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Fannie and Freddie Agree to New Appraisal Guidelines

[Dec 29, 2008.]


Fannie Mae and Freddie Mac have agreed on a revised code of conduct that aims to improve the reliability of appraisals on mortgage loans purchased by the two home funding companies.

The agreement is a compromise between New York Attorney General Andrew Cuomo, lenders, and regulators.

The goal of the plan is to prevent lenders and loan officers from strong-arming appraisers to appraise homes at values much higher than the market supports. Many in the industry cite inflated appraisals as one of the primary causes of the housing crisis we face today.

Mr. Cuomo had originally tried to preclude lenders from using appraisals from appraisers employed directly by the lender or a company controlled by the lender. He has agreed to a revised version of a plan which would require that lenders put into place various procedures to insulate appraisers from any pressure to meet certain values on appraisals.

In a Boston Globe article, Cuomo was quoted as saying, "Erecting and enforcing meaningful firewalls between appraisers and lenders, and forcing Fannie and Freddie to stop working with unscrupulous lenders and brokers, are key steps in cleaning up the mortgage industry and avoiding another crisis like this in the future."

The new plan is intended to go into effect on May 1st, 2009.

Those consumers planning to refinance should not see much of an impact from this new agreement. There are strict guidelines appraisers must follow when appraising homes and lenders have become more vigilant in ensuring the appraisals submitted to underwriting reflect the true value of a home.

A greater concern for homeowners looking to refinance their mortgage is the continuing decline in home values.


About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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