Comprehensive Nature of Cuomo's Actions

[Marcia Langley]

Cuomo's role as NY AG allows/obligates him to pursue potentially criminal activity that harms the citizens of his state. But he can only mount formal investigations that are in his jurisdiction.

Out of all the perceived criminal/unethical/immoral issues surrounding predatory lending, the issue I am obsessed with is the appraisal piece.

The issues with appraisal problems are systemic to the entire industry. The abused interfaces between:

appraisers and clients,
clients and their buyers of loans,
the buyers of the loans and their buyers of bundled and sliced securities,
the issuers of the securities and the agencies who rate the securities,
the raters and the institutional investors guided by them,
the government lawmakers/regulators and the regulated entities
represent the entire system that the appraisal piece "sticks to" as it travels through the mortgage lending system. That is the path and the byways that an appraisal navigates between the appraiser and the public trust.

Of all the players on the national stage, Cuomo is the only one that has mounted a serious and comprehensive investigation (as far as his jurisdiction will allow) into specifically the appraisal piece and the related systemic abuse of it.

His jurisdiction does not extend to the entities that are not under state control, like the banks. He has gone after abuses in the interfaces with the banks on both ends. The appraisal ordering on the front end and the GSE's securitizing on the back end.

His investigations at both ends needs to be looked at as a whole, comprehensive strategy. So far, we know he has investigated/subpoenaed Freddie and Fannie, First Am/eApe, and a large appraisal firm in NY (Maxwell something). That represents all the most significant interfaces for appraisal ordering issues.

His investigation of Freddie/Fannie not only impacts the (outside his jurisdiction) banks but also the AMCs and the MBs. He has also investigated and sued an AMC directly. He has subpoenaed all the records of a huge appraisal firm that performed assignments for the AMC.

All of these actions together with the WAMU memos and the GSE settlement code demonstrate that he has a crystal clear understanding of the systemic appraiser independence issues. Who else whith a national position of protecting the public trust has ever done that? How much of his NY taxpayers money do you imagine he is spending on this?

Almost all of this activity hinges on the way banks handle appraisals. And he can't investigate them directly. But he can affect them by going at it from both ends. The existence and behavior of the MBs and AMCs are the fault of the banking system. The banks actions created them and the banks actions molded the business model. The entire system is designed to give banks plausable deniability for appraisal (and other) abuses.

And all the congress and the federal laws and federal banking regulators have winked and winked and winked at the abuse and made pretty speeches that were narrow in scope and fixed nothing and made a nice sound bite.

Cuomo is the only one actually exposing the complicated and systemic problem to the public.

He can't outlaw mortgage brokers but he can get the GSEs to refuse to fund their loans if the appraisal was not ordered by the bank. He can't outlaw AMCs but he can get the GSEs to refuse to fund the loans if the code is not followed by both the banks and the AMCs.

And he does have jurisdiction to prosecute AMCs and other appraisal firms directly if they violate the laws of NY. And he's not through with the AMCs, yet.

It's the expensive and comprehensive nature of his activity that impresses me. Regardless of what one thinks of him as a person, or of the fact that we've been disappointed in government "lip service" in the past, we have to pay attention to this.

It just seems unreasonable that appraisers should belittle this one-time huge event.

Don't use your skepticism and fear to trivialize it. Use your skepticism and fear to seek to influence it and keep it from melting away.


---

I am further heartened by the fact that he is not defaulting to the position of merely going after lawsuit money to distribute among his state citizens. The settlement code with the GSEs will benefit the entire country's banking integrity.

 

[Workbox]

Wonderful post Marcia, great way to start a morning.

 

[psmith2170]

Required to work for an AMC.

Cuomo's role as NY AG allows/obligates him to pursue potentially criminal activity that harms the citizens of his state. But he can only mount formal investigations that are in his jurisdiction.

Out of all the perceived criminal/unethical/immoral issues surrounding predatory lending, the issue I am obsessed with is the appraisal piece.

The issues with appraisal problems are systemic to the entire industry. The abused interfaces between:

appraisers and clients,
clients and their buyers of loans,
the buyers of the loans and their buyers of bundled and sliced securities,
the issuers of the securities and the agencies who rate the securities,
the raters and the institutional investors guided by them,
the government lawmakers/regulators and the regulated entities
represent the entire system that the appraisal piece "sticks to" as it travels through the mortgage lending system. That is the path and the byways that an appraisal navigates between the appraiser and the public trust.

Of all the players on the national stage, Cuomo is the only one that has mounted a serious and comprehensive investigation (as far as his jurisdiction will allow) into specifically the appraisal piece and the related systemic abuse of it.

His jurisdiction does not extend to the entities that are not under state control, like the banks. He has gone after abuses in the interfaces with the banks on both ends. The appraisal ordering on the front end and the GSE's securitizing on the back end.

His investigations at both ends needs to be looked at as a whole, comprehensive strategy. So far, we know he has investigated/subpoenaed Freddie and Fannie, First Am/eApe, and a large appraisal firm in NY (Maxwell something). That represents all the most significant interfaces for appraisal ordering issues.

His investigation of Freddie/Fannie not only impacts the (outside his jurisdiction) banks but also the AMCs and the MBs. He has also investigated and sued an AMC directly. He has subpoenaed all the records of a huge appraisal firm that performed assignments for the AMC.

All of these actions together with the WAMU memos and the GSE settlement code demonstrate that he has a crystal clear understanding of the systemic appraiser independence issues. Who else whith a national position of protecting the public trust has ever done that? How much of his NY taxpayers money do you imagine he is spending on this?

Almost all of this activity hinges on the way banks handle appraisals. And he can't investigate them directly. But he can affect them by going at it from both ends. The existence and behavior of the MBs and AMCs are the fault of the banking system. The banks actions created them and the banks actions molded the business model. The entire system is designed to give banks plausable deniability for appraisal (and other) abuses.

And all the congress and the federal laws and federal banking regulators have winked and winked and winked at the abuse and made pretty speeches that were narrow in scope and fixed nothing and made a nice sound bite.

Cuomo is the only one actually exposing the complicated and systemic problem to the public.

He can't outlaw mortgage brokers but he can get the GSEs to refuse to fund their loans if the appraisal was not ordered by the bank. He can't outlaw AMCs but he can get the GSEs to refuse to fund the loans if the code is not followed by both the banks and the AMCs.

And he does have jurisdiction to prosecute AMCs and other appraisal firms directly if they violate the laws of NY. And he's not through with the AMCs, yet.

It's the expensive and comprehensive nature of his activity that impresses me. Regardless of what one thinks of him as a person, or of the fact that we've been disappointed in government "lip service" in the past, we have to pay attention to this.

It just seems unreasonable that appraisers should belittle this one-time huge event.

Don't use your skepticism and fear to trivialize it. Use your skepticism and fear to seek to influence it and keep it from melting away.


---

I am further heartened by the fact that he is not defaulting to the position of merely going after lawsuit money to distribute among his state citizens. The settlement code with the GSEs will benefit the entire country's banking integrity.

I do not know how much the AMC's in your state pay for an appraisal, but in Virginia, the range is $175 to $250 for a 1004. Once Cuomo's agreement is fully implemented and we are all FORCED to work for an AMC, do you think they will raise or lower the amounts they pay to appraisers?

One appraiser responded to one of my comment by saying "only if you do work for Fannie or Freddie". The truth of the matter is, 65 to 70% of the mortgage loans today wind up on Freddie or Fannie's books. We ALL work, indirectly or directly for Fannie & Freddie! Don't be fooled by Cuomo's actions. He is not a "saint". He just wants to be the next Governor of New York!

 

[Marcia Langley]

I do not know how much the AMC's in your state pay for an appraisal, but in Virginia, the range is $175 to $250 for a 1004. Once Cuomo's agreement is fully implemented and we are all FORCED to work for an AMC, do you think they will raise or lower the amounts they pay to appraisers?

One appraiser responded to one of my comment by saying "only if you do work for Fannie or Freddie". The truth of the matter is, 65 to 70% of the mortgage loans today wind up on Freddie or Fannie's books. We ALL work, indirectly or directly for Fannie & Freddie! Don't be fooled by Cuomo's actions. He is not a "saint". He just wants to be the next Governor of New York!

AMCs pay pitifully in my area and my business is already suffering from the banks' earlier pull backs from MBs. Literally all of the remaining MBs have stopped ordering unless I can "hit the value". I have never registered with an AMC and I have never done a comp check for MBs or anyone else. I'll let you guess how well my cash flow is holding up.

So the truth is that I'm already dependent on orders directly from banks. I actually got one this month.

Like you, most all of my work is for residential mortgages. And yes, almost all of that work ends up at the GSEs, more so every day due to the other funders pulling back from the business.

I don't think Cuomo is a saint. I think his recent activity is a first and last stand for appraiser independence reform.

I don't disagree that when the banks stop accepting appraisals ordered by MBs (like I said, many already have) that they are likely to choose to order those same appraisals through an AMC rather than directly from an independent fe appraiser. But if that is the case, what are we going to do about it?

What are the possibilities that the GSE code could be expanded to include some prohibitions against the broader abuses committed by AMCs? It already addresses some of them.

What are the possibilities that the suit against the AMC could result in some other correction of their abuses?

I'm not implying that you should not complain about the apparent drive toward AMCs, I'm only saying it should not be trivialized or ignored. This is a one time chance to scream into the open ear of someone who is actually doing something.

 

[Ross (CO)]

The events out of NY a mere 6 days ago are dynamic. The buzz and the chatter of both the positive and the negative fall-out that has been posted and communicated over these few days IS going to eventually get in front of the eyes of many of "the folks"....sitting around their kitchen table and staring at network news at 6pm.

I clipped out one article in my local newspaper two days ago. Sure, it was an Associated Press piece......but its headline would surely be worthy of note. It had the word "Appraisal" in it ! The headline was : "Independant Appraisal Agreement Causes Stir". It mentioned NY , Fannie , Freddie, WaMu , C-Wide , the StageCoach Company , LSI , eAppraiseIT , First American , TAVMA......and the closing paragraph introduced the possibility that national mortgage brokers "threatened legal action".

We should tip our hats to the NY officials for shining a big spotlight on the issues......that The FED have been totally unwilling to scrutinize and look into with any seriousness ! (Steroids in baseball was much more important to them.) The invitation that has likely been presented could be interesting. When will the other 49 states make similar expressions of their concern for the mis-management and shenanigans that have been played-out during these last five years ? Enforceement of existing and newly-hatched "laws" to crack down on bad apples still resides at the state level. Most of the day-to-day stuff is reconciled at the state level.

How embarrassing to have to be recognized as the 50th state to get on-board ! How positive for those to take a bold stand as state #2, or #3 or #4, etc. in a continuing acknowledgment of protecting the Public and enabling an environment where appraisers are granted their independance......and clients are compelled to return to a bygone era by receiving independant and unbiased reports to secure their business decisions. (Imagine the cocktail party and business convention chatter when people are lamenting into the Pinot Noir.......We are not allowed to offer our estimates-of-value or demand comp checks anymore ! !)

Oh, what an interesting year '08 is going to be !

 

[Mike Kennedy]

Prior to, and after the inception of, AMCs appraisal fees were, and are, and always will be set by the MARKET. Demonstrated and Perceived Value of Appraisal Services and Supply and Demand - period.

Those who think otherwise are self-delusional.

Marcia's opinion is well-supported by ACTIONS taken by the NY AG, and others, further enhanced by Info sharing between State AG's and the FBI.

It ain't over till it's over....... and .........it's Just Begun.
The FBI is currently investigating 14 MAJOR players......... the AG's office is STILL investigating complaints and hardcopy data on AMCs, Lenders and (a)ppraisers provided by NUMEROUS sources.......

all Ethical Appraisers are URGED to continue reporting fraudulent appraisals to Regional FBI White Collar Supervisors and their respective Attorneys General.

Additionally - pls see my other post this morning with links to the FHA/HUD COMPLAINT PROCESS.

THE SUBPRIME WAS MERELY THE TIP OF THE ICEBERG. The same players, the same methodology, the same coercion, solitication to commit fraud, and the same extortion against Ethical Appraisers in the PRIME AND FHA Markets will make the Sub-prime fiasco look like a picnic in a park.

IT'S NOT OVER UNTIL IT'S OVER......... meanwhile..........the band continues to play on.

 

[Dan/Fla]

I do not know how much the AMC's in your state pay for an appraisal, but in Virginia, the range is $175 to $250 for a 1004. Once Cuomo's agreement is fully implemented and we are all FORCED to work for an AMC, do you think they will raise or lower the amounts they pay to appraisers?

I do not agree than AMCs are the only choice. Though this may be true if we do not take part in this Now less than 90 day responce period. From the history I read AMCs are part of the problem though they mentioned bank controlled and or owned AMCs.. But lets think lets say after the Bank controlled AMCs are gone and there are lets say 20 AMCs left. Though the banks can decide of those left that they are going to use. Does the banks still have control Yes.. Let say John & Jane Doe Appraisals are being too conservative for ABC Bank and Trust. They call the AMC and say “Get John & Jane to be more liberal or do not send them any of our work because if we get another Conservative appraisal we are moving all out business to another AMC.” Will that happen maybe if so what has been solved.

There has to be another choice I have had AMCs in the past not related to a bank though controlled by a bank and asked for things they should not have asked for.

I would love another choice than AMCs. I am sure some of you have seen my idea. A rotating list something like VA uses but on a more National scale or a rotating list for each state overseen by the board that either covers appraisers or those that control Banks and Finance. True we would have to come together on our Fees lets say 325 to 350, and the Unit that controls the list lets say charges $5 to Appraisers and $5 to the ordering Institution to covert the service cost. This is just my idea but still working bugs out before presenting, to someone who may or may not listen. I think we will all be better off with No AMCs, at least as we know them now. Though sorry this would increase the unemployment of these workers.

 

[Marcia Langley]

There has to be another choice I have had AMCs in the past not related to a bank though controlled by a bank and asked for things they should not have asked for.

Dan,

You are right, now is the time to be getting your complaints/suggestions to the right ears.

Did you notice that the first 10 items in the settlement code applied directly to AMCs?

 

[hastalavista]

Marcia-

I've discussed this topic on another forum. Here's a cut from my post which I think is relevant to your thread-
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I think the agreement is a poor idea. I've argued for at least a year that any legislation, regulation or guideline should not identify AMCs as a party to the transaction because it makes them a shareholder in the appraisal delivery system and now (I would argue) entrenches them into the business environment.

The much better agreement would have been this: Anyone who sells a loan to Fannie/Freddie must be a FRI. All FRIs who sell a loan to Fannie/Freddie are 100% responsible for due diligence quality control and the responsibility for such quality control cannot be outsourced to a third-party. The lender needs to take full responsibility for the quality of the appraisal they are relying on to make their loan and that they are relying on to use as prima facia evidence of the quality of the underlying asset when they sell it. Now, this (Fannie/Freddie/NYAG) agreement has taken away the ability of the lender to control that process and has created (de facto) the requirement to outsource to a third-party vendor.
The third-party vendor is now a stand-alone profit center based on business volume.
Volume can be generated by several means with the two obvious being competitive (low) fees and competitive service (e.g., quick-turn times, cost approach on all reports, six-minimum comps).
Where is it in this agreement that the banks are any more responsible for quality and due diligence review of the appraisal? The agreement says the banks must quality control 10% of the appraisal reports on a random basis. What is not defined is what is the pass/fail consequence? So, if I am a bank and planning to sell my loans to Fannie/Freddie, and I complete my one-in-ten review and report those results to the "Independent Value Protection Institute", have I completed my due-diligence? How can Fannie/Freddie make me buy back their loans when I follow their "Code of Conduct" to the letter?
If I was a bank and planned to sell my portfolio to the GSEs, I couldn't think of a better process that reduces my costs and codifies my due-diligence requirements so I can manage my regulatory risk with minimum pain and effort.

The reason why this agreement is deficient is because the imposing party (General Cuomo) has no authority to enter into a binding agreement with the FRIs (the FRIs will never negotiate with a state enforcement agency because they repeatedly- and rightly so- claim federal jurisdiction as their guiding authority). So, AG Cuomo is left with this half-measure which certainly satisfies his political agenda but fails to create a real systemic change that results in changing the motivation of the parties away from obtaining the appraisal as a necessary part of the lending process to motivating them to obtain a quality appraisal as part of their due diligence requirement obligations (and, even if they realize it or not, as part of sound lending practices).

I do not think this agreement is a solution to the existing problem.
Make the lenders directly responsible and hold their feet to the fire. AMCs will come and go; one of them failing is not news. Having a bank fail or be put on a regulatory watch-list because of poor lending practices is news.
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And, when I say "satisfies his political agenda" (in reference to AG Cuomo's motivations) that isn't necessarily a derogatory remark. As you and I agree, his jurisdiction is limited; however this agreement is far-reaching beyond the boundaries of New York. That is not a law enforcement decision (IMO), that's a political agenda decision. Kudos to General Cuomo for filling in the void where the federal regulators (up to now) have been less than actively visible. A better solution would have been to invite in the federal regulators and construct a comprehensive solution that really would have some regulatory teeth built into it. That still may be happen down the road. Or, it may not. The problem with quick half-measures are they satisfy the need for instant action but fail to provide a comprehensive solution to the entire problem.

A peer of mine stated that despite my misgivings, this is a step in the right direction because it brings to a national spotlight the significant issues appraisers face vis-a-vis value pressure. That I agree with. However, if the result of the agreement is that users of appraisal services will now have a process to point to and say, "see, we fixed it!" I don't see where the systemic change (a term you and I use to describe the same situation independently) has really occurred? :new_smile-l:

 

[Karl]

Cuomo is a lawyer BUT his main ambition is politics & he'll go the way the wind is blowing so Appraisers need to start blowing really hard. Unfortunately Politicians also go where the money is. So I suggest we get the General Public motiovated that the money that will be coming into Cuomo is from the BIG BAD BANKS!! & we need thier help to fight this. According to CNN & (we know they'd never lie!!!) More people are losing homes than anytime in American History; I'd say that means we're heading into a DEPRESSION. Let us start using that word before anyone else. remember no one actually checks to see IF what is being said is fact.

IF & it is a IF but in reality we're fighting a uphill batttle!!! IF we lose "ALOT" of "Youngun's" going to be needing a new line of work.