Fannie Mae, Freddie Mac Uphold New Loan Code
RENEE MONTAGNE, host:
And government-backed lenders Fannie Mae and Freddie Mac have agreed to new rules for home appraisals. State prosecutors suspect that inflated appraisals may have fueled the housing crisis, as NPR's Chris Arnold reports.
CHRIS ARNOLD: Fannie and Freddie will spend $24 million to set up an independent appraisal institute to monitor a new set of standards. It used to be you didn't need regulations to make sure banks didn't recklessly loan people way more money than their house was worth, but that's what they were doing during the subprime lending boom.
Mr. IRA RHEINGOLD (Director, National Association of Consumer Advocates): It gives you, again, the insanity that was the mortgage market.
ARNOLD: Ira Rheingold heads up the National Association of Consumer Advocates. Many mortgage brokers were making 10 to $20,000 for every subprime loan that they closed. The loans were getting sold off to Wall Street, where they became somebody else's problem. So Rheingold says many brokers pressured home appraisers to inflate home values in order to get more loans approved and make more in commissions.
Mr. RHEINGOLD: They wanted to make as much money as possible.
ARNOLD: Under the new regulations, Fannie and Freddie will require lenders it deals with to have firewalls between the appraisers and the mortgage brokers. Also, the lenders can't have their own in-house appraisers.
Mr. RICHARD BITNER (Author, "Greed, Fraud and Ignorance"): I think it's a great move.
ARNOLD: Richard Bitner was a part owner of a small Dallas-based subprime lender. He's recently written a book about his experience, called "Greed, Fraud and Ignorance."
Mr. BITNER: There was a tremendous amount of influence that was coming down on the appraisers to hit over inflated values.
ARNOLD: Bitner estimates probably half of the appraisals that mortgage brokers sent his way were inflated, many by $50,000 or more. The new rules for Fannie and Freddie are part of a settlement between them and New York Attorney General Andrew Cuomo, who is investigating the mortgage industry.
Chris Arnold, NPR News.