New York Attorney General Andrew Cuomo said Monday that prospective homebuyers will be protected from fraudulently inflated home prices...
ALBANY, N.Y. — New York Attorney General Andrew Cuomo said Monday that prospective homebuyers will be protected from fraudulently inflated home prices under a new agreement with government-sponsored lenders Fannie Mae and Freddie Mac.
Cuomo said lenders have pressured appraisers to bump up the listed value of homes, contributing to a national mortgage crisis that is forcing families into foreclosure.
Under the agreement, which ends Cuomo’s investigation into the two companies, lenders won’t be allowed to use in-house staff for initial appraisals and will be prohibited from using appraisal management companies that they own or control.
Most Read Business Stories
- The penthouse atop Smith Tower is on the rental market for the first time
- Downtowns will be back, but Seattle has choices to make
- Boutique cruise line Windstar will move its Seattle headquarters to Miami
- Zillow’s price estimates are now cash offers in homebuying push
- FCC approves $50 monthly high-speed internet subsidy for low-income households
Fannie Mae and Freddie Mac purchase nearly 80 percent of all home loans originated in the U.S., Cuomo said in a phone interview.
“We believe the appraisals were often fraudulent because of a conflict of interest and pressure on the appraisers,” Cuomo said. “To us, this issue was a pervasive issue that needed to be solved.”
The companies will require lenders to conform to the code beginning in 2009.
“It’s going to create massive change,” said Brian Chappelle, a partner at Potomac Partners in Washington, D.C., a consulting firm to the mortgage industry.
He said mortgage lenders that own appraisal companies — such as Wells Fargo and Countrywide Financial — may have to spin off those divisions because of the new prohibitions against in-house appraisals.
Fannie Mae and Freddie Mac will pay $24 million to create an institute that will monitor adherence to the valuation code.
“These initiatives clearly serve the interests of the nation’s homebuyers, the housing markets and the broader economy,” said Robert Bostrom, Freddie Mac’s general counsel.
A nationwide hotline will be set up for consumers who suspect fraudulent appraisals or fraud. Appraisers who feel pressure to pad valuations can also contact the institute, under the agreement.
Cuomo has been investigating billions of dollars of home loans that Fannie and Freddie bought from banks, including the largest U.S. savings and loan, Seattle-based Washington Mutual.
In November, after Cuomo issued the subpoenas to Fannie Mae and Freddie Mac, the companies’ overseer, Office of Federal Housing Enterprise Oversight Director James Lockhart, accused Cuomo of overstating the risks the two government-sponsored companies faced from faulty home appraisals. Lockhart objected to Cuomo saying Fannie and Freddie could no longer afford to continue buying mortgages from Washington Mutual unless they could verify the loans were based on trustworthy appraisals.