Mortgage Daily Logo

Attorney General Gone Wild

Appraisal

New York’s attorney general has expanded his investigation of appraisal fraud at eAppraiseIT to determine whether Fannie Mae or Freddie Mac helped Washington Mutual in an alleged conspiracy to inflate fair market values. One major appraisal trade group was quoted in the state’s announcement as saying that the allegations are proof that mortgage lenders are responsible for bad appraisals.

The state’s attorney general, Andrew M. Cuomo, issued an announcement today indicating Letters of Notice and Demand have been sent to the two government sponsored enterprises “providing notice of the issuance of Martin Act subpoenas and a demand for an independent examiner.”

In his letters to Fannie’s and Freddie’s chief executive officers, the attorney general said investigations uncovered a pattern of collusion between lenders and appraisers. He explained that the securitization process, which shifts the risk to investors, has had the effect of reducing mortgage lender vigilance in underwriting. In addition, commissioned sales people only exacerbate the problem.

“Lenders’ profits are determined by the quantity of the loans they successfully close, and not the quality of those loans,” the letters said. “There is an incentive for a lender to pressure appraisers to reach values that will allow the loan to close.”

Last week, Cuomo announced a lawsuit was filed in the Supreme Court of New York, New York County, against eAppraiseIT and its parent, the First American Corp., seeking an end to the illegal relationship, penalties and disgorgement. He alleged numerous e-mails he reviewed confirmed eAppraiseIT bowed to pressure by WaMu to use a select group of “proven appraisers” that the lender knew would inflate fair market values.

But First American claimed that the “handful of e-mails” the attorney general’s allegations are based on were “taken out of context, or mischaracterized,” while WaMu explained it has no incentive to promote inflated values.

“Our expanding investigation into the mortgage industry has uncovered that Washington Mutual improperly pressured appraisers to provide inflated values that best served the lender’s interest,” the attorney general stated in today’s release.

Cuomo claims WaMu is Fannie’s third largest customer, selling it $24.7 billion this year. He noted the Seattle-based thrift is Freddie’s 14th biggest customer, with $7.8 billion in loan sales this year.

“We are, therefore, expanding our investigation to determine the extent of Fannie Mae’s [and Freddie Mac’s] knowledge of, and actions regarding, these problems,” the letters stated.

The subpoenas require Fannie and Freddie to provide data about all mortgages acquired from any bank and the mortgage-backed securities associated with the loans, the announcement said. In addition, information about due diligence practices and appraisal valuations is also requested.

The statement said the Washington, D.C.- and McLean, Va.-based secondary lenders have agreed to New York’s demand to retain an independent examiner who will review WaMu loans acquired by the GSEs.

“The subpoenas also seek information on the due diligence practices of Fannie Mae and Freddie Mac, and their valuations of appraisals,” Cuomo said. “Fannie Mae and Freddie Mac cannot afford to continue buying Washington Mutual mortgages unless they are sure these loans are based on reliable and independent appraisals.”

Fannie issued a statement today indicating full cooperation is planned with New York and that it is not in the company’s interest to guarantee mortgages with inflated appraisals. If any appraisal discrepancies are found, WaMu would be required to repurchase the affected loans.

Fannie and Freddie’s regulator, the Office of Federal Housing Enterprise Oversight, issued its own statement today indicating it has already been working with Fannie and Freddie to combat mortgage fraud.

“I look forward to hearing from the New York Attorney General’s office on the nature of his inquiry and of the requests for assistance from the GSEs that are subject to OFHEO regulation,” OFHEO Director James B. Lockhart said in the announcement.

New York’s attorney general enlisted the help of the country’s appraisers in his campaign against lenders.

“What allegedly happened between First American and Washington Mutual is not an isolated incident,” Terry Dunkin, president of the Appraisal Institute, was quoted as saying in New York’s announcement. “As the allegations against First American show, the mortgage industry’s dirty secret has been that banks exert tremendous pressure to extort appraisers.”

Freddie issued a statement indicating it would also cooperate with the investigation and that “accurate appraisals are fundamental to our effective credit risk management.”

“Freddie Mac retains the credit risk on the mortgages it securitizes,” the statement said. “We depend upon accurate appraisals.”

Related Posts

How Are My Property Taxes Calculated and How Do I Pay

How Are My Property Taxes Calculated and How Do I Pay

Homeownership comes with lots of new expenses and increased fees, like homeowner’s and title insurance, pricier utility bills, and property taxes. Even if you’re prepared for higher bills, it’s important to know exactly how much they’ll spike up. Especially when it...

Understanding Your Home Inspection Report

Understanding Your Home Inspection Report

How to read a home inspection report? A home inspection report, especially on an older home can be quite extensive. It usually carefully designed to be clear, easy to understand and helpful to the buyer. The home inspection report is an overview of conditions...

Benefits of a Home Appraisal

Benefits of a Home Appraisal

A home appraisal inspection is not the same as a home inspection. The home appraisal inspector works for the bank that will be lending you the money to purchase your new home. The main reason an inspection is required is that the bank wants to ensure that the money...

What Does a Home Inspector Do?

What Does a Home Inspector Do?

A home inspection report is very different from a home appraisal inspection. Inexperienced real estate salespeople sometimes do not understand the difference. Although real estate professionals that have worked in the mortgage industry and decide to shift into sales,...

Popular posts

How Long Does It Take to Refinance a Mortgage
How Long Does It Take to Refinance a Mortgage

So, you’re interested in refinancing your mortgage. Maybe you want some extra capital to do that home project you’ve always dreamed of, interest rates are nearing record lows, or you want to start consolidating debt. Regardless of the motivation behind the refinance,...

How Does Refinancing a Mortgage Work
How Does Refinancing a Mortgage Work

A home purchase is considered an investment, and a robust one at that. Savvy owners are constantly looking for new ways to reduce debt, save money, pay less in interest, and ultimately build equity. Refinancing is one way to leverage your investment and do just that....

What Does It Mean to Refinance Your Home
What Does It Mean to Refinance Your Home

You can think of refinancing your mortgage as a debt redo. Essentially, you’ll swap out the existing loan for a new one - ideally with better terms and conditions. Only this time it could help you save money on high mortgage payments, rather than just borrow it....

Setting up the Utilities in My New House
Setting up the Utilities in My New House

All the tedious, time-consuming home closing documents have been signed, sealed, and delivered. Your belongings are packed into what seems like a million boxes and you have a solid plan to haul all your existing furniture to the new place. Just as your boxes and...

When Is My First Mortgage Payment Due?
When Is My First Mortgage Payment Due?

Navigating your way through a brand new mortgage loan can be a difficult task, especially for first time homeowners. After handing over a large sum of money for the down payment and closing costs, it’s important to pay attention to the timing of your first mortgage...

Newsletter

Don’t worry, we don’t spam

calculate your monthly mortgage payment

Related Topics

Helpful Links

Daily mortgage rate trends

Best mortgage lenders

First-time homebuyers programs by state

Loan limits by state

Types of mortgages

APR vs interest rate

Understanding PMI