Here is the press release from NY AG Cuomo. A couple of excerpts:“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. Knowing this, 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.”And from the Appraisal Institute:
Attorney General Cuomo, Nov, 7, 2007“I wish I could say I am shocked by the discoveries made by the Attorney General and his staff. Sadly, what allegedly happened between First American and Washington Mutual is not an isolated incident. Rather, it is symbolic of a problem that has plagued the appraisal industry for years. As the allegations against First American show, the mortgage industry’s dirty secret has been that banks exert tremendous pressure to extort appraisers.”
Terry Dunkin, President of the Appraisal Institute Nov 7, 2007.
One thing puzzles me about this. Cuomo wants Fannie and Freddie to verify that the WAMU loans they buy do not have inflated appraisals underwriting them. But I thought that when Fannie/Freddie bought loans, they used an automated valuation model to keep the appraisals honest. I could be wrong about this, but if I am not, Cuomo's calling the GSEs on the carpet is grandstanding. But this whole episode also shows why home mortgages should be underwritten using automated valuation models. They are not perfect, and they are what they are, but they can't be fudged.