Questions and answers about home appraisals in an era of mass foreclosures:
Q: What is a house worth?
A: Whatever an appraiser says it’s worth, even if the appraiser works for a mortgage company.
Q: Why wouldn’t a mortgage lender test the market with an independent appraisal?
A: A mortgage company wants to write as fat a loan as it can, bagging fees and commissions. Independent appraisals get in the way.
Q: Doesn’t a mortgage lender worry about defaults on properties with inflated appraisals?
A: Absolutely not. Long before the foreclosure notices go out, it can sell the loans to one of two government-sponsored lenders, Fannie Mae or Freddie Mac, which purchase almost 80 percent of all U.S. home loans.
Q: Freddie and Fannie have rigorous federal oversight. Surely the government is not so stupid as to buy millions of loans based on dubious in-house appraisals?
A: Yes. It is.
Q: What does the Office of Federal Housing Enterprise Oversight, which oversees Fannie and Freddie, have to say about this?
A: OFHEO director James Lockhart wrote in November that Freddie and Fannie “have no economic incentive to knowingly purchase or guarantee mortgages with inflated appraisals.” He also insisted these mortgage buyers “already have programs in place to prevent … mortgage fraud.”
Q: Is he an idiot?
A: He took it as an affront when Andrew Cuomo, New York’s attorney general, started investigating appraisals on loans Freddie and Fannie were buying. “I am disappointed that your office did not contact OFHEO before or even after subpoenaing (Fannie and Freddie) and issuing certain threats regarding their future business activity,” he wrote.
Q: But Cuomo is just another Eliot Spitzer, out to make a name bashing big business, right?
A: Right. And like Spitzer’s probes of Wall Street, Cuomo will never peel the onion to its core. In fact, he agreed Monday to drop his investigation if Fannie and Freddie would stop buying loans from lenders that aren’t using independent appraisers. “We believe the appraisals were often fraudulent because of a conflict of interest and pressure on the appraisers,” Cuomo told The Associated Press.
Q: That’s it?
A: Fannie and Freddie also will pay $24 million to create the Independent Valuation Protection Institute, which will take complaints about bogus appraisal practices. And lenders will have to conform with the Home Valuation Protection Code in 2009.
Q: So what do these government- sponsored mortgage buyers have to say for themselves now?
A: “These initiatives clearly serve the interests of the nation’s homebuyers, the housing markets and the broader economy,” said Robert Bostrom, Freddie Mac’s general counsel. And, “We are pleased to work with regulators to do our part to ensure sound, accurate, independent and reliable appraisals,” said Fannie Mae general counsel Beth Wilkinson.
Q: If this was such a good idea, why did it take a national foreclosure crisis to prompt a state attorney general to think of it?
A: Good question.
Respond to Al Lewis at , 303-954-1967 or alewis@denverpost.com.
