Mortgage probe hits major lenders

ALBANY, N.Y. -- New York Attorney General Andrew Cuomo's subpoenas to government-sponsored lenders Fannie Mae and Freddie Mac sent another shock into the home mortgage industry where he said conflicts of interests are costing consumers thousands of dollars because of inflated appraisals.

On Wednesday Cuomo said he wants to know about loans Fannie Mae and Freddie Mac purchased from banks, including Washington Mutual Inc. The subpoenas also seek to find out how the government-sponsored companies handle appraisals to see if lower income home buyers were stuck with loans based on inflated appraised values.

The Democrat has accused a major appraiser, eAppraiseIT, of colluding with lenders to inflate home values and indebtedness for home buyers. On Wednesday, he was able to get the government-sponsored lenders to accept an independent examiner to review their loans involving mortgage giant Washington Mutual.

"Our expanding investigation into the mortgage industry has uncovered that Washington Mutual improperly pressured appraisers to provide inflated values that best served the lender's interest," Cuomo said.

Brian Faith of Fannie Mae said: "It is against our interest to purchase or guarantee mortgages with inflated appraisals, and so it is in Fannie Mae's interest that these appraisal practices be investigated," he said. "If the examiner determines we own or guarantee mortgages with inflated appraisals, our guide states that the lender must buy back the loans that do not meet our standards and requirements."

Fannie Mae and Freddie Mac were created by Congress to make home ownership affordable for low- and middle-income people. They buy blocks of mortgages from lenders and then package them into securities for sale to investors.