Cuomo Backs Federal Legislation Prohibiting Intimidation And Coercion Of Appraisers
WASHINGTON, D.C (November 5, 2007) - New York Attorney General Andrew M. Cuomo today endorsed federal legislation that will create new protections for consumers and investors and prohibit the improper coercion of appraisers to meet target appraisals.
The bill, the Escrow, Appraisal, and Mortgage Servicing Improvements Act (H.R. 3837), sponsored by Representative Paul E. Kanjorski (D-PA), the Chair of the House Financial Services Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee, will institute new safeguards to protect against fraud in the appraisal industry.
Attorney General Cuomo endorsed the legislation after meeting with members of Congress to brief them on the findings of his nine month investigation into the mortgage industry. The bill is expected to be considered at a Financial Services Committee markup on Tuesday, November 6.
"My office's investigation of the housing market has found systematic conflicts of interest in the appraisal industry that clearly necessitate legislation," said Attorney General Cuomo. "Government regulation can help the marketplace by providing protections for investors and consumers alike. Representative Kanjorski's bill is a big step forward in remedying some of the bad practices that have led to the foreclosure crisis facing our nation today, and I applaud his efforts."
Last week Attorney General Cuomo filed suit against one of the nation's largest real estate appraisal management companies and its parent corporation for colluding with the largest savings and loan in the country to inflate the appraisal values of homes. In a scheme detailed in numerous e-mails, eAppraiseIT, a subsidiary of First American Corporation (NYSE: FAF), caved to pressure from Washington Mutual ("WaMu") (NYSE: WM) to use a list of preferred "Proven Appraisers" who provided inflated appraisals on homes. E-mails also show that executives at eAppraiseIT knew their behavior was illegal, but intentionally broke the law to secure future business with WaMu.
The Escrow, Appraisal, and Mortgage Servicing Improvements Act will:
- prohibit the coercion or intimidation of appraisers, or any attempts thereof, and prohibit the act of influencing appraisers to meet targeted appraisals;
- levy strong penalties against those who violate the new regulations, assessing a fine of up to $10,000 per day for the first violation, and up to $20,000 for subsequent violations;
- give borrowers the right to obtain a free copy of the appraisal of their property if they are taking a high-cost mortgage; if a lender intentionally fails to obtain a copy of this appraisal, the lender will be required to pay the borrower a penalty of $2,000.
The bill will also require lenders to create an escrow or impound account for the payment of taxes, insurances, and any other required periodic payments or premiums, as a condition for certain home loans. In addition, it will prohibit servicers of federally related mortgages from failing to respond when a borrower requests to correct payment allocation errors.
"A nine month investigation conducted by my office exposed conflicts of interest in the appraisal and securitization segments of the mortgage industry, and we took legal action against one of the most blatant offenders just last week," said Cuomo. "But as an industry-wide problem, the foreclosure crisis demands an industry-wide solution. That's why this new legislation is such an important first step toward ending the abuses in the housing market nationwide."