NEW YORK (Reuters) - Fannie Mae and Freddie Mac have agreed on a revised code of conduct that aims to improve the reliability of appraisals on mortgage loans purchased by the two home funding companies, their regulator said on Tuesday.
Among the main changes is that lenders will be able to use in-house assessors, which was banned in the initial code of conduct, but must use various firewalls to ensure their independent views. The intent is to prevent improper influence in the valuation process, according to the agreement.
The amended guidelines were agreed upon by the two companies and their regulator, the Federal Housing Finance Authority, as well as New York Attorney General Andrew Cuomo.
“The Code strikes a balance of assuring enhanced protections for appraisers while maintaining lender ability to address unprofessional appraisal practices and to perform quality controls on appraisals received,” FHFA Director James Lockhart said in a statement.
The new program will be implemented for single-family mortgages delivered to Fannie Mae FNM.P FNM.N and Freddie Mac FRE.N FRE.P starting May 1.
“Erecting and enforcing meaningful firewalls between appraisers and lenders, and forcing Fannie and Freddie to stop working with unscrupulous lenders and brokers, are key steps in cleaning up the mortgage industry and avoiding another crisis like this in the future,” Cuomo said in a statement.
Last year, Cuomo launched an investigation to determine if home appraisers were inflating home values, contributing to the housing bubble that burst into the worst market since the Great Depression.
The new agreement prohibits lenders from providing appraisers with a target value for the property or loan amount requested by the borrower.
Also under the agreement, an appraisal watchdog called the Independent Valuation Protection Institute will be created.
The two companies, both taken under government control in September, struck a deal in March with their regulator and Cuomo regarding new standards for mortgage appraisers.
These revisions come after criticisms including from John Dugan, head of the Office of the Comptroller of the Currency and industry groups.
Dugan wrote in a May letter that real estate appraisals should be conducted free from influence and coercion by lenders, brokers and other mortgage players. Forcing lenders to use outside appraisers could undermine the quality and reliability of valuations and could raise costs to consumers, he said.
Reporting by Lynn Adler; Editing by Diane Craft