New York State Attorney General Andrew Cuomo made headlines last year when he began an investigation into now-defunct Washington Mutual Bank's - aka WaMu - unholy relationship with eAppraiseIT. eAppraiseIT is a subsidiary of title company First American Corporation and its primary source of appraisal work was from WaMu. Cuomo alleged that WaMu essentially blackmailed eAppraiseIT by threatening to take its appraisal business away if the appraising firm didn't pump up appraisal values so that WaMu loan officers could collect higher commissions on the subprime loans it underwrote. And WaMu executives in turn were "rewarded" with higher bonuses. WaMu’s reckless subprime practices are what drove the banking giant into bankruptcy.
.jpg)
Now Cuomo is letting the very scoundrels he investigated off the hook by closing his investigation of them in exchange for getting the FHA (Federal Housing Financing Agency), FNMA (Fannie Mae) and FMAC (Freddie Mac) to agree to changes in the way appraisals are performed. Cuomo, a former secretary of HUD (Housing and Urban Development, a federal agency), apparently believes that the heart of appraisal fraud during the subprime mortgage lending boom was due to lenders using their own appraisers.
But Cuomo is only half-right: some loan officers and bank executives could and did use undue influence on appraisers, who are independent contractors, to get the numbers they wanted. Appraisers who did not
cooperate were threatened with the loss of assignments; some who refused to cave-in and whose assignments were terminated fought back with civil lawsuits. See the lawsuit by appraiser Jennifer Wertz in California on Appraisal Scoop as one example.
There are two “on the other hand” aspects to this story. The first other hand is that many banks and mortgage bankers, the ones that originated and did not sell the loans they wrote, have had relatively few foreclosures. Why? Because they did not interfere with the evaluations of the appraisers they hired and/or wrote few or no subprime loans. My point: the problem is the banks, not the appraisers.
The second other hand should be obvious from Cuomo’s own investigation of WaMu and eAppraiseIT: eAppraiseIT is owned by First American Corporation, not WaMu. Again, the problem was not the appraisers, it was the undue influence of WaMu executives and employees on First American Corporation and eAppraiseIT.
So Cuomo’s sweetheart deal to place appraisals in the hands of “independent” appraising firms will do nothing to ensure that appraisals will be performed independently, competently and honestly. What this new regulation, called the Home Valuation Code of Conduct, will do, according to industry experts, is to raise the cost of appraisals, which are paid for by the home borrower. It has already resulted in lower fees being paid to the appraiser, the difference going the appraising firms. Lower fees will drive experienced appraisers out of the field and require those who remain, and the greenhorns hired to replace them, to perform more appraisals in order to make a living. How will that improve accuracy?
Field report: personally, I’ve already had appraisers tell me they now have to rush through appraisals because they need to crank out more volume in order to pay their own bills. This bears out in the wide ranges in the appraisals I’ve observed for some properties: some of the appraisals differ as much as 15% when there are multiple valuations. So it’s hard to not conclude that these new rules are not a misguided way to fix a broken system.
For more info:
Philly.com (original article)
Comments
In hindsight, your article was right on the money.
Strong-arming banks to write bad loans by Andrew Cuomo and the federal government is the root cause of the recent widespread world-wide financial debacle. The story above ignores this crucial aspect; although the fact that government does not understand business somehow comes through anyway.
If the problem was the banks, it started with government telling banks which loans to write That selling the risky loans ("bundling")government told the bankers to write was invented by government, must be fully appreciated.
Got something to say?
Examiner.com is looking for writers, photographers, and videographers to join the fastest growing group of local insiders. If you are interested in growing your online rep apply to be an Examiner today!