Declaration of independence
When most people threaten to sue, it’s simply a yawn-inducing tactic.
Somebody’s suing me?
When a state attorney general does it, the tactic has more effect.
Litigators! Litigators!
Of such threat vaporware is
Responding to criticism that home appraisers had inflated prices in recent years, Fannie Mae and Freddie Mac said Monday [March 3, 2008 — Ed.] that they would buy mortgages only from lenders that use independent appraisers.
Their size makes the GSEs natural market leaders, and when they set a standard, it tends to stick. Since GSE agency loans are the only securitization window currently open for most originators, when they establish a rule, it very likely will move the marketplace’s standards.
Because Fannie Mae and Freddie Mac are buying most home loans being made today, the terms they dictate to banks and mortgage companies become de facto industry standards.
Just like the GSEs, if E. F. Hutton were still around, and it talked, people would listen
Further, it’s an excellent change, because the value of demonstrable independence outweighs the profit efficiencies of vertical integration:
Appraisers on one side, lenders on another
The shift, part of an agreement with the attorney general of
Some years back, Sarbanes-Oxley forced accountants to divest themselves of their consulting branches. Thus Andersen begat Accenture, and KPMG begat BearingPoint, and the world kept turning on its axis.
Just keep spinning, just keep spinning
The deal is significant victory for the attorney general, Andrew M. Cuomo, who has been investigating the mortgage industry for a year, and last year sued an appraisal company owned by the First American Corporation. The changes announced on Monday will go into effect in 2009.
Better late than never.
Regulation is on its way!
As defaults and foreclosures have surged in the last year, regulators and industry analysts have raised pointed questions about the independence of appraisers.
As we’ve already seen, if you want to defraud the lender, a fraudulent appraiser is one of your best friends.
Mr. Cuomo, who was secretary of housing and urban development in the
“The appraisal is the linchpin of the system,” he said. “But the appraisal was the most susceptible to pressure.”
Yet an appraiser affiliated with a lender is unlikely to be an active participant in the fraud, if only because he’ll be bilking the bank that signs his paychecks.
Don’t I look trustworthy?
Because they rely on banks and brokers to give them additional business, appraisers often feel pressured to value a home at prices that match or exceed loan amounts.
That’s true whether the appraiser is affiliated or not.
Let me think about that for a moment
Mr. Cuomo’s deal on appraisals is unusual in that it has the blessing of the regulator that supervises Fannie Mae and Freddie Mac. Mr. Cuomo and other state officials have often squabbled with federal officials over who should police the mortgage business, and how.
Quite understandably. The GSEs are federal entities, and if action is to be taken, it should be taken federally, lest the
Negotiations over the agreement have been taking place for several months and intensified in recent weeks.
Once the attorney general had chomped his teeth into the GSEs’ ankle, the Feds graciously and sensibly realized the better course of valor was to work with Mr. Cuomo and hammer out a national standard.
I guess he’s got your attention now
But significant federal-state tensions remain. In a statement on Monday, the Office of Thrift Supervision, which regulates savings banks like Countrywide and Washington Mutual, said that “the agreement has some positive elements” but added that it was concerned that “the closed-door fashion in which it was reached could result in negative unintended consequences.”
Such as rendering entities vulnerable to back-door shakedowns, perhaps?
Don’t appraise any houses there
Under the new rules, lenders who want to sell loans to Fannie Mae or Freddie Mac will not be allowed to use in-house appraisers to do the first evaluation on a home. They will also be forbidden from using appraisals by a subsidiary or an affiliated company.
Mortgage brokers and real estate agents involved will also be prevented from picking appraisers.
All this is to the good — really, long overdue.
And how
The Appraisal Institute, a trade group that represents 30,000 appraisers, endorsed the agreement, saying it would “reinforce the independence of real estate appraisers and the integrity of appraisals.”
It’ll force industry dis-aggregation:
For a company like Countrywide, that would mean it would no longer be able to use its LandSafe subsidiary to do appraisals for its home loan business if it wanted to sell loans to Fannie Mae or Freddie Mac. Title companies like First American would also have to divest their appraisal divisions if they wanted to continue working for lenders that sold loans to the mortgage agencies.
Fannie Mae and Freddie Mac will put up $24 million to create the Independent Valuation Protection Institute, a group that will accept complaints from consumers and appraisers.
What a nice name.
“Honey, the Independent Valuation Protection Institute has done it again.”
The institute will put the new rules into place and monitor their enforcement, reporting to Mr. Cuomo’s office and the Office of Federal Housing Enterprise Oversight, or OFHEO, the regulator that monitors Fannie Mae and Freddie Mac.
I’ll bet OFHEO is thrilled, just thrilled, to have dual reporting.
Cuomo’s involved!
The deal almost collapsed because of differences between federal and state regulators. Mr. Cuomo and the companies were hoping to announce the agreement a week ago but stalled after the director of OFHEO, James B. Lockhart, said he wanted the Office of Thrift Supervision and the Office of the Comptroller of the Currency to sign off.
Good for Mr. Lockhart — consistency of application is critical.
Mr. Cuomo agreed because the support of federal officials would speed up its implementation.
Or make it impossible: without the Federal government’s endorsement, the proposal would be, if not stillborn, at least guaranteed of a rocky start.
The banking regulators worried that the deal would not give banks and other mortgage lenders enough time to comment on changes that could limit their ability to make loans. To address their concerns, the negotiators added a comment period during which Fannie and Freddie would solicit feedback from lenders.
Allowing a public comment period makes total sense.
At several junctures, Senator Charles E. Schumer, Democrat of New York, interceded on Mr. Cuomo’s behalf by making phone calls to Mr. Lockhart and banking regulators. “I said, ‘Look this is the right thing to do,’” Mr. Schumer said.
Nice to have prominent friends.
I’m from the government and I’m here to help you
“It was a cooperative relationship,” Mr. Lockhart said. “It worked out once we all understood that we were in this together.”
The banking regulators suggested several provisions that ended up in the final agreement and agreed not to publicly criticize the deal, according to several people involved in the discussion.
Does it seem odd to you that, if everyone was working together, the Feds were asked to agree not to criticize their government allies?
Nothing odd about friends, is there?
Maybe there was friction at the apparent usurpation of Federal authority?
Surely not me?
Officials at the banking regulators’ offices declined to discuss their involvement.
Kollyvornia had nutting to do vid dis
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