Fannie Wants to Script Conclusions of Outside Analyst – Believes It Is Above the Law

Government-Sponsored Mortgage Giant Fannie Flouts Law

Government-sponsored mortgage giant Fannie Mae is essentially forcing banks to repurchase any loan it wants if [the appraiser] refuses to use the comparables Fannie has selected. 

[The corporation] was created by the government, is controlled by the government, and operates for the government’s benefit,” wrote Justice Anthony Kennedy in a unanimous Supreme Court ruling in 2015. He was describing passenger rail hegemon Amtrak, but he could easily have been describing government-sponsored mortgage giant Fannie Mae.

The Roberts Court held the National Railroad Passenger Corporation – known more commonly as Amtrak – was a government entity for the purposes of the Constitution’s separation of powers provisions. That may be key when it comes to Fannie and her reprobate twin brother, Freddie Mac. Both are overdue for a bolt of karmic comeuppance. Unfortunately, the public always pays.

Fannie and Freddie – both in conservatorship with the Federal Housing Finance Agency – became bullies during the Biden administration, particularly against a vulnerable class of truth-tellers uniquely engaged for their independence.

Fannie wants one such truth-teller in Upstate New York to doctor an appraisal report with exhibits of its own choosing – or else. It’s leaning on a regional bank to do the arm-twisting. Fans of old-timey notions like the First Amendment smell government-compelled speech.

A for-hire real estate appraiser, who has asked to remain anonymous, tells of having received a letter from a regional bank’s legal department. The bank had received an ultimatum from Fannie: Either the bank or the appraiser must buy back a mortgage originated by the bank and later sold to Fannie Mae. Fannie offered a third option: The appraiser could simply doctor the long-since approved appraisal by inserting a couple of comparables selected by Fannie Mae after the fact. Take your pick.

One problem: Fannie’s comparables, which were generated by an algorithm in the dank basement of its mirror-and-glass ziggurat in Plano, Texas, more than 1,600 miles away, were all wrong. They would make the appraisal misleading, jeopardizing the appraiser’s state license and his status as a disinterested and independent third-party. The redo could also open the appraiser up to liability from the borrower, and even from the bank if the loan went south.

One former Fannie Mae employee was surprised to hear about it. “This does not sound like something Fannie Mae would do,” said Brian Jarrard, a former subject-matter expert in collateral valuations at the mortgage giant. “I have no knowledge of Fannie Mae ever telling appraisers to change their comps after the fact.”

But that seems to be exactly what’s happening.

One observer speculated that the workload at the mortgage giant may have dried up to the point that its in-house analysts have little to do other than scrutinize past mortgage transactions to simply look busy, even if it means tainting an appraisal and browbeating a private individual Fannie has no direct connection to. (The appraiser’s client was always the bank, never Fannie or any other aggregator of mortgages.)

Fannie’s threats to the Upstate New York bank and its outside appraiser – explicit and implicit – have real teeth. Mortgage lenders understand Fannie can, at any time, place them on a ruinous “do not use” list. Fannie can also blacklist an appraiser, with little promise of due process or accountability. This possibility lurks in the background of all interactions with the mortgage giant.

In 2022, it was reported that Fannie was attempting to strong-arm lenders to buy back early Covid-era loans. Fannie appeared to view these loans as too risky for its portfolio – which is really saying something. As a ploy, say observers, Fannie was generating automated valuations similar to Zillow’s “Zestimates” and using them to undermine appraisals on loans it wanted to offload, with the appraiser and/or the lender the fall-guy.

Fannie’s automated system later generated unsigned boilerplate complaints and sent them to state appraiser licensing boards – a scorched-earth tactic that required appraisers in some states to spend years clearing their names after the often-baseless complaints. Fannie reportedly then cited the ongoing investigations, which Fannie itself triggered, as further evidence of the need for the lender buybacks.

The “robo-complaints” were reported to be arriving at such velocity that some state appraiser boards were in fight-or-flight mode, having to decide whether to ignore the complaints outright or staff up to deal with them. A few self-serving state bureaucracies learned to harness the complaint influx for featherbedding purposes – a full-employment program for appraiser regulators. A regulator in Ohio told one appraiser in 2022 that the Ohio state board alone was receiving about 40 new complaints monthly from the mortgage giant, each one requiring a separate investigation that could last up to one year.

In the use of Fannie’s own comparables, the public is harmed because Fannie’s algorithm is being used to override the appraiser’s local expertise, onsite inspection and interviews with the participants in the comparable transaction, said a Texas-based residential appraiser. “Fannie uses sketchy data that is unvetted. There is no legitimate review being done here,” he said.

Something similar was recently observed by the chief appraiser at a Texas regional bank.

“Fannie Mae is essentially forcing banks to repurchase any loan it wants if [the appraiser] refuses to use the comparables Fannie has selected,” said the chief appraiser, who asked to remain anonymous. “In doing so, Fannie is claiming it is more familiar with local markets than the local appraisers. It bases this on an algorithm that has not been publicly tested or disclosed.”

“That Fannie Mae would coerce an appraiser to use the government-sponsored enterprise’s [own] sales selection is a stark reminder of how this independence can be compromised, leading to potential distortions in value,” said Jonathan Miller, President of Miller Samuel, Real Estate Appraisers & Consultants in New York. “Appraiser independence is essential to maintaining the integrity of property valuations.”

Said Jarrard, the former Fannie Mae employee, “The appraiser’s independence is being compromised by a party who doesn’t have geographic competency and who hasn’t had discussions with brokers about the comparable transactions. Forcing an appraiser to select sales from an algorithm eliminates the appraiser’s independence and the appraiser’s local market expertise. Dictating what is or is not comparable should be left to the local professional. Otherwise, what do you have other than a mass appraisal?”

Since the beginning of November 2023, Fannie’s twin, Freddie Mac, has been screening appraisal reports for a lengthy list of forbidden words and phrases. Offending reports have been kicked back to the appraiser through the lender. Many of the censored words and phrases bear not-so-subtle DEI and reality-masking telltales. They include “crime,” “school district” “student,” “preferred,” “up-and-coming,” “well-kept,” “desirable” “high,” “low,” and many puzzlingly innocuous phrases like “convenient to.”

The Supreme Court held Amtrak is a government entity. And what else would it be? Freddie and Fannie are spitting images. When employees of these entities violate a random analyst’s due process via blacklisting or censor the free expression of a party hired by another party or compel speech through coercion, then it’s the government violating first principles. Try dislodging any of these people at the ballot box.

Jeremy Bagott
Image credit flickr - Fibonacci Blue
Jeremy Bagott

Jeremy Bagott

Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

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14 Responses

  1. Avatar Spencer Paul says:

    At present, there are no methods to derail this train. With the state of Maryland investigating FNMA and getting no where, perhaps local governments will wake up to what is going on and not allow them to provide said products and use of their underwriting tools. I have experienced the risk score being high on a very complex property and FNMA offering their own sales for comparison purposes. I had water frontage, detached garage with shop and studio space, bay views and 2 story in nature. FNMA offered single level dwellings with no water frontage, nor views. This was their attempt to lower the risk score so they can sell of the loan. It’s a joke.

    • Avatar JohnnyQ says:

      There’s a certain element in the GSE’s – and elsewhere for that matter – that equate a sale with a comparable.

      • Avatar Spencer Paul says:

        I hear every syllable you are saying, however they have agreed to adhere to USPAP and what they are doing is not USPAP compliant, not FIRREA, TILA or Dodd Frank compliant and sure there is more that Baggins and other could add.

        They are robbing the bank (the American tax payers) with eye wide open and telling everyone that it’s not them, it’s us.

      • Avatar Terry says:

        And equate a contract price with market value.

  2. Baggins Baggins says:

    Article 1 Section 10. A bill of attainder placed on all appraisers by way of ex post facto. As new technology allows companies to review appraisals from a decade ago for compliance with new and updated protocols of today. Updated protocols are not clearly disclosed, as in the Maryland inquiry.

  3. Avatar Xpert says:

    Appraiser Independence be damned!

    “What is the purpose of the appraiser independence requirements?

    Requirements are set by various State and Federal agencies to ensure, among other things, that an appraiser and the appraisal process is free from undue influence and coercion.”

  4. Baggins Baggins says:

    Sure Spencer, no problem. Article 1 section 10. Posted in response to the final statement of the above article; ‘to compel speech through coercion.’ Show me the man. I will show you the crime.
    ex post facto'ex%20post%20facto'%5D
    bill of attainder, aka; pains and penalties
    civil due process'due%20process'%5D

    Xpert; Updated guidelines for ‘administrative review’? Appropriate time frame limitations for this activity seems logical to place; At any time prior to the report being approved and accepted by FNMA via CU database. Either the tools are valid and they work, or they do not. This activity seems like an admission the appraisal modernization efforts may not be delivering as advertised. The mother of all stips; Lender will shell out a half million on a repurchase if the appraiser does not comply and provide a revision. Defining a new assignment condition is subsequently prohibited. Pressuring appraisers works. And works very well.

    • Avatar Spencer Paul says:

      From what you provided and I read, the bill of attainer was banned by the founders unanimously and without debate. So I’m not seeing how this is applicable here.

      • Baggins Baggins says:

        That is the aka part; pains and penalties. Have you ever answered yes to any of the standard questions pertaining to appraiser panel application inquiries? If so what was the result?

        Pop quiz; Detail relevant specific instances of what was ‘banned by the founders’ that has become actual law with real world consequences today, that you agree with of course.

        • Avatar Spencer Paul says:

          I don’t claim anything sounds like I’m being knowledgeable on the constitution and the legalities of the requests that FNMA makes or does not make. I’m just reading back what I read. Not claiming to be an expert on any of that. I’m just keeping my head above water with appraising as whole and even that I only know a little amount in a specific area.

          • Baggins Baggins says:

            Article quote: The bank had received an ultimatum from Fannie: Either the bank or the appraiser must buy back a mortgage originated by the bank and later sold to Fannie Mae. Fannie offered a third option: The appraiser could simply doctor the long-since approved appraisal by inserting a couple of comparables selected by Fannie Mae after the fact. Given the options; Your choice? Define; ‘Applicability’.

  5. Avatar Spencer Paul says:

    My choice would be to report both FNMA and the bank to the State Board for investigation of violating TILA, Dodd Frank and AIR, of which they have agreed they would be held to. That would be my choice. I would also contact the lenders compliance officers with said complaint and letters received by both applying needless pressure because FNMA can sell their own product to another investor.


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Fannie Wants to Script Conclusions of Outside Analyst – Believes It Is Above the Law

by Jeremy Bagott time to read: 5 min