WHEREAS, the New York Attorney General's Office (the "Attorney General's
Office" or the "Office") has been conducting an investigation into
conflicts of interest, fraud and other misconduct in the mortgage
industry. As part of its investigation, the Attorney General's Office
has studied the business models and conduct of entities, including but
not limited to Federal National Mortgage Association ("Fannie Mae") and
Federal Home Loan Mortgage Corporation ("Freddie Mac"), that purchase
mortgage loans, and then, after pooling the loans, sell them as
securities to the public; and,
WHEREAS, pursuant to the Attorney General's Office's investigation, the
Office believes reforms are necessary to protect the valuation
mechanisms within the housing industry in both the primary and secondary
markets to protect consumers and to that end is engaged in an
industry-wide investigation involving originators, securitizers and
credit rating agencies; and,
WHEREAS, the Attorney General's Office believes that the current crisis
in the mortgage industry follows a period of a high volume of home
mortgages, home equity refinancings and securitizations of new
structured mortgage financing products in which serious questions of
conflicts of interest, negligence and errors throughout the housing
market have arisen. The Attorney General's Office further believes that
questions about valuation, both in the primary market and in the
secondary market, are central to these concerns; and,
WHEREAS, the Attorney General's Office believes that, in the residential
home primary market, home appraisals serve a vital role in determining
the security of the mortgage loans and the basis for evaluation of
mortgage pools in the secondary market. The appraisal also provides
important information for consumers to consider in determining their
best financial interest; and,
WHEREAS, the Attorney General's Office believes that the accuracy and
independence of the appraisal process must be ensured and protected.
Historically, there have been times when turmoil in the real estate
market has been caused when the valuation mechanisms, and the appraisal
process specifically, have been corrupted by pressure from lenders and
brokers. Federal regulations require "independence" of the appraisers
and the appraisal process. State governments have regulatory roles in
ensuring the integrity of the appraisal process; and,
WHEREAS, the Attorney General's investigations have evidenced bias in
appraisal practices, and therefore new policies safeguarding appraisal
independence and bona fide valuations must be established; and,
WHEREAS, the Attorney General's Office believes that Fannie Mae is a
highly significant institution in the secondary mortgage market that can
play an important role in stabilizing the mortgage markets by, in part,
helping to restoring consumer and investor confidence in home and
mortgage pool valuations; and,
WHEREAS, the Office of Federal Housing Enterprise Oversight (hereinafter
"OFHEO"), an independent agency in the Department of Housing & Urban
Development oversees Fannie Mae and Freddie Mac, two government
sponsored enterprises ("the Enterprises") and has established a
regulatory regime to guide Enterprise efforts to resist and report
mortgage fraud and suspected mortgage fraud; and,
WHEREAS, OFHEO has worked with the Enterprises to enhance their internal
programs to detect and prevent mortgage and appraisal fraud and external
programs to educate seller-servicers and the public on resisting
mortgage fraud and to communicate with state appraisal licensing bodies
on appraisal fraud or appraiser misconduct; and,
WHEREAS, OFHEO has worked with state and federal law enforcement and has
reported events of mortgage fraud and suspected mortgage fraud,
including appraisal fraud, for over two years to the Department of the
Treasury's Financial Crimes Enforcement Network for referral to law
enforcement; and,
WHEREAS, the parties agree to seek comment and concurrence regarding
this Agreement and the Code of Conduct, and the timetable for the
implementation thereof to assure no disruption in the marketplace, from
the Office of the Comptroller of the Currency, the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, the National Credit Union
Administration and the Federal Housing Administration, as the parties
move forward to implement the Agreement and the Code of Conduct; and,
WHEREAS, the Attorney General's Office and OFHEO share concerns for a
reliable valuation and appraisal process that underlies the mortgage
market and believe it is in the public interest to act in a coordinated
fashion; and,
WHEREAS, the Attorney General's Office and OFHEO believe that this
forward-looking agreement will in no way prejudice any of the Attorney
General's ongoing investigations in the mortgage industry or OFHEO's
regulatory mandates but will provide appropriate and necessary reforms
and stability to the market.
NOW
THEREFORE, the Attorney General's Office, OFHEO and Fannie Mae enter
into this agreement and agree as follows:
I.
NEW HOME VALUATION PROTECTION CODE
1. To
ensure appraisal independence and valuation protection, Fannie Mae has
agreed to adopt a Home Valuation Protection Code (the "Code," which is
attached hereto as Exhibit A), which was crafted by the Attorney
General's Office and OFHEO, in consultation with the Enterprises and
other market entities. The Code establishes requirements governing
appraisal selection, solicitation, compensation, conflicts of interest
and corporate independence, among other things. The Code may be modified
from time to time to address changes in federal or state banking laws
and regulations. Fannie Mae will immediately announce the adoption of
the requirements contained in the Code, make appropriate changes to its
Guide and, beginning January 1, 2009, will require that lenders
represent and warrant that appraisals conducted in connection with
single-family mortgage loans, other than government-insured loans,
originated on or after January 1, 2009 that are delivered to Fannie Mae
conform to the Code. After January 1, 2009, Fannie Mae will not purchase
single-family mortgage loans, other than government-insured loans, from
mortgage originators that do not agree to adopt the Code with respect to
such loans that are delivered to Fannie Mae. Fannie Mae may exclude from
the provisions of paragraph VI, subsections 1-4, of the Code,
institutions that both meet the definition of a "small bank" set forth
in the 12 U.S.C. § 2908, and which Fannie Mae determines would suffer
hardship due to those provisions. Institutions excluded for hardship
reasons must otherwise comply with the other provisions of the Code and
must meet all appropriate standards of appraiser independence. During a
period before January 1, 2009, Fannie Mae shall provide the opportunity
for comments from market participants on its implementation and
deployment of the Code; commentators should provide copies of their
comments to OFHEO. The parties to this Agreement understand the
significance of the reforms provided for herein and therefore will in
good faith review the comments received during this period and will
consider any amendments to the Code necessary to avoid any unforeseen
consequences. The parties to this Agreement believe that the adoption of
this Code will enhance the integrity of and confidence in the housing
finance system country-wide.
II.
FORMATION OF THE INDEPENDENT VALUATION PROTECTION INSTITUTE
2. The
parties hereto acknowledge that the integrity of the valuation processes
involve federal and state laws and regulations as well as market
practices and standards. This complex area requires a high level of
expertise and coordination to ensure truly sound, accurate, independent
and reliable appraisals.
3. To
that end, the parties agree that an independent entity, the Independent
Valuation Protection Institute (the "Institute"), will be established to
monitor and study this area. The Institute may, from time to time,
propose amendments to the Code which the parties to this Agreement will
review and consider.
4. The
Institute will establish a complaint hotline for consumers nationwide to
contact if they believe the appraisal process has been tainted or if
they have been harmed by appraisal fraud.
5.
Appraisers themselves will be able to contact the Institute if they
believe their independence has been threatened in any way, including by
undue pressure. Appraiser complaints will be handled in confidence to
protect the appraisers from possible retaliation. The Institute, in its
judgment, will mediate complaints or forward complaints to federal or
state regulators. The Institute, in its judgment, may also forward
complaints to state or federal law enforcement agencies for possible
investigation or prosecution.
6. The
Institute will be headed by a Board of Directors. Membership on the
Board shall consist of experts in the fields of real estate finance,
loan origination, law enforcement, compliance review and real estate
appraisal and valuation. Members of the Board shall have no financial
connection whatsoever with Fannie Mae, Freddie Mac or any loan
originators with whom Fannie Mae or Freddie Mac engage. This prohibition
will apply to any subsequent securitizer contributing to the Institute.
The Institute shall hire a full time professional staff. The Attorney
General's Office and OFHEO must both approve the membership of the
Board.
7. The
Institute shall report publicly on the results of its activities to the
Attorney General's Office and OFHEO on a bi-annual basis.
8. The
Institute may be affiliated with an existing academic, professional
association and/or industry organization.
9.
Fannie Mae agrees to fund the Institute, along with Freddie Mac, for a
period of not less than five years at an annual cost to each as follows:
year one - $1 million; year two - $2 million; year three - $3 million;
year four - $3 million; and year five - $3 million. To the extent other
entities agree to participate in the Home Value Protection Program, the
respective contributions of Fannie Mae and Freddie Mac may be reasonably
reduced. The Institute may, upon a showing of good cause to the Attorney
General's Office and OFHEO, request that additional funds be allocated
in years one and two from funds reserved for years three through five.
III.
COOPERATION AGREEMENT AND TERMINATION OF THE ATTORNEY GENERAL'S OFFICE'S
INVESTIGATION
10.
Fannie Mae agrees to cooperate with the Attorney General's Office and
OFHEO to effect and accomplish the terms of this agreement. Fannie Mae
also agrees to continue to cooperate in the Attorney General's Office's
ongoing investigation into the mortgage industry.
11. The
Attorney General's Office agrees to terminate its current investigation
of Fannie Mae.
12. The
parties agree that the requirements in this Agreement, except for the
provisions relating to the Institute, terminate 28 months from the
execution of the Agreement.
13.
Nothing contained herein shall be deemed to constitute an admission by
Fannie Mae of any wrongdoing in connection with any matter, which Fannie
Mae expressly disclaims and denies. Nor shall this Agreement or any
negotiations, transactions, or proceedings connected in any way with
this Agreement be offered or received in evidence in any proceeding to
prove any liability, any wrongdoing, or an admission on the part of any
party hereto, by any individual or entity not a party hereto; provided,
however, nothing herein shall prevent this Agreement, from being used,
offered, or received in evidence in any proceeding to enforce any or all
of the terms of this Agreement.
14. If
any provision of this Agreement or the attached Code is found to be
violative of federal law or regulation, the violative provision will be
deemed null and void. If any provision is deemed null and void, the
Attorney General may, in his discretion, terminate this Agreement.
IN
WITNESS THEREOF, the undersigned subscribe their names:
Dated:
March 3, 2008
ATTORNEY GENERAL OF THE STATE OF NEW YORK
/S/
Andrew M. Cuomo
By:___________________________
Andrew M. Cuomo
OFFICE OF FEDERAL HOUSING ENTERPRISE OVERSIGHT
/S/
James B. Lockhart III
By:_______________________
James B. Lockhart III
Director
FEDERAL NATIONAL MORTGAGE ASSOCIATION
/S/
Daniel H. Mudd
By:________________________
Daniel H. Mudd
President and CEO
