Saturday's Washington Post published an interesting article about Fannie and Freddie's Home Valuation Code of Conduct.

Apparently the House Financial Services committee approved an amendment on October 22 that would eliminate the code with the creation of a new Consumer Financial Protection Agency.

The code, as it exists today, was a compromise between NY Attorney General Andrew Cuomo and Fannie and Freddie and their regulatory agency the Federal Housing Finance Agency. Cuomo was investigaing the two pseudo-governmental agencies appraisal practices. Lenders putting pressure on appraisers to quote the right numbers and inflating home values to make deals happen was being reported as the norm. Fannie and Freddie agreed to adopt the code if Cuomo backed off.

The code however, while creating appraiser independence, created a whole set of other problems. First, it created "clearing houses" or "appraisal management companies" who paid the appraisers much less for the same work while pocketing the difference. The appraisers who work for these companies often accept work far from their area of expertise. Personal experience: I once had an appraiser who drove from her home in Pennsylvania to do an appraisal on a home on one of my listings in Springfield, VA. She used inappropriate comps and as a result, the value came in lower than the agreed upon price, and we had to go back to the bank to renegotiate the price. As a result, the bank removed all of the closing costs it was going to give to the buyer originally. It could have killed the deal. Luckily it did not.

The code also has caused buyers to pay for the appraisal up front, and sometimes pay for multiple appraisals, if the first one is simply too low

The new bill that creates the Consumer Financial Protection Agency has an uncertain future, especially in the Senate, where big banks and mortgage companies are lobbying against it. There is an independent bill, however, cosponsered by 118 congressmen that will slap an 18-month moratorium on the current code.

Lets hope for the sake of consumers and agents that reason prevails.