Freddie Mac and Fannie Mae, two corporations which buy mortgages from lending institutions and sell mortgage-backed investments, have reached a landmark agreement on home appraisal practices with the Office of Federal Housing Enterprise Oversight and the New York state Attorney General. This agreement will bring about measures to help prevent the inaccuracy and conflicts of interest which have occurred with some appraisal practices in recent years.

The text of the twelve-page agreement points out that the present mortgage crisis was partially caused by undesirable appraisal practices. The agreement emphasizes the importance of accurate appraisals to home buyers, lenders, and mortgage purchasing corporations (Freddie Mac, Fannie Mae). It goes on to describe a new “Home Valuation Protection Code” which will be upheld by Fannie Mae and Freddie Mac. The involved entities will also set up an Independent Valuation Protection Institute; this institute will address issues involving inappropriate appraisal practices, and receive relevant complaints from home buyers as well as individual appraisers. Freddie Mac and Fannie Mae will help provide funding for this new institute. The landmark agreement additionally states that the New York Attorney General will drop its investigation of Fannie Mae with regard to appraisal practices.

Both Freddie Mac and Fannie Mae issued press releases about the agreement on March 3rd. The Fannie Mae press release indicates that the Home Valuation Protection Code will go into effect right away, and lending institutions will be required (as of Jan. 2009) to ensure that appraisers have adhered to this Code with regard to mortgages being sold to Fannie Mae. It also states that Fannie Mae will spend a total of $12,000,000 to assist in the establishment of the Independent Valuation Protection Institute. The Freddie Mac press release carried a statement from their Executive Vice President, who praised the Home Valuation Protection Code and efforts to establish the new Institute. He pointed out that the Institute would help promote beneficial home appraisal practices.

Basically, this agreement will bring about efforts by Fannie Mae and Freddie Mac to eliminate problematic appraisal practices which have resulted in appraisals which were not accurate. This should help potential home buyers and companies involved in the mortgage industry to make better-informed decisions. The agreement comes as one among several recent policy changes aimed at eliminating conditions which helped bring about the present mortgage crisis. Other factors which have been partially attributed to it include subprime lending, falsified mortgage applications, deceptive lending practices, price inflation, and minimal down payment requirements.