Federal Homes Agencies Team Up to Fight Unethical Appraisals
In a move to uphold better standards for home appraisals, federal homes mortgage sponsors Fannie Mae and Freddie Mac joined forces on Monday to sponsor a new watchdog agency designed to keep an eye on how appraisals are performed in order to curb inflationary home values.
Inflated home values are blamed largely for why the real estate and housing market has taken such a dramatic downturn in recent years. Due to rock-bottom interest rates, widespread real estate development and a rampant seller’s market, many home values soared astronomically during the housing boom of the late 90’s and early 2000’s. Once interest rates rose again and the market slowed, property values fell, and fell hard. Many homebuyers were stuck paying off mortgages that were worth much more that the homes they now occupied, and this led to great losses, since they could not sell off their properties for anywhere near what they paid for them.
Fannie Mae and Freddie Mac are the two largest federal homes loans sponsors in the country, and the fact that they have joined forces is quite significant. Starting in 2009, the two federal homes agencies will only buy home loans from lenders who endorse the new ethical appraisal code of conduct, which attempts to curtail marking up the value of homes in the manner that happened recently and contributed to the market’s fallout.
The federal homes agencies also hope that the new legislation will change the entire process by which homes are appraised and loans are issued. In the past, the lenders had close links to appraisers, and this represents something of a conflict of interest. Once you have lenders having vested interests in the amount at which federal homes are appraised for, it becomes dangerous ethically.
Inflated homes values are also blamed for much of the foreclosure crisis, as bank foreclosure homes often come on the market because homeowners can’t even sell off their properties for enough now to pay off the inflated mortgage loan debt. To many, if this truly is the result of lenders working under questionable conditions with appraisers in deciding loan values, this situation is very unfair.
The move by the federal homes lending agencies is also seen as a reaction to New York state Attorney General Andrew Cuomo’s statement that he would bring lawsuits against Fannie Mae and Freddie Mac if the situation were not soon addressed.
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