…the title…imagine the voice of Captain Jack Sparrow’s first mate…arrr

OFHEO and NYS Attorney General Andrew Cuomo reached a deal today that may help create an environment for appraisers to be independent. Karen Freifeld and Sharon L. Lynch’s Bloomberg News article Fannie, Freddie to Overhaul Appraisals in Cuomo Deal says:

>”The goal of the office is to find out what went wrong and how to fix the problem,” Cuomo said today at a news conference. “What we identified as the common denominator, if you will, was appraisal valuation.”

>”We believe the appraisals were often fraudulent because there were conflicts of interest and pressure on the appraisers,” Cuomo said.

Cuomo strategy was to get the GSEs to agree and the other markets will follow.

And long time mortgage lending critic NY Senator Charles Shumer chimes in:

>”Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae, Freddie Mac and the mortgage market,” Lockhart said in a statement. “The agreements should help restore confidence in the mortgage market by enhancing underwriting practices, reducing mortgage fraud and making home valuations more reliable.”

In James R. Hagerty and Amir Efrati’s WSJ article Fannie, Freddie Set
Stricter Appraisal Rules quotes me:

>”In my opinion, 70% to 80% of appraisals that were done during the housing boom are probably not worth the paper they’re written on because the appraisers…were rewarded with more volume,” said Jonathan J. Miller, a New York appraiser and longtime critic of industry practices. He estimates that home values are overvalued nationwide by at least 10% because of inflated appraisals.

My significant concerns over appraisal management companies aside, important element of this agreement are spelled out in the Home Valuation Code of Conduct.

The first part of the code was what interested me most:

No employee, director, officer, or agent of the lender, or any other third party
acting as joint venture partner, independent contractor, appraisal management
company, or partner on behalf of the lender, shall influence or attempt to
influence the development, reporting, result, or review of an appraisal through
coercion, extortion, collusion, compensation, instruction, inducement,
intimidation, bribery, or in any other manner including but not limited to:

1. withholding or threatening to withhold timely payment for an appraisal
report;

2. withholding or threatening to withhold future business for an appraiser, or
demoting or terminating or threatening to demote or terminate an
appraiser1;

3. expressly or impliedly promising future business, promotions, or increased
compensation for an appraiser;

4. conditioning the ordering of an appraisal report or the payment of an
appraisal fee or salary or bonus on the opinion, conclusion, or valuation to
be reached, or on a preliminary estimate requested from an appraiser;

5. requesting that an appraiser provide an estimated, predetermined, or
desired valuation in an appraisal report, or provide estimated values or
comparable sales at any time prior to the appraiser’s completion of an
appraisal report;

6. providing to an appraiser an anticipated, estimated, encouraged, or desired
value for a subject property or a proposed or target amount to be loaned to
the borrower, except that a copy of the sales contract for purchase
transactions may be provided;

7. providing to an appraiser, appraisal management company, or any entity
or person related to the appraiser or appraisal management company, stock
or other financial or non-financial benefits;

8. allowing the removal of an appraiser from a list of qualified appraisers
used by any entity, without prior written notice to such appraiser, which
notice shall include written evidence of the appraiser’s illegal conduct, a
violation of the Uniform Standards of Professional Appraisal Practice (USPAP. or state licensing standards, substandard performance, or
otherwise improper or unprofessional behavior;

9. ordering, obtaining, using, or paying for a second or subsequent appraisal
or automated valuation model in connection with a mortgage financing
transaction unless there is a reasonable basis to believe that the initial
appraisal was flawed or tainted and such basis is clearly and appropriately
noted in the loan file, or unless such appraisal or automated valuation
model is done pursuant to a bona fide pre- or post-funding appraisal
review or quality control process; or

10. any other act or practice that impairs or attempts to impair an appraiser’s
independence, objectivity, or impartiality.

arrrrgh, matey (sorry – but I have been waiting for years for some progress on this).

Update: Large lenders agree to new appraisal codes [UPI]

Update 2: In Deal With Cuomo, Mortgage Giants Accept Appraisal Standards [NYT]