Comprehensive Nature of Cuomo's Actions

[hastalavista]

Marcia,
but after you read paragraph III, read paragraph IV. It says who, from the bank or lender , cannot select,retain or order appraisal. The bank is going to be very restricted in ordering appraisal based on item IV and most likely are going to send them to AMCs.

That's how I see it.

 

[Doug Smith SRA]

Correspondent Lenders

Denis DeSaix;1557566]I don't see it explicitly stated. It is implied, but it could be that I am over-focusing on the AVM part.

III. The lender,

or any third-party specifically authorized by the lender (including, but not limited to, appraisal management companies and correspondent lenders)

shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser.
​

Notwithstanding these prohibitions, the lender may use in-house staff appraisers to (i) order appraisals,

This quote highlights what is missing in this debate and that is that Cuomo has put his ok on using correspondent lenders. A correspondent lender is nothing more than a loan broker with a credit line. Check out this link.

What is a Correspondent Lender?

Consider a broker who develops significant business volume, has earned the confidence of wholesale lenders who will authorize him to approve their loans, and has accumulated some capital. He can now obtain a credit line from a bank that can be drawn against to fund loans, repaying the loans when they are sold to wholesale lenders. Under the law, the broker has morphed into a "lender" – the type called "correspondent lender".

But correspondent lenders operate in the same way as brokers in avoiding market risk. The prices they deliver to borrowers are those of the wholesale lenders, plus a markup. When they lock a price for the borrower they simultaneously lock it with the wholesale lender, which locks in their markup. By my definition of "lender", therefore, correspondents don’t make it, they are just large brokers.

What is really needed is definition of a lender. A lender is an institution with money at risk. AMC's and Correspondent Lenders have no money at risk. The intent of FIRREA was that the lender selected the appraiser. The regulations that maintain the public trust will in the future insure that there is a direct connection with having money at risk with the process of selecting the appraiser.

The gigantic flaw in the agreement is the inclusion of correspondent lenders. They are the ones that inflict secret mark ups on the general public and who if allowed to select appraisers will insure that their commissions are protected. They are no better than the loan brokers.

The AMC issue will resolve itself when an AMC is seen as an extension of the lender and provides the back office support for selecting the appraisers.

It is time this Forum turned its attention to the real problem, the acceptance of correspondent bankers as bonifide lenders. This needs your attention and comments forwarded.

 

[Soapbox Kimmie]

Are any staff appraisers seeing the effects of this yet???

Are Staff appraisers going to be laid off/downsized because of the agreement??

Does anyone know, or are you all hearing anything???

The way of staff positions used to seem safe for an appraiser. But not so much anymore......

 

[Marcia Langley]

IV. All members of the lender’s loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender other than either the Chief Compliance Officer, General Counsel, or any officer who is not independent of the loan production staff and process, shall be forbidden from: (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender; (2) any communications with an appraiser, including ordering or managing an appraisal assignment; and (3) working together in the same organizational unit, or being directly supervised by the same manager, as any person who is involved in the selection, retention, recommendation of, or communication with any appraiser. If absolute lines of independence cannot be achieved as a result of the originator’s small size and limited staff, the lender must be able to clearly demonstrate that it has prudent
safeguards to isolate its collateral evaluation process from influence or interference from its loan production process.

The prohibition in item IV-ii is against production staff or any lender employee "other than" those reporting to compliance officer or general counsel. The lender employees reporting to those two entities are not prohibited.

 

[Marcia Langley]

Marcia, from your quote above, it has me thinking again, sorry. What would stop a lender who owns their own AMC, from just "merging" the AMC into the company itself, after all they are owned by the same entity. The AMC personnel do not actually do the appraisals themselves, they just are the middle man in the process. Their functions would be pretty much the same and they could basically still run things the way they are run now. They could do this to get around the 20% ownership rule. What am I missing?

I suppose they could. But if they did, they would be direct emoloyees of the lender and would have to report to either the general counsel or the compliance officer and be under their direct oversight. No more plausible deniability and the split fee would disappear.

 

[RICHARD D. FRANK]

Thank you, Marcia! Please keep a journal of your writings in this thread.

 

[Marcia Langley]

Doug,

I agree the inclusion of correspondent lenders is not a good thing for all the reasons you said. I don't know enough about that structuring of the process to know if one could exclude them without unintended consequences for "real lenders" who do business with each other.

Maybe the fact that that is business between lenders is problematic for this document to address. Do you know if anyone is working on this for formal comments? I realize it could just be a juicy bone thrown to the banking industry for appeasement but I just don't know enough about it.

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I guess, as it is, if they close their own loans, they are considered a small lender who does not have to separate staff but only has to 'demonstrate' safegards. We all know how well that works.

If we don't end up getting them excluded from ordering appraisals, at least they will be held to the same code as the lenders and the lenders will still be resonsible for them.

And again, they would be 'specifically authorized' by the lender to order appraisals which clears up our need to know the status of their 'agency'.

 

[Carnivore]

That's how I see it.

The issue then is to have emphasis placed on the fact lenders can not abdicate there QC responsibilities. If you think about this a moment it may occur to you that this is likely to be the root cause of all are problems.

Think of all the abuse and look closely where the majority of it comes from!
I believe 90% of the problems come as a result of Brokers and AMC's. When was the last time you actually communicated with a real UW from the funding source? Most of us probably can not recall.

 

[Marcia Langley]

I agree, Carnivore, this effort seems to be stressing lender QC, not diminishing it.

I have not lost sight for a second of the propability that banks will choose to order through AMCs more often than not. But as long as AMCs can't be arbitrarily outlawed, hacking away at their most problematic behavior is the best approach.

And defining their different functions as one thing or the other (an appraisal company or a client/agent) is helpful in holding them to standards.

The code highlights on the fact that lenders are responsible for the quality of their appraisals regardless of where they come from. Lenders have to demonstrate that the AMCs they order from adhere to the same code.

For instance item I-8 addresses blacklisting by banks or AMCs or anyone else.

And taken together with the AMC lawsuit, which is still open, a lot more can still be done.

Pressure unique to AMCs was not addressed in the code. Something needs to be done about arbitrary turn times. That's a type of pressure that has far reaching effect.

Something needs to be done about the abusive contracts AMCs require.

But since those problems are unique to AMCs, maybe this code is not the place to address them. It should be, but maybe they would be better addressed in an action directly against the AMCs. The states do have jurisdiction over them.

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And don't forget that item I-10 addresses "any other" pressure. Anything that can be proved to amount to pressure would be covered. That covers all the tiny things like "don't mark declining" or "ignore the condition problem".

 

[ghrousseau]

The main question I have with Cuomo's agreement, what happens if another AG from another State or the Feds conduct their own investigation and brings lawsuits against Freddie/Fannie. The only reason F/F agreed was to call off the dogs, but if other dogs start sniffing around what happens to the agreement. Like Mike said, this is all just starting...[/QUOTE]

Not to mention when the trial lawyers start going for the deep pockets in the class action suits. They are not going to go after individual appraisers............they will go after AMC's, lenders, and other vendor management firms. I also think that this whole deal wtih the AG of NY violates the interstate commerce clause. I see this going pretty far in the courts before it takes affect. The NAMB will definately pony up some money to go to court.