GSE Appraisal Pact May Be Back in Play

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Byline: Cheyenne Hopkins

WASHINGTON - Now that Fannie Mae and Freddie Mac have been seized by federal regulators, the financial services industry is pushing to undo an agreement that created new appraisal standards for the two government-sponsored enterprises.

In March the GSEs agreed to demands by New York Attorney General Andrew Cuomo that they significantly toughen the appraisal process, including barring the use of in-house staff or an affiliated company to conduct appraisals. But industry representatives, who have opposed the new standards, said Fannie and Freddie no longer legally have to follow the agreement.

"The bottom line is the status of the GSEs and the landscape is different, and therefore issues such as this are very much back in play," said Steve O'Connor, the Mortgage Bankers Association's senior vice president of government affairs.

Several bank lawyers said conservatorship law allows the Federal Housing Finance Agency, which now controls Fannie and Freddie, to void an agreement that has not taken effect yet. The agreement with Mr. Cuomo is not scheduled to take effect until Jan. 1.

Whether the agency will void it is another matter. The Office of Federal Housing Enterprise Oversight and its director, James Lockhart, agreed to the new standards when they were signed. Mr. Lockhart now runs the Finance Agency, the GSE regulator created in July.

It is not clear whether he would be willing to reverse course. A source close to the parties involved said they were committed to moving ahead with the new appraisal code but had made changes to it.

"Regardless of what the legal parameters are on the contract issues, FHFA has agreed with the attorney general that the agreement will go on as planned," the source said. "There is no change. This is part of the business as usual that agreements are being honored."

The GSEs, the FHFA, and Mr. Cuomo's office would not comment for this story.

The GSEs committed to the new agreement to end an appraisal fraud investigation begun by Mr. Cuomo. According to sources, the GSEs said they wanted to avoid a legal fight with the attorney general and a potential drop in their stock price that could result.

There remains a small legal risk for the GSEs. If they were to pull out of the agreement, in theory, Mr. …