Fighting Back Against Corrupt Appraisals

Late last year, Cuomo began an investigation of potential appraisal fraud in the portfolios of Fannie Mae and Freddie Mac. With what he considered to be evidence of appraisal problems generated by a separate suit involving a major seller of loans to Fannie and Freddie -- Washington Mutual -- Cuomo began negotiations with the two companies and their federal regulator, the Office of Federal Housing Enterprise Oversight.

Cuomo never announced what, if anything, he found amiss at Fannie Mae and Freddie Mac. In the settlement agreement, both companies denied any wrongdoing. First American's eAppraiseIT subsidiary, accused by Cuomo of inflating appraisals under pressure from Washington Mutual, also denied wrongdoing, as did Washington Mutual.

Whatever the causes, Fannie Mae and Freddie Mac agreed to overhaul their appraisal standards and practices, signed on to a detailed home-valuation code of conduct covering all their mortgage activities, and committed to pay $24 million over the next five years to create and staff the independent institute that will oversee appraisals nationwide.

Federal banking regulators are expected to adopt parallel reforms, effectively extending the agreement's reach far beyond Fannie Mae and Freddie Mac to banks, thrift institutions and credit unions.

Mortgage brokers are incensed at what they consider unfair treatment in the settlement, as are some large lenders with financial interests in appraisal management firms.

Roy DeLoach, executive vice president of the 25,000-member National Association of Mortgage Brokers, said the group is exploring legal action. The brokers maintain that the settlement, which DeLoach said amounts to "a de facto regulatory action by OFHEO," failed to follow federal procedural rules.

DeLoach also said he wants the settlement parties to reveal the findings of the investigations into Fannie Mae and Freddie Mac. "What did Cuomo find? How does it relate to brokers? Have they gone after appraisers who submitted inflated valuations? Those are the real questions here," he said.

Absent a federal court order, don't count on answers to these questions soon from any of the parties to the settlement. In the meantime, a new era of independent, better appraisals just might be over the horizon.

Kenneth R. Harney's e-mail address is KenHarney@earthlink.net.