- The Washington Times - Wednesday, May 28, 2008

BLOOMBERG NEWS

Fannie Mae and Freddie Mac´s agreement to restrict banks from using in-house appraisal companies might violate federal law, U.S. Comptroller of the Currency John C. Dugan said in a letter to the companies´ supervisor.

The two companies, which own or guarantee about 45 percent of the $12 trillion in U.S. home loans, made a deal in March with New York Attorney General Andrew M. Cuomo and the Office of Federal Housing Enterprise Oversight to stop buying mortgages from lenders that use in-house home appraisals for their loans.

The agreement and new appraisal code “violate or conflict with federal law in fundamental respects” and should be withdrawn, Mr. Dugan said in a letter to James B. Lockhart III, director of the oversight office. The Office of the Comptroller of the Currency (OCC), which regulates national banks, has “substantial concerns about the unintended adverse consequences” on U.S. banks, he said.

The OCC is joining mortgage and appraisal industry groups and the Office of Thrift Supervision in criticizing the deal, intended by Mr. Cuomo and Mr. Lockhart´s office to make home valuations more accurate by separating them from the lenders making the loans. Reworking the agreement could make it harder for Fannie Mae and Freddie Mac management to address other investor concerns such as the $7.1 billion in cumulative losses Fannie Mae has posted in the past three quarters, analysts said.

“It´s a distraction they don´t need,” said Jim Vogel, a debt analyst with FTN Financial Capital Markets, a division of First Tennessee Bank N.A. in Memphis, Tenn. “If this heats up the way the OCC seems to think it should, then you´re going to throw sand in the gears of a number of other initiatives that are probably more important for today,” he said.

Fannie Mae fell $1.06, or 3.8 percent, to $26.53 in composite trading on the New York Stock Exchange yesterday. The stock has fallen 34 percent his year. Freddie Mac fell $1, or 3.9 percent, to $24.73, down 27 percent for the year. The companies had the two worst percentage drops on the S&P; 500 Index yesterday.

The “appraisal process for home loans is broken,” Mr. Cuomo´s office said in an e-mailed statement. Mr. Cuomo began a probe of the U.S. mortgage industry last year as foreclosures among subprime borrowers climbed to a five-year high. The agreement with Fannie Mae and Freddie Mac is “groundbreaking” and will “help consumers and restore integrity to this crucial market,” the statement said.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide