A year ago, Fannie Mae and Freddie Mac became de facto legislators of industrywide standards for home appraisals. Soon they will be front-line enforcers, too.

On Thursday, the Federal Housing Finance Agency, which oversees the two government-sponsored enterprises, said Fannie and Freddie are preparing to field complaints from appraisers, consumers and others about violations of the Home Valuation Code of Conduct.

If, for example, a lender pressures an appraiser to overvalue a home so a loan can get done, the appraiser will be able to report the lender to one of the GSEs, which may refer the case to regulators.

Originally that job was going to belong to an "independent valuation protection institute" that the GSEs would seed with a combined $24 million. But since the March 2008 agreement with New York Attorney General Andrew Cuomo that established the code, the government has seized Fannie and Freddie and sunk $145 billion of taxpayer money into them. It has become untenable for the GSEs to bankroll an independent institute.

"I cannot, as conservator, justify the enterprises funding the institute," Edward DeMarco, the acting director of the FHFA, said Wednesday in a letter to Cuomo. In the next few weeks the GSEs will create a process for people to submit complaints online, DeMarco said.

Cuomo's office did not return calls Thursday, but an FHFA spokeswoman said the attorney general had agreed to the change of plan.

Still, many in the industry wondered whether Fannie and Freddie are up to the job.

"As long as it's done in a transparent process and complaints get routed to the right agencies, then they can identify the bad actors," said Joan Trice, the president of Allterra Group LLC in Salisbury, Md., which publishes the newsletter Appraisal Buzz. Trice, a 23-year veteran of the business, designed a complaint form for the now-scotched independent institute.

"What I'm worried about is if a complaint falls into a black hole and nobody is acting as the traffic cop," she said. "Unless there is someone accountable, how will we be assured that it is being properly managed?"

DeMarco wrote in his letter that Fannie and Freddie "will act on matters received," and refer cases to state regulatory officials "identifying patterns and practices suggestive of fraud or other noncompliance with the code."

But Leslie Sellers, president of the Appraisal Institute, a trade group, said the GSEs should go beyond making referrals.

"We hope Fannie and Freddie will take aggressive action against loan sellers that violate the code and fail to obtain credible appraisals by competent appraisers," he said.

Matt Hackett, an underwriting manager at Equity Now, a New York lender, said Fannie and Freddie have a wealth of data from their portfolios that could make them effective in screening complaints about fraudulent appraisal practices.

This would help save regulators time by weeding out frivolous complaints, he said. "I would be worried about people complaining for competitive reasons, where somebody unscrupulous could complain about a fellow appraiser."

The negotiations that led to the creation of the code stemmed from Cuomo's 2007 subpoenas of Fannie and Freddie in an investigation of the former Washington Mutual Inc.'s appraisal practices.

All single-family loans purchased or guaranteed by Fannie or Freddie must be originated according to the code. Among other things, it says lenders must create firewalls so that loan officers and mortgage brokers cannot improperly influence appraisers (such as by refusing to send them business if they don't come through with the right numbers).

Although the code allows lenders to have in-house appraisal departments, in practice the code has led more lenders to outsource the selection of appraisers to appraisal management companies.

Though appraisers used to complain about the bullying the HVCC addressed, they now say the rise of AMCs has hurt appraisal quality in a different way by driving down their fees and hence driving experienced appraisers out of the profession.

"Essentially what HVCC has done is create an army of form-fillers," said Jonathan Miller, president and chief executive of Miller Samuel Inc., a New York appraisal firm. "It has devastated the quality of appraisals being done in the mortgage lending process." (AMCs have said, among other things, that they put only seasoned appraisers on their rosters and that declining fees simply reflect reduced demand for appraisals. For more on this, see the Mortgages Special Report in Monday's American Banker.)

Miller said he did not mind the GSEs' change of plan, since he was skeptical from the start of the idea of having an independent entity evaluate complaints.

"In my view, if Fannie Mae and Freddie Mac were funding it, it would not have been an independent vehicle anyway," he said.

But David Berenbaum, chief program officer of the National Community Reinvestment Coalition, a nonprofit housing advocate, said an independent institute would have addressed the complaints about appraisal management companies, as well as the use of broker price opinions for valuing homes in short sales.

He and others — including Neil Barofsky, the special inspector general for the Troubled Asset Relief Program — have said BPOs allow fraudsters to buy homes from distressed homeowners for less than they are really worth and then resell the properties at full market value.

Without an independent watchdog, "who is looking out for the interests of the consumer with respect to appraisal fraud and undervaluation?" Berenbaum said. (Defenders of BPOs say the real estate agents that provide them generally are not the ones who get the property listings.)

As described in the original agreement with Cuomo, the independent institute would have set up a phone line for people to call with complaints. But the complaint process at Fannie and Freddie may end up being Web-only.

Corinne Russell, an FHFA spokeswoman, said the agency will determine if it plans to add a hotline "as the program is rolled out."

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