Regulator knocks Fannie, Freddie appraisal deal

By Patrick Rucker and Karey Wutkowski

WASHINGTON, April 16 (Reuters) - An effort by Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to put home lenders and appraisers at arm's length is flawed, a top U.S. bank regulator said on Wednesday.

Comptroller of the Currency John Dugan said the deal struck between the two mortgage-finance giants and New York Attorney General Andrew Cuomo in early March will not eliminate flawed appraisals and might unduly burden mortgage companies. The plan would prohibit Fannie Mae and Freddie Mac from buying home loans where the property value is determined by an in-house appraiser.

"It is not clear that the appraisal function should be outside the institution," Dugan said, responding to questions at an Excheqeur Club luncheon.

Dugan said appraisers affiliated with a mortgage lender can bring a level of quality control that might not exist with a third-party institution.

"I don't think you can address all the issues with a blanket prohibition like that," Dugan said.

Dugan said the OCC plans to issue a statement soon about the agency's stance on the new appraisal standards. Regulators are accepting comments on the plan through the end of April. (Reporting by Patrick Rucker and Karey Wutkowski, Editing by Andrea Ricci)