Make us your home page
Instagram
The Nation's Housing

Home appraisal system sinks under its own weight

WASHINGTON — Property appraisers have been warning about it for a decade, and the real estate market is reaping the whirlwind: The price declines under way across the country are partly the result of systemic, intentional overvaluations on home appraisals, many at the behest of loan officers illegally influencing or threatening appraisers to "hit the number" needed to close the deal.

But if an extraordinary new legal settlement has its intended effect, that system will be changed radically in the coming months.

• Most lenders won't be able to fund new mortgages without guaranteeing that the underlying property valuations are free of influence or pressure, and fully conform to a new national quality code for appraisals.

• Appraisers and consumers will have new complaint hotlines to report any of a long list of prohibited forms of appraisal interference by loan officers, realty agents and others.

• Lenders who have in-house appraisal staffs or who have financial interests in appraisal management companies won't be allowed to use valuations generated by those services if they want to sell loans into the secondary mortgage market.

• Mortgage brokers, who originate an estimated 50 to 60 percent of all home loans, will be cut out of the appraiser selection process altogether.

• National oversight of home real estate appraisals will be turned over to a new Independent Valuation Protection Institute that will monitor the accuracy of home appraisals and automated valuations, receive and mediate complaints, or forward them to federal and state regulators.

These and other sweeping changes are contained in a settlement among the two congressionally chartered mortgage investors (Fannie Mae and Freddie Mac), the attorney general of New York, and the federal agency that oversees Fannie and Freddie.

The settlement terms are still open to comment from the mortgage industry and general public, but the core quality standards for appraisals already are in effect for loans delivered to Fannie or Freddie. The entire agreement is scheduled to take full effect Jan. 1.

Many consumers might ask: What's the big deal here? Aren't accurate appraisals in everybody's interest and long overdue? Absolutely. But in several ways, the new agreement is unprecedented. Fannie Mae and Freddie Mac are federally regulated corporations, answerable to Congress. Normally they don't kowtow to state governments.

But using a 1921 securities fraud law that is unique to his state, New York Attorney General Andrew M. Cuomo brokered an agreement that transcends the normal reach of state governments, one that could eventually touch almost every home mortgage transaction nationwide.

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

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

Whatever the causes, Fannie and Freddie 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 in 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 and Freddie to banks, thrift institutions and credit unions.

Mortgage brokers are incensed at what they consider their unfair treatment in the settlement, as are some large lenders who have 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 because the settlement, which he says amounts to "a de facto regulatory action by OFHEO," failed to follow federal procedural rules.

In an interview, DeLoach also demanded that settlement parties reveal the findings of the investigations into Fannie and Freddie. Referring to the matter as "appraisergate," he asked, "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."

Without 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 on the horizon.

E-mail Kenneth R. Harney at

kenharney@earthlink.net.

Home appraisal system sinks under its own weight 03/14/08 [Last modified: Friday, March 14, 2008 6:00am]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Special to the Times.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. A meatless burger that tastes like meat? Ciccio Restaurants will serve the Impossible Burger.

    Food & Dining

    TAMPA — The most red-hot hamburger in the nation right now contains no meat.

    Luis Flores, executive chef at Ciccio Restaurant Group, prepares an Impossible Burger at Epicurean Hotel's Food Theatre. Impossible Burger is a plant-based burger that will launch on Sept. 27, 2017 in all the Ciccio Restaurant Group locations, except for Fresh Kitchen. "This burger caters to the carnivorous, not just the vegetarians" said Jeff Gigante, co-founder at Ciccio Restaurant Group. ALESSANDRA DA PRA  |   Times
  2. Construction starts on USF medical school, the first piece of Tampa's Water Street project

    Health

    TAMPA — Dozens of workers in hard hats and boots were busy at work at the corner of South Meridian Avenue and Channelside Drive Wednesday morning, signaling the start of construction on the University of South Florida's new Morsani College of Medicine and Heart Institute.

    Construction is underway for the new Morsani College of Medicine and USF Health Heart Institute in downtown Tampa. This view is from atop Amalie Arena, where local officials gathered Wednesday to celebrate the first piece of what will be the new Water Street District. The USF building is expected to open in late 2019. [ALESSANDRA DA PRA  |   Times]
  3. Tampa Bay among top 25 metro areas with fastest growing economies

    Economic Development

    Tampa Bay had the 24th fastest growing economy among 382 metro areas in the country for 2016. According to an analysis by the U.S. Bureau of Economic Analysis, Tampa Bay's gross domestic product, or GDP, increased 4.2 percent from 2015 to 2016 to hit $126.2 billion.

    Tampa Bay had the 24th fastest growing economy in the country for 2016. Rentals were one of the areas that contributed to Tampa Bay's GDP growth. Pictured is attorney David Eaton in front of his rental home. 
[SCOTT KEELER | Times]
  4. Tampa Bay cools down to more moderate home price increases

    Real Estate

    The increase in home prices throughout much of the Tampa Bay area is definitely slowing from the torrid rate a year ago.

    This home close to Bayshore Boulevard in Tampa sold for $3.055 million in August, making it Hillsborough County's top sale of the month. [Courtesy of Bredt Cobitz]
  5. With successful jewelry line, Durant High alum Carley Ochs enjoys 'incredible ride'

    Business

    BRANDON

    As a child Carley Ochs played dress up, draped in her grandmother's furs.

    Founder Carley Ochs poses for a portrait in her Ford Bronco at the Bourbon & Boweties warehouse in Brandon, Fla. on September 19, 2017. Ochs is a Durant High and Florida State University graduate.