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Are Subprime Lenders Up to New Tricks?

Several weeks ago I reported a story about how former subprime lenders were starting new careers in loan modification companies. These are companies that promise, for a fee, to get you through all the red tape with your lender and get you the best moodification money can buy. Some of the companies are legitimate, but many more are not. Many are scamming already-scammed borrowers, taking the money and providing no real services.

Then today I read an article in BusinessWeek that literally gets my stomach acid going.

A little background: Thanks to a lawsuit by NY State Attorney General Andrew Cuomo against an enormous appraisal company, First American (FAF) of Santa Ana, CA, the home finance industry has agreed to a governmnet-approved "Home Valuation Code of Conduct," set to begin May 1. This means that lenders and brokers can no longer order up their own appraisals from local appraisers. Instead they have to use a middleman, otherwise known as an appraisal management company, to order up the appraisals. Brokers may or may not be familiar with the appraisers and they can't even speak with them. Now brokers have told me this is just throwing a toolbox full of wrenches into an already difficult mortgage business, but for the moment that's beside the point.

I understand the reasoning. Make sure lenders and brokers aren't in cohoots with appraisers. But what about these appraisal management companies? I learned that Bank of America , Wells Fargo and several other banks actually operate their own AMC's. Hmmm. But that's not the worst of it.

According to BusinessWeek, some of these appraisal management companies are former subprime lending companies that obviously needed a new line of work. So the folks who made all those bad loans are supposedly now keeping watch over the appraisal business, making sure independent appraisers are not inflating or deflating values due to pressure from lenders. Sounds to me like this new "code of conduct" managed to take all the bad kids off the principal's bench and assign them to hall monitor duty.

And on top of that, it seems like nobody's watching these monitors?

Questions? Comments? RealtyCheck@cnbc.com