It's definitely one of the hottest subjects in Washington right now: Fannie Mae's and Freddie Mac's agreement last week to totally overhaul their appraisal practices, under pressure from New York Attorney General Andrew Cuomo.

Cuomo had been investigating the two company's standards on appraisals in connection with widespread foreclosure losses on subprime and other mortgages.

New York State filed a suit last November charging that an appraisal unit of First American Corp. illegally caved into pressure from Washington Mutual Bank to raise property valuations to allow loan deals to go through.

Both firms denied the allegations. Some of the loans involved were intended for purchase by Fannie Mae or Freddie Mac, and that opened the door to Cuomo's probe into both companies' practices on appraisal quality.

The new agreement is scheduled to take effect next January 1st. It will immediately affect anywhere from half to 70 percent of all new home mortgages, and is expected eventually to be adopted by much of the mortgage industry.

Here are the key changes:

Number One (and most controversial): Mortgage brokers will be prohibited from selecting appraisers for any loan that is to be sold to Fannie or Freddie. The apparent rationale is that appraisers say brokers too often interfere with -- or try to influence -- their work.

Not surprisingly, brokers are outraged by the change. The National Association of Mortgage Brokers said it is exploring legal remedies to block the plan.

Change Number Two: Lenders no longer will be able to use affiliated or in-house appraisal management companies for valuations on mortgages purchased by Fannie or Freddie. That would be huge for firms like Countrywide Bank, which heavily uses appraisals produced by its in-house LandSafe unit.

Third Big Change: Fannie and Freddie will set aside $24 million to create a new, independent organization to review complaints from appraisers about interference and to monitor nationwide compliance with the new appraisal rules.

Appraisers generally support the new agreement. The Appraisal Institute, the largest professional group for the industry, said it would work to help further the goals of the Fannie-Freddie reforms.

Gary Crabtree, a member of the Institute and an appraiser in Bakersfield, California, told Realty Times that "this is a big deal. The dishonest, inexperienced and unethical appraisers are the ones that received most of the work (during the boom years) because they were willing to sell their souls (to brokers and lenders) for a lousy 250 to 300 dollars."

The new Fannie-Freddie standards, he said, should help drive them out of the business.