NEW YORK ATTORNEY GENERAL CUOMO ANNOUNCES AGREEMENT WITH FANNIE MAE, FREDDIE MAC, AND OFHEO
News from Attorney General Andrew M. Cuomo
Department of Law Department of Law120 Broadway The State Capitol
New York, NY 10271 Albany, NY 12224
FOR IMMEDIATE RELEASENew York City Press Office / 212-416-8060Albany Press Office / 518-473-5525nyag.pressoffice@oag.state.ny.us
NEW YORK ATTORNEY GENERAL CUOMO ANNOUNCES AGREEMENT WITH FANNIE MAE,FREDDIE MAC, AND OFHEO~Nation’s Two Largest Purchasers of Home Loans Agree to Only BuyMortgages From Banks That Meet Requirements of New Home Value ProtectionCode~Independent Institute Established with $24 Million from Fannie Mae andFreddie Mac to Implement and Monitor Code~Senator Schumer Praises Agreement
NEW YORK, NY (March 3, 2008) – Attorney General Andrew M. Cuomo todayannounced that the nation’s two largest purchasers of home loans,Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), have entered intocooperation agreements requiring them to only buy loans from banks thatmeet new standards designed to ensure independent and reliableappraisals.
The agreements, among the New York Attorney General, Fannie Mae,Freddie Mac and their federal regulator, the Office of Federal HousingEnterprise Oversight (OFHEO), also create an independent organization toimplement and monitor the new appraisal standards. Senator CharlesSchumer, Chair of the Senate Banking Committee’s Housing Subcommittee,praised the agreement and the reforms which he has supported.
“With this agreement, Fannie Mae and Freddie Mac have become leadersin transforming the mortgage industry,” said Cuomo. “Now nationalbanks have a clear choice: immediately adopt the new code and clean upappraisal fraud in the mortgage industry or stop doing business withFannie Mae and Freddie Mac – it is that simple.”
Fannie Mae and Freddie Mac, which purchase roughly 60 percent of allhome loans originated in the United States, have agreed to thefollowing:
● Establishment of the “New Home Valuation Protection Code,”(the “Code”), which creates requirements governing appraisalselection, solicitation, compensation, conflicts of interest andcorporate independence, among other reforms. (Full Code Attached). Underthe new Code:
o Mortgage Brokers will be prohibited from selecting appraisers;
o Lenders will be prohibited from using “in-house” staffappraisers to conduct initial appraisals and
o Lenders will be prohibited from using appraisal managementcompanies that they own or control.
● Banks will be required to adhere to Code. Beginning January 1,2009, Fannie Mae and Freddie Mac will require that lenders represent andwarrant that appraisals related to mortgage loans originated on or afterJanuary 1, 2009 conform to the code or they will not be purchased.
● Formation of the “Independent Valuation ProtectionInstitute,” (the “Institute”), a new organization which willimplement and monitor the Code. The Institute, which will be funded with$24 million from Fannie Mae and Freddie Mac, will also:
o Establish a complaint hotline for consumers nationwide to callif they believe the appraisal process has been tainted or if they havebeen harmed by appraisal fraud.
o Serve as a contact for appraisers themselves if they believetheir independence has been compromised. These complaints will behandled confidentially to protect appraisers from retaliation. TheInstitute will mediate complaints, or can forward them to theappropriate federal or state law enforcement agency or regulator.
o Report publicly on its activities to the New York AttorneyGeneral and OFHEA on a bi-annual basis.
o Appoint a Board of Directors which must be approved by both theNew York Attorney General and OFHEO.
“Today’s agreement with Fannie Mae and Freddie Mac begins to setright what had gone so horribly wrong in the mortgage industry –rampant appraisal fraud,” said Cuomo. “The integrity of our mortgagesystem depends on independent appraisals. Again and again ourindustry-wide investigation found that banks were putting pressure onappraisers to drive up the value of loans just to make a quick buck. Webelieve the new standards, and the new independent monitor agreed totoday, can begin to erase this problem from the industry. I want toparticularly thank Senator Schumer for all of his help in readying thisimportant agreement today.”
Senator Schumer worked with OFHEO to gain regulatory approval of theagreement. In January, Schumer wrote a letter to OFHEO Director JamesLockhart seeking the agency's cooperation with Cuomo's negotiations withthe GSEs. The final agreement reached today involves a major provisionof legislation introduced last May by Schumer that would imposefirst-of-its-kind regulations on mortgage brokers.
"This settlement represents one of the first major blows against thetypes of predatory lending that were so prevalent in the mortgagebusiness of the last few years. Appraisal fraud has left millions ofAmericans unable to afford their homes and has created a drag on theAmerican economy. This agreement will reduce the conflicts of interestand economic incentives that made appraisal abuse and fraud so easy andattractive to lenders," Senator Schumer said.
"Accurate, independent appraisals are very important to ensuring thesafety and soundness of Fannie Mae and Freddie Mac and the mortgagemarket," said OFHEO Director James Lockhart. “OFHEO is committed toworking closely with fellow regulators, the Attorney General, FannieMae, Freddie Mac, appraisers, lenders and other market participants toassure that the roll-out of the new code builds upon best practices,recognizes constructive comments to identify further refinements, andavoids unintended consequences."
“We are pleased to work with regulators to do our part to ensuresound, accurate, independent and reliable appraisals,” Fannie MaeGeneral Counsel Beth Wilkinson said. “As the nation’s leadingpurchaser of mortgage loans in the secondary market, Fannie Mae sharesthe interests of consumers in the integrity of the home valuationprocess, which is an important part of a well functioning market.”
"Accurate appraisals are fundamental to Freddie Mac's effective creditrisk management - as evidenced by our leadership in quality controlprograms and assistance with criminal prosecutions of mortgage fraud.The Code of Conduct announced today enhances the independence andaccuracy of the appraisal process. And it builds on our company'slong-standing efforts to fight mortgage fraud by providing strong newprotections for homebuyers, mortgage investors and the housing market.In addition, we look forward to working with the New York AttorneyGeneral, OFHEO, Fannie Mae and other mortgage market participants inlaunching the Independent Valuation Protection Institute. By fundingthe Institute, we are advancing the development and adoption of bestpractices in the appraisal process, " said Freddie Mac Executive VicePresident andGeneral Counsel Robert Bostrom.
For more than a year, the Attorney General’s office has conducted anindustry-wide investigation into mortgage fraud. On November 7, 2007,Cuomo announced he had issued Martin Act subpoenas to Fannie Mae andFreddie Mac seeking information on the mortgage loans the companiespurchased from banks, including Washington Mutual, the nation’slargest savings and loan. The subpoenas also sought information on thedue diligence practices of Fannie Mae and Freddie Mac, and theirvaluations of appraisals.
The subpoenas came on the heels of the filing of a lawsuit by theAttorney General against First American and its subsidiary eAppraiseIt.The lawsuit, announced on November 1, 2007, detailed a scheme innumerous e-mails showing First American and eAppraiseIT caved topressure from Washington Mutual to use appraisers who provided inflatedappraisals on homes. E-mails also show that executives at First Americanand eAppraiseIT knew their behavior was illegal, but intentionally brokethe law to secure future business with Washington Mutual. Between April2006 and October 2007, eAppraiseIT provided over 250,000 appraisals forWashington Mutual. The lawsuit is still pending, and the industry-wideinvestigation into mortgage fraud continues.
Department of Law Department of Law120 Broadway The State Capitol
New York, NY 10271 Albany, NY 12224
FOR IMMEDIATE RELEASENew York City Press Office / 212-416-8060Albany Press Office / 518-473-5525nyag.pressoffice@oag.state.ny.us
NEW YORK ATTORNEY GENERAL CUOMO ANNOUNCES AGREEMENT WITH FANNIE MAE,FREDDIE MAC, AND OFHEO~Nation’s Two Largest Purchasers of Home Loans Agree to Only BuyMortgages From Banks That Meet Requirements of New Home Value ProtectionCode~Independent Institute Established with $24 Million from Fannie Mae andFreddie Mac to Implement and Monitor Code~Senator Schumer Praises Agreement
NEW YORK, NY (March 3, 2008) – Attorney General Andrew M. Cuomo todayannounced that the nation’s two largest purchasers of home loans,Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), have entered intocooperation agreements requiring them to only buy loans from banks thatmeet new standards designed to ensure independent and reliableappraisals.
The agreements, among the New York Attorney General, Fannie Mae,Freddie Mac and their federal regulator, the Office of Federal HousingEnterprise Oversight (OFHEO), also create an independent organization toimplement and monitor the new appraisal standards. Senator CharlesSchumer, Chair of the Senate Banking Committee’s Housing Subcommittee,praised the agreement and the reforms which he has supported.
“With this agreement, Fannie Mae and Freddie Mac have become leadersin transforming the mortgage industry,” said Cuomo. “Now nationalbanks have a clear choice: immediately adopt the new code and clean upappraisal fraud in the mortgage industry or stop doing business withFannie Mae and Freddie Mac – it is that simple.”
Fannie Mae and Freddie Mac, which purchase roughly 60 percent of allhome loans originated in the United States, have agreed to thefollowing:
● Establishment of the “New Home Valuation Protection Code,”(the “Code”), which creates requirements governing appraisalselection, solicitation, compensation, conflicts of interest andcorporate independence, among other reforms. (Full Code Attached). Underthe new Code:
o Mortgage Brokers will be prohibited from selecting appraisers;
o Lenders will be prohibited from using “in-house” staffappraisers to conduct initial appraisals and
o Lenders will be prohibited from using appraisal managementcompanies that they own or control.
● Banks will be required to adhere to Code. Beginning January 1,2009, Fannie Mae and Freddie Mac will require that lenders represent andwarrant that appraisals related to mortgage loans originated on or afterJanuary 1, 2009 conform to the code or they will not be purchased.
● Formation of the “Independent Valuation ProtectionInstitute,” (the “Institute”), a new organization which willimplement and monitor the Code. The Institute, which will be funded with$24 million from Fannie Mae and Freddie Mac, will also:
o Establish a complaint hotline for consumers nationwide to callif they believe the appraisal process has been tainted or if they havebeen harmed by appraisal fraud.
o Serve as a contact for appraisers themselves if they believetheir independence has been compromised. These complaints will behandled confidentially to protect appraisers from retaliation. TheInstitute will mediate complaints, or can forward them to theappropriate federal or state law enforcement agency or regulator.
o Report publicly on its activities to the New York AttorneyGeneral and OFHEA on a bi-annual basis.
o Appoint a Board of Directors which must be approved by both theNew York Attorney General and OFHEO.
“Today’s agreement with Fannie Mae and Freddie Mac begins to setright what had gone so horribly wrong in the mortgage industry –rampant appraisal fraud,” said Cuomo. “The integrity of our mortgagesystem depends on independent appraisals. Again and again ourindustry-wide investigation found that banks were putting pressure onappraisers to drive up the value of loans just to make a quick buck. Webelieve the new standards, and the new independent monitor agreed totoday, can begin to erase this problem from the industry. I want toparticularly thank Senator Schumer for all of his help in readying thisimportant agreement today.”
Senator Schumer worked with OFHEO to gain regulatory approval of theagreement. In January, Schumer wrote a letter to OFHEO Director JamesLockhart seeking the agency's cooperation with Cuomo's negotiations withthe GSEs. The final agreement reached today involves a major provisionof legislation introduced last May by Schumer that would imposefirst-of-its-kind regulations on mortgage brokers.
"This settlement represents one of the first major blows against thetypes of predatory lending that were so prevalent in the mortgagebusiness of the last few years. Appraisal fraud has left millions ofAmericans unable to afford their homes and has created a drag on theAmerican economy. This agreement will reduce the conflicts of interestand economic incentives that made appraisal abuse and fraud so easy andattractive to lenders," Senator Schumer said.
"Accurate, independent appraisals are very important to ensuring thesafety and soundness of Fannie Mae and Freddie Mac and the mortgagemarket," said OFHEO Director James Lockhart. “OFHEO is committed toworking closely with fellow regulators, the Attorney General, FannieMae, Freddie Mac, appraisers, lenders and other market participants toassure that the roll-out of the new code builds upon best practices,recognizes constructive comments to identify further refinements, andavoids unintended consequences."
“We are pleased to work with regulators to do our part to ensuresound, accurate, independent and reliable appraisals,” Fannie MaeGeneral Counsel Beth Wilkinson said. “As the nation’s leadingpurchaser of mortgage loans in the secondary market, Fannie Mae sharesthe interests of consumers in the integrity of the home valuationprocess, which is an important part of a well functioning market.”
"Accurate appraisals are fundamental to Freddie Mac's effective creditrisk management - as evidenced by our leadership in quality controlprograms and assistance with criminal prosecutions of mortgage fraud.The Code of Conduct announced today enhances the independence andaccuracy of the appraisal process. And it builds on our company'slong-standing efforts to fight mortgage fraud by providing strong newprotections for homebuyers, mortgage investors and the housing market.In addition, we look forward to working with the New York AttorneyGeneral, OFHEO, Fannie Mae and other mortgage market participants inlaunching the Independent Valuation Protection Institute. By fundingthe Institute, we are advancing the development and adoption of bestpractices in the appraisal process, " said Freddie Mac Executive VicePresident andGeneral Counsel Robert Bostrom.
For more than a year, the Attorney General’s office has conducted anindustry-wide investigation into mortgage fraud. On November 7, 2007,Cuomo announced he had issued Martin Act subpoenas to Fannie Mae andFreddie Mac seeking information on the mortgage loans the companiespurchased from banks, including Washington Mutual, the nation’slargest savings and loan. The subpoenas also sought information on thedue diligence practices of Fannie Mae and Freddie Mac, and theirvaluations of appraisals.
The subpoenas came on the heels of the filing of a lawsuit by theAttorney General against First American and its subsidiary eAppraiseIt.The lawsuit, announced on November 1, 2007, detailed a scheme innumerous e-mails showing First American and eAppraiseIT caved topressure from Washington Mutual to use appraisers who provided inflatedappraisals on homes. E-mails also show that executives at First Americanand eAppraiseIT knew their behavior was illegal, but intentionally brokethe law to secure future business with Washington Mutual. Between April2006 and October 2007, eAppraiseIT provided over 250,000 appraisals forWashington Mutual. The lawsuit is still pending, and the industry-wideinvestigation into mortgage fraud continues.
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