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New York Attorney General Andrew Cuomo has reached an agreement with Federal Home Loan Mortgage Corp. (NYSE: FRE) and Federal National Mortgage Association (NYSE: FNM) in the midst of the office's year-long investigation into the mortgage industry.Freddie Mac and Fannie Mae will no longer buy mortgages from lenders that use in-house appraisers. Many observers believe that the use of independent appraisers -- who don't work for a company that has the goal of making loans --would have resulted in fewer of the ebulliently optimistic appraisals that contributed to a run-up in home prices that was destined to come crashing down.
The move will force lenders like Countrywide Financial (NYSE: CFC) to sell their appraisal operations. The New York Times reported that "As defaults and foreclosures have surged in the last year, regulators and industry analysts have raised pointed questions about the independence of appraisers. Because they rely on banks and brokers to give them additional business, appraisers often feel pressured to value a home at prices that match or exceed loan amounts."
Following in the footsteps of Eliot Spitzer, it seems that Cuomo has been charged with the task of cracking down on flamingly obvious conflicts of interest that never should have been allowed to exist in the first place. Remember when Spitzer had the epiphany that maybe, just maybe, allowing "independent analysts" to be compensated based on the investment banking business they generate might lead to some funky doings? This is a similar situation.
Regulatory efforts to crack down on self-dealing and conflicts of interest in the mortgage industry will go a long way toward restoring sanity to the market.
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Reader Comments (Page 1 of 1)
3-04-2008 @ 1:30PM
sherry said...
Too Late!!!
3-04-2008 @ 10:30PM
Chris said...
It won't matter. If a bank doesn't like the appraisal it gets from an "independent" appraiser, it will simply find an appraiser it does like. Thus, the economic incentives of the appraisers will not be changed. If they want to keep the steady business, they'll give their customer what they want.