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Appraisal deal may shake up industry

Independents stand to benefit. Lenders may have to sell.

Associated Press
Published March 5, 2008


WASHINGTON - A new agreement by Fannie Mae and Freddie Mac to buy only mortgages for which appraisals are made by firms independent from lenders will shake up the industry, analysts said.

The accord announced Monday between the country's two largest mortgage purchasers and New York Attorney General Andrew Cuomo likely will benefit independent appraisal firms and could force lenders that own appraisal operations to sell them off.

Cuomo's office has investigated billions of dollars of home loans that Fannie and Freddie bought from lenders, including the largest U.S. savings and loan, Washington Mutual Inc. Cuomo says that lenders have pressured appraisers to inflate the listed value of homes, contributing to a national mortgage crisis that is forcing families into foreclosure.

With the cost of a home appraisal running about $300-$400, the industry reaped billions in revenue a year during the housing boom of recent years.

The agreement ends the practice of lenders using their in-house staff for initial home appraisals and prohibits the use of appraisal-management companies owned or controlled by lenders. Among the lenders that own such companies are Wells Fargo & Co. and Countrywide Financial Corp.

Appraisal-management firms act as intermediaries between lenders and appraisers.

"It's going to create massive change," said Brian Chappelle, a partner at Potomac Partners in Washington, D.C., a consulting firm to the mortgage industry. "It's going to be a huge boon to independent appraisal firms."

Jeff Schurman, executive director of the Title-Appraisal Vendor Management Association, and Bill Garber, government affairs director at the Appraisal Institute, also see such a reshaping of the appraisal industry landscape.

For the appraisal companies owned by lenders, "it penalizes them because they're captive," Schurman said.

The trade group representing mortgage brokers, which often designate specific appraisers under the current system, protested the agreement and threatened legal action.

The agreement "will increase costs to consumers by removing thousands of small-business competitors from the marketplace," said Roy DeLoach, executive vice president of the National Association of Mortgage Brokers.