WASHINGTON, March 4 (UPI) -- Two dominant lenders, Freddie Mac and Fannie Mae, agreed Tuesday to new guidelines designed to curb the practice of inflating home appraisals.
Working with New York State Attorney General Andrew Cuomo and with the threat of lawsuits looming, the two lenders agreed to disconnect appraisal services from banks and brokers who handle mortgages.
Under the new guidelines, mortgage lenders won't be able to choose appraisers for a specific loan or make loans based on appraisals made by an employee of the bank or of a company the bank controls.
"In my opinion, 70 percent to 80 percent of appraisals that were done during the housing boom are probably not worth the paper they're written on," Jonathan Miller, New York appraiser told The Wall Street Journal.
Inflated appraisals are considered to be a fundamental cause of the mortgage credit crisis.
Miller estimated the average appraisal in the United States is over-inflated by 10 percent.
By their size alone, the two lenders tend to set national standards, the paper reported. The guidelines are to go into effect Jan.1, 2009. In the agreement, the lenders agreed to set up an independent office to monitor appraisal standards.