Mortgage Appraisal Reform – NY Attorney General Pushes for Agreement

Andrew M. Cuomo, New York Attorney General, announced agreement between his office and Freddie Mac and Fannie Mae allowing the two largest purchasers of home loans to buy only from those lenders that meet new standards for appraisals.

An independent organization will be established to implement and monitor new appraisal standards. The following was agreed to:

  • Establishment of the “New Home Valuation Protection Code,” which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. Under the new code mortgage brokers will be prohibited from selecting appraisers and lenders will be prohibited from using “in-house” staff appraisers to conduct initial appraisals or from using appraisal management companies that they own or control.
  • Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the new code or they will not be purchased.
  • The new “institute” which will be funded with $24 million from Fannie and Freddie will field complaints from appraisers who believe that their independence has been compromised and will protect those appraisers from retaliation. The institute will also establish a nationwide consumer hotline to manage complaints about appraisal fraud or violations of the new code. The institute will be funded with $24 million from Fannie Mae and Freddie Mac and will be required to report to OFHEO and the Attorney General’s office on a regular basis.

As reported in this blog, many of the mortgage fraud schemes revolve around fraudulent and/or inaccurate appraisals. Many appraisal companies are actively involved in the fraud schemes by inflating the appraisals on the properties in question. In some cases, they are paid a kickback based on the excess funding generated from the bogus loans and mortgage frauds.

The following quotes were from Mortgage Daily News: “Today’s agreement with Fannie Mae and Freddie Mac begins to set right what had gone so horribly wrong in the mortgage industry – rampant appraisal fraud,” said Cuomo. “The integrity of our mortgage system depends on independent appraisals. Again and again our industry-wide investigation found that banks were putting pressure on appraisers to drive up the value of loans just to make a quick buck. We believe the new standards, and the new independent monitor agreed to today, can begin to erase this problem from the industry.”

“Accurate, independent appraisals are very important to ensuring the safety and soundness of Fannie Mae and Freddie Mac and the mortgage market,” said OFHEO Director James Lockhart. “OFHEO is committed to working closely with fellow regulators, the Attorney General, Fannie Mae, Freddie Mac, appraisers, lenders and other market participants to assure that the roll-out of the new code builds upon best practices, recognizes constructive comments to identify further refinements, and avoids unintended consequences.”

According to the Office of Federal Housing Enterprise Oversight, “There are many significant provisions in the agreements that are designed to strengthen the independence of appraisers, including eliminating broker-ordered appraisals, prohibiting appraiser coercion, and reducing the use of appraisals prepared in-house or through captive appraisal management companies in underwriting mortgages.”


  1. Is this too little too late to correct the seemingly rampant fraud in the mortgage industry?
  2. Will agreements like this become the norm as government sets out to ensure against mortgage fraud?
  3. Should the industry be allowed to govern itself in light of the issues and mortgage crisis we face?

Your comments are welcome! Ethics and White Collar Crime Speaker – Chuck Gallagher – signing off…

2 Responses to Mortgage Appraisal Reform – NY Attorney General Pushes for Agreement

  1. Chuck Gallagher,

    Your articles are always very informative. The Maverick Residential Mortgage article was especially insiteful. It was a great example of how quickly things can get out of hand. When companies grow fast without a quality security check in place.

    Nice work on this one as well! The problem here is not only that lenders apply pressure to appraisers. It goes much deeper. Lenders, Appraisal Management Companies, Brokers, Builders, etc apply the pressure. Pressure comes from all of these sources and more! Appraisal Management Companies are not any better. They are going to do what the lender wants every time. many of them are owned by the lenders. It’s a way for the lender to profit from the appraisal and not disclose it to the consumer! Management companies are not the answer to this problem. It is not resonable to think that these companies are going to make a difference. They only increase the problem. The management companies are profit driven and drive quality services away. Leaving consumers with low quality appraisal work because management companies rotate tward the product with the cheapest price. At the same time this is going on, the lender is telling the consumer that they are only paying for an appraisal fee, but actually, they are paying for an appraisal fee plus an appraisal management fee. Many times these appraisal management companies accept orders to complete appraisal work and they have no qualifications and do not employ anyone that is qualified to complete or accept the appraisal assignment. Often times they claim to employee these professionals, but actually contract independent fee appraisers to complete these assignments. They do not staff W-2 employees. They are not employees at all. They are 1099 independant contractors that work for seperate companies. Appraisal Managment companies often do not have anyone that is qualified to accept an appraisal assignment according to USPAP regulations or Appraisal Law. Not only are consumers being charged for appraisal managment services which should constitute an unearned fee, but the appraisal management company and the lender deceive the consumer by not disclosing this information. The management company makes the difference between what they can charge the lender or consumer and the lowest price that they are able to get the work done. In some instances these companies are making as much or more than the appraiser. These managment companies are going make things better? If a bank, lender, broker, etc, wants to profit from an appraisal they need only set up a management company and keep a portion of the appraisal fee without any appraisal education or regard for USPAP (Appraisal Law). These companies are just as deceptive as the lenders that apply pressure. They may even be a bigger problem.

    I encourage you to learn more at:

    Sign the Appraisal Management Petition:

  2. To whom it may concern,

    My name is Pieter, i am a certified residential appraiser in the state of california. I read the article and onestly i totally agree with the new changes that will occur beginning 2009. Up until now i had to deal with several lenders/brokers that from time to time were pushing for value. You had no idea of how many appraisals orders i left on the table just because i believe in my profession and most of all i belive in FAIR market value , which is what we appraisers have to look for. And i believe in justice, in doing the things RIGHT. Now all these new changes will eliminate at least the biggest part of it. But my questions now is this and is very simple: How do ONEST appraisers like i consider myself to be stay in business with these new regulations? Where will we get business from? In other words, what do we have to do to keep practicing our profession? Would somebody be so kind to reply to my questions at my e-mail address please with the answers please?? That would be very much appreaciated!! Thanls a lot. Pieter

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