Alert March 11, 2008

New York AG, OFHEO, Fannie Mae, and Freddie Mac Agree to New Appraisal Standards

The New York Attorney General, the Office of Federal Housing Enterprise Oversight, Fannie Mae, and Freddie Mac entered into cooperation agreements that require Fannie Mae and Freddie Mac to buy loans only from lenders that meet new standards designed to ensure independent and reliable appraisals. The agreements establish the “New Home Valuation Protection Code” which, among other things: (1) prohibits second appraisals unless there is a reasonable basis to believe the initial appraisal was flawed; (2) prohibits mortgage brokers from selecting appraisers; (3) prohibits lenders from using an appraisal prepared by an appraiser employed by the lender, an affiliate of the lender or an entity in which the lender has an ownership interest; and (4) prohibits lenders from using appraisal management companies that they, or an affiliate, own or control. Beginning January 1, 2009, the Code will be applied to lenders selling mortgage loans to Fannie Mae and Freddie Mac. The agreements also create the “Independent Valuation Protection Institute,” an independent organization that will implement and monitor the Code, establish a complaint hotline for consumers to call with appraisal fraud concerns, and serve as a contact for appraisers who believe that their independence has been compromised. The new standards follow an investigation of Freddie Mac’s appraisal practices by the New York AG. Click here for a copy of the Code and here for more information.