow regulators, the New York Attorney General, Fannie Mae, Freddie Mac, appraisers, lenders and other market participants to assure that the roll-out of the new code builds upon best practices, recognizes constructive comments to identify further refinements, and avoids unintended consequences."

In addition, OFHEO will continue its work to combat mortgage fraud, including its joint efforts with state and federal regulators. It is imperative that state appraisal licensing bodies be active in policing appraisal practices at the state level and that federal agencies share information on a timely basis in order to assist law enforcement and regulatory efforts to fight mortgage fraud," Lockhart said.

• Fannie Mae Agreement
• Freddie Mac Agreement
• Home Valuation Code of Conduct

Comments

[Pamela Crowley]

Everybody starts scrambling for that $24 million now. This can be done for a whole lot less.

[John J Vallejo]

Nothing addresses the problems that represent for our Industry the hundreds of unqualified appraisal reviewers. They must be licensed as well as appraisers, arm twisting throught reviewers must be stopped.

[Pat Bange]

AMCs hire the appraiser able to give the fastest (ridiculous) turn time and work for undermarket fees, so they can pocket 25% or more of the fee. Guess who that might be? The one with the least experience, the least amount of education and the least amount of business. The turn time means nothing as he/she will use the comps lying on their desk and not bother to verify anything...they don't have time. eAppraise (AMC) was involved in some arm twisting episodes too. Non-profit may be the way to go.

[Angela Best]

I honestly believe that the only way to fix the mortgage crisis is for every home appraised their needs to be two appraisals ordered (from different companies). In relocation appraisals that is how they are ordered and if there are two conflicting values there is a third one ordered. Honesty and diligence has a way of coming out when you know you’re being watched. The problem would fix itself.

[Tamer Degirmen]

It is mind bogling that a profession with so many individuals nationwide can be pushed around like little children with no say and constantly take the blame for everything that is wrong within the mortgage industry. No one disaggress with the fact that there are appraiser's out there who have no ethics, but isnt that true with every profession. When a few lawyers, doctors, teachers screw up, they dont get to be regualted. Why us???? History dictates that people who speak with one voice and show cohesion. It is time to draw a line in the sand, get together and speak with one voice about this before the entire profession is just a joke controlled my AMC who will give the job to the lowest bidder...

[Anonymous]

Lenders on commission bully Appraisers. The proposed solution? Lenders bully AMCs who bully Appraisers. The result: Nothing has been solved and the quality of appraisal reports suffer. Here's an idea: Lenders can bully AMCMCs who bully AMCs who bully Appraisers. Or even better: Lenders can bully AMCMCMCs who bully AMCMCs who bully AMCs who bully Appraisers. It seems to me the problems are coming from the first party in the chain. Reforms should be made on the commission motivated sellers of money (lenders). This is the root of the problem. I worry for the bullied child called the appraisal industry.

[Ray Pelletti]

I would like to read the proposed new agreement between the feds and the banking and mortgage lending industries as to what they are requiring the lenders to do to make the lending side of this fall into compliance.
I have a hard time believing that any appraiser overvalued any property by 200% or more. The lenders huge losses come from lender greed not appraisal error.

[Claire]

I absolutely agree that someone needs to take a closer look at the lenders and their practices. I am tired of being the scapegoat as an appraiser. When a lender doesn't have a good feeling on a file - they cut the appraisal. When rates go up and they have a locked file on their desk that they don't want to honor - they cut the appraisal. When the US is in a major crisis - oh! It must be the appraisers fault. So the lowly appraisers at the bottom of the food chain (we don't make that much money - really think GAS costs!) get thrown under the bus! How about stricter desciplinary actions. Start taking licenses away from these "stretch" appraisers. Implement the anonymous tipline so these bad deals, appraisals, appraisers can start owning up to the damage they have caused.

[Corey]

Low fee, and speed is all they want!

From a typical AMC

“Minimum Appraisal Fee (Fee Split)

Please indicate below the minimum fee that you will accept for a full appraisal assignment. Per the contract below, you will be compensated with 55% of the amount, after it has been collected from the client. Our standard full appraisal fee is $350.00, however, some of our high volume clients pay as low or lower than $200.00. The higher the fee you list below, the fewer the assignments you will be eligible for.”

And this

“I agree to the above contract in its entirety.

I agree to communicate results of my initial scheduling attempt within 4 business hours of receiving my assignment.

I agree to deliver my completed reports before the close of business the day after inspection unless directed otherwise.”

So it appears that this AMC pays form $110.00 to $193.50 for a typical single family report, and you must have it back the day after you look at the property. This is what I made 20 years ago. And don’t forget, you must pay for all of your own expenses (Insurance, license, education, car, computer equipment, taxes, and so on), now how much is left for the person who does all of the work?

[Ann Kilday]

It's obvious that this new law is going into effect and there's nothing we (appraisers) can do to stop it. Here's another code of conduct that needs go with the new HVCC...Regulate the fees that AMC's pay and allow appraisers the current cost of living just like any other company and industry allows workers to do. Inforcing the new HVCC law and then allowing AMC's to pay appraisers ridiculous fees, is not only unfair, shameful, and defeats the purpose of being "ethical" altogether, but will eventually produce very sloppy work from appraisers very soon in the future. You get what you pay for!!!

[Jonathan Simpson]

Ann,

Have you read this... I suggest it...

http://appraisalnewsonline.typepad.com/appraisal_news_for_real_e/2008/04/make-your-voice.html