New York State Attorney General Cuomo is close to striking a deal with the two mortgage GSE’s Fannie Mae and Freddie Mac to instill some separation between the quality and sales function of banks that do business with them. Although this was initiated by New York, the deal would have ramifications for all lenders of conforming loan products that sell their mortgage paper.
Its not a done deal yet but its being reported as “close” by the Wall Street Journal’s Amir Efrati in this morning’s article Deal Nears to Curb Home-Appraisal Abuse. Here’s my contribution:
Jonathan J. Miller, a veteran New York appraiser and longtime critic of industry practices, said the proposed deal “sounds like a promising step, and that Mr. Cuomo’s office is addressing some of the key problems that appraisers have had to deal with and that have led to the disconnect between value and risk in the mortgage markets.” He estimates that home values are overvalued nationwide by at least 10% because of inflated appraisals.
My 10% estimation is very conservative and was based on my New York area experience and interactions with colleagues across the country.
The deal proposes the following actions by Fannie and Freddie:
- They will not do business with lenders that use in-house appraisers.
- They will not buy mortgages from lenders that who use appraisals from wholly owned subsidiaries. (I believe this would apply to Landsafe, Countrywide’s Appraisal Management company).
- Require lenders not to use appraisals arranged by individual mortgage brokers.
- Create a clearinghouse for appraiser information and provide reports to the public.
Note: I will be updating this post throughout the day – the ramifications are huge