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[Capital Reflection] GSE/NY AG Comment Period Over, Political Maneuvering Remains

Did a lot of painting inside my house this weekend so I apologize if some of the paint ended up on this post.

The comment period has ended but the debate rages on within the appraisal profession: the new mortgage process that does not allow appraisals to be ordered by mortgage brokers will have the effect of enabling appraisal management companies and end up with an unreliable appraisal product. Two different paths taken to the same end: crummy collateral asset quality.

I am guessing the OCC is going to get busy, gaining back the limelight on the mortgage lending process from the NY AG’s office.

James Hagarty wrote a nice piece in the Wall Street Journal called Who Should Profit From Home Appraisals? [1] about the political storm that has only just begun. What I find disappointing is how self-serving the players have become. Nothing wrong with advocating for your constituents, that is their job. The part that rubs me wrong is that it has become so predictable. The trade groups seem to be saying the old system worked just fine. Of course that is a complete disconnect from reality.

How does one explain how we got here? And are we going in the right direction?

The AMCs keep a big share of the fees consumers pay, typically at least 30% and sometimes more than half, appraisers and AMC executives say. The AMCs say they provide a valuable service by maintaining networks of local appraisers and controlling quality. “The AMCs pay market rate” to local appraisers, says Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, a trade group.

Bottom line: If we want the lending system to have the collateral value estimate free from corruption and influence, then appraisal management companies, bank loan officers and mortgage brokers have no business whatsoever, ordering appraisals directly because they have a vested in their outcome. I believe it is called commingling interests.

Comments or no comments, I find it hard to believe that OCC will allow this to happen without making their own agreement. Otherwise, they will become as non-existent as OFHEO was during the housing boom.

Also check out: The Housing Crisis & The Plague of Potomac Fever [3]