EappraiseIT is not the main issue (although they are at the focal point of the AGs investigation). I've been saying for a long time that the issue with FRIs is that they have delegated their due diligence responsibilities to the AMCs and that is something counter to the regulatory guidelines.
WAMU was one of the best lenders to work with; they never pressured us but did ask legitimate questions when such questions were warranted. Working with Wamu direct, I may have received 5 (out of 1,000+ orders our firm did for them) requests for reconsideration.
That all changed when the shelved their internal appraisal department and went to outsourcing. Our relationship with the AMCs went all of maybe 10-15 jobs, then we cut it off.
Cuomo is a smart guy. Good for him for not going after WAMU direct because then the issue gets lost in a jurisdictional battle (Feds vs. State). But, what Cuomo will be able to do is show that there was collusion between the lending arm and the the AMC to pre-select appraisers with the intent of pre-determining the outcome of the lending decision. And to this matter I can speak first hand about as I have first hand knowledge of this occurring (as Pam knows).
Here is the significance as I see it: If this case starts and stops with EappraiseIT, then not much will change. If, however, the federal regulators become involved and review the situation and determine that lenders are not overseeing (due diligence) their third-party vendors appropriately, then a lot will change. And that "lot" will be positive change.
I still believe that 30%+/- of all mortgage appraisals will disappear because they will be able to do them with AVMs or an AVM-type product. So be it. But for the remainder, I predict (and have predicted) that the fees will increase because there will be a higher demand in the quality of the report. All this takes time. EappraiseIT may be the first significant move in this direction. Other signs are tightening of UW guidelines and an increase in review (although the increase in the volume of the reviews does not necessarily translate to an increase in the quality standards of the reviews).
You get regulators breathing down the backs of lenders, you get regulators breathing down the backs of the rating agencies (who will be held to a higher due-diligence requirement of rating the mortgage securities; part of which is the quality of the underlying collateral) and you get investors demanding a better quality collateral risk-analysis, and you will see a demand for higher-quality appraisals (and appraisers).
Does this mean the AMC model is dead? No, I don't think so. What it does mean, however, is that the AMC model cannot operate on the promise to the lender that by switching to the AMC, the lender's collateral valuation expenses will be automatically reduced. Some will, but not all. But the one thing that the AMCs will have to promise the lenders (if I am right about Wamu being held to the fire by the feds) is that their regulatory risk will be reduced. As it stands, I believe their regulatory risk has been increased.
My two-cents.
