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Washington,
DC – 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.
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.
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