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Fannie, Freddie Agree to Home Appraisal Watchdog

Fannie Mae and Freddie Mac will establish a new home appraisal watchdog to prevent fraud in valuing homes as part of a settlement with New York Attorney General Andrew Cuomo, the
companies and Cuomo said Monday.

Starting Jan. 1, 2009, the nation's two largest sources of mortgage finance will be working under a new oversight body that ensures home appraisals are accurate, Cuomo's office said.

"This is one of the greatest, most dramatic reforms of the housing industry in the last 20 years," Cuomo said at a press event in New York announcing the deal. "We believe as a group
that this will be a significant and dramatically positive reform."

Because Wall Street gladly bought and bundled home loans for investors during the housing boom, lenders may have felt more comfortable inflating loan amounts, and Cuomo had filed
subpoenas against Fannie Mae and Freddie Mac to determine whether the companies stood idle as that happened.

Monday's deal removes the threat of lawsuits from Cuomo.

In a statement, Fannie Mae said it will provide $12 million over five years to help establish the appraisal oversight body that will operate within the Office of Federal Housing Enterprise Oversight.

The main job of the new board will be to make sure that home appraisers remain at arm's length from mortgage lenders.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.