New York's AG Probes Lenders

New York attorney general Andrew Cuomo has initiated several investigations focusing on lender relationships with mortgage brokers and appraisers, industry sources told National Mortgage News.

Industry observers say it is uncertain how far up the loan product food chain the New York AG might go, but suggest his investigations could ultimately lead to Wall Street underwriters that have securitized billions of dollars in residential subprime loans.

Mr. Cuomo - a former housing secretary in the Clinton administration - has shown his mettle by aggressively pursuing shady practices in the student loan industry. The successor to Eliot Spitzer, who is now serving as governor, Mr. Cuomo is pursuing wrongdoing in the residential finance industry.

"As expected, Attorney General Cuomo has commenced a number of active investigations related to various aspects of mortgage lending," said Washington attorney Andrew Sandler, who specializes in fair lending litigation for Skadden Arps.

"Specifically, he has a number of active investigations pending involving pricing and underwriting issues as well as inquiries focused on predatory lending," said Mr. Sandler.

The Skadden Arps partner noted that the AG's office is especially focused on the conduct of mortgage brokers and appraisers.

Armed with Home Mortgage Disclosure Act data showing that minorities are significantly more likely than whites to receive higher-rate mortgages, Mr. Spitzer had initiated investigations into the pricing of subprime loans.

NMN previously reported that AG Cuomo has subpoenaed a number of mortgage companies doing business in New York - seeking information about mortgage broker compensation and other industry practices.

The subpoenas are generic, asking lenders and servicers about appraisal practices, mortgage broker practices, and the way lenders slot borrowers into different loan products.

Bloomberg News recently reported that Cuomo's office subpoenaed the appraisal unit of the First American Corp. and others as part of an investigation into whether mortgage brokers pressure appraisers to inflate house prices.

One attorney who did not want to be identified said the AG's office is looking for evidence that shows lenders threaten to take their business elsewhere if the appraiser won't match the sales price. The attorney said the appraisal investigation is in the early stages.

Howard Glaser, who served as counsel to the former HUD secretary, said the issue of lenders pressuring appraisers "is an area that is sure to draw attention. You look at Cuomo's record as HUD secretary - there was a big focus on appraisals." (Mr. Glaser has known the AG for 20 years.)

"My experience with Secretary Cuomo is that he doesn't do half-measures. When he takes something on he tends to pull the thread and keeps pulling to see where it leads," he said. Mr. Glaser currently serves as counsel to the National Association of Independent Mortgage Bankers.

Mr. Sandler referred to the level of scrutiny the New York AG is applying to the mortgage industry as unprecedented. (c) 2007 National Mortgage News and SourceMedia, Inc. All Rights Reserved. http://www.nationalmortgagenews.com http://www.sourcemedia.com