Today the lender orders the appraisal on a loan transaction. Looks like change is on the horizon since this setup is being blamed for inflated home values, fraud and to a degree one of the reasons for the mess we’re in. The issue is also murky because many mortgage companies also own appraisal houses. Also, since the appraiser doesn’t get paid until the loan is closed they are often under pressure to get the “right” answer! They system appears to be in need of a fix according to the Attorney General in New York and today we have an agreement that could have far reaching consequences for how the loan transaction flows.
Fannie Mae (FNM) and Freddie Mac (FRE) reached an agreement with New York Attorney General Andrew Cuomo to only purchase loans that meet new standards designed to ensure independent, reliable appraisals.
Included would be no longer buying mortgages in which the brokers selected appraisers or when lenders used “in-house” staff appraisers or appraisal- management companies they own or control.
Cuomo said the mortgage giants also have agreed to create an independent organization to implement and monitor the new appraisal standards to be funded with $24 million from Fannie and Freddie. Their regulator – the Office of Federal Housing Enterprise Oversight – also has agreed to the creation of the independent institute, to be called the Independent Valuation Protection Institute. The institute will report to the attorney general’s office and Ofheo on a biannual basis.
The moves, which will be effective Jan. 1, come amid wide sentiment that inflated appraisals have been an important contributor to the mortgage crisis.