Appraisal Scope

I sit here thoroughly bewildered, knowing full well that my puzzled frown will do nothing more than enhance my telling crows feet that emerged somewhere in the midst of 2007.  I am more than bewildered, is befuddled a stronger adjective?  My eyes are bouncing back and forth between my two computer monitors, and I just can't reconcile the two screens. 

On the right side is the FHFA 2008 Performance and Accountability Report which states a need for stricter appraisals to ensure the common trust in the valuation process:

The Appraisal Code is one way that Fannie Mae and Freddie Mac seek to ensure that homebuyers and secondary mortgage market investors get fair and independent property valuations.

On the left is a headline from Bloomberg news:  Fannie,Fredie May Waive Appraisals for Refinancings 12/10/08.

Huh?

FHFA Director, James Lockhart says it's simple, "If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?"

Huh?

Isn't there a federal law that prohibits Fannie and Freddie from financing loans to borrowers who hold less than 20% of the equity without mortgage insurance? 

Oh...

If the value is not reported, they aren't really violating the law...  Doesn't the IRS spend a lot of time prosecuting people who violate the intent of laws rather than the law itself?  I know it's a separate branch of government, but can't we draw a parallel?

Only Uncle Sam could concoct something like this.  I hate to state the obvious, but not having an accurate appraisal doesn't change the actual market value of the home...does it?  So isn't the law violated anyway?  And haven't FHFA, Fannie, and Freddie, been preaching the need for stronger appraisals?  Which is it?  And won't this simply postpone the inevitable, or will tax payers at some point have an even larger day-of-reckoning than is currently on the books?

I honestly am at a loss for words at the moment, so I'll end with a quote from another blog on this topic, and a request for your thoughts as well as recommendations for a good derma filler.

Imagine a nation of people whose value of home when bought was $280K and now its $180K (as it would be appraised), but instead of being underwater $100K (i.e. out on the street when unable to refinance) the generosity of government gives the full $280K at a lower rate - 4.5% of course as part of the Treasury plan being floated. So you see where this is heading - a nation full of phony mortgage values (set by government) at a phony rate (set by government). Hello USSAR.

From: Fannie, Freddie Considering Waiving Appraisals for Refinancings, Mark Trader (I highly recommend the read)

By the way, my absolute favorite housing blog right now is:  Patrick.net.  Check it out!