Fannie and Freddie to raise appraisal standards

Bowing to pressure from New York Attorney General Andrew Cuomo, GSE giants Fannie Mae and Freddie Mac have agreed to institute new standards for appraisals related to the loans they buy in order to avoid potential collusion between lenders and appraisers. While I'm sort of curious why this wasn't done years ago (and along the lines of the City of Los Angeles' self-congratulatory press release for finally getting around to synchronizing 75% of the city's traffic lights, with the remaining 25% along the routes I tend to travel), it's an important step in giving lenders the confidence to open up the credit lines for an eventual housing rebound. From an L.A. Times story:

Mortgage giants Fannie Mae and Freddie Mac agreed today to revamp their home-appraisal standards to eliminate the type of alleged fraud that contributed to the nationwide housing bubble.

In a legal agreement with New York Atty. Gen. Andrew Cuomo, the two companies said they would only purchase home loans from banks that follow rigid new rules setting out how home appraisals can be conducted.

Fannie Mae and Freddie Mac can't purchase loans from banks that use their own staff or affiliated companies to conduct appraisals, according to the guidelines. The rules also would bar mortgage brokers from selecting appraisers.

Amid the housing downturn, a critical spotlight has been turned on the home-appraisal process. Home appraisers are supposedly independent experts, but many have long complained that they are pressured to give sky-high valuations by mortgage brokers and lenders who collect fees based on the dollar value of loans they make...

Fannie Mae and Freddie Mac are government-chartered companies that buy mortgages from lenders, freeing the banks to make many more loans than they could if they kept the loans on their books...

In November, Cuomo filed a civil suit accusing a home-appraisal unit of Santa Ana-based First American Corp. of inflating the value of homes nationwide, thereby encouraging consumers to pay too much for them or to borrow against equity they didn't have. First American inflated the home values at the behest of home lender Washington Mutual Inc., alleged the suit, which is still pending.