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As much as the banks would have you think that the major cause of the U.S. mortgage crisis was the bad financial decisions of homeowners with regard to the financing of their homes, the "bank controlled" appraisal process for these now-toxic assets may well have contributed the major portion of the blame.

As usual, however, the proposed solution is causing even more controversy. The following information is from Freddie Mac's website (http://www.freddiemac.com/singlefamily/home_valuation.html):

"Home Valuation Code of Conduct - Enhancing the independence of appraisers

The Home Valuation Code of Conduct (the Code) is the result of a joint agreement between Freddie Mac, the Federal Housing Finance Agency (FHFA), and the New York State Attorney General to enhance the independence and accuracy of the appraisal process, and provide added protections for homebuyers, mortgage investors and the housing market.

Effective Date

Effective May 1, 2009, Freddie Mac will no longer purchase mortgages from Sellers that do not adopt the Code with respect to single-family mortgages that are delivered to Freddie Mac.

Also, effective for single-family mortgages with loan application dates on or after May 1, 2009, Freddie Mac Seller/Servicers must represent and warrant that the appraisal report is obtained in a manner consistent with the Code.

The sale of the following mortgages is excluded from the representation and warranty: FHA/VA Mortgages, Section 184 Native American Mortgages, and Section 502 Guaranteed Rural Housing Mortgages...."

A superb analysis of this situation has been written by David Streitfeld in his recent New York Times article, "In Appraisal Shift, Lenders Gain Powers and Critics" as he declares the simple truth: "Brokers and real estate agents can no longer order appraisals. Lenders now control the entire process."

Giving the banks even more power will hardly solve anything. In fact this new "Code" provided for the establishment of the Independent Valuation Protection Institute and, again in Feddie Mac's own words:

"We will work with the New York State Attorney General, FHFA, Fannie Mae and other mortgage market participants regarding the Independent Valuation Protection Institute (Institute). The Institute has not yet been established, and therefore, the provisions regarding the Institute are not yet effective."

David Streitfield also reported more about that so-called Independent Valuation Protection Institute:

"Seventeen months after it was announced, the institute has no staff and no appraiser complaint hotline. All that exists is a single Web page." (http://www.independent-valuation-protection-institute.org/)

Where do they get these ideas?

- Ed Smith