Legislation that would grant a plea by the National Association of Realtors to suspend for 18 months new rules governing appraisals conducted on loans purchased by Fannie Mae and Freddie Mac has been introduced in the House of Representatives.
Rep. Travis Childers, D-Miss., is sponsoring the bill, HR 3044, and Rep. Gary Miller, D-Calif., is the lone co-sponsor to date. The bill, which would impose an 18-month moratorium on the Home Valuation Code of Conduct, was introduced June 25 and referred to the House Committee on Financial Services.
Critics say that after the code went into effect on May 1, lenders began relying more on appraisal management firms employing appraisers who lacked experience in their local markets. Some appraisers are also relying too heavily on distressed properties when identifying comparable sales in valuing nondistressed properties, critics say.
NAR and the National Association of Home Builders believe that low appraisals derailed many sales in May. A trade association representing appraisers, the Appraisal Institute, has also raised concerns about the code, but maintains that when appraisals don’t not match the sales price, the fault is with the market, not the appraisal (see story).
The code, which does not apply to jumbo loans, FHA or VA loans, was intended to protect appraisers from pressure by lenders to hit predetermined values. It prohibits mortgage brokers originating loans to be purchased by Fannie and Freddie from ordering appraisals directly, and requires bank loan officers to delegate the process of ordering appraisals to other in-house staff or to go through an appraisal management company.
Fannie Mae and Freddie Mac and their federal regulator, the Federal Housing Finance Agency, agreed to abide by the code after New York Attorney General Andrew Cuomo subpoenaed Fannie and Freddie as part of an investigation into the packaging of mortgage loans into securities sold to Wall Street investors.
In November 2007, the state of New York sued First American Corp. and its appraisal management subsidiary, eAppraiseIT, accusing the companies of bowing to pressure from Washington Mutual to inflate property appraisals. WaMu was not named in the suit, which is ongoing, and the companies have denied wrongdoing (see story).
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