WASHINGTON — The banking industry is waging a last-ditch battle to use a bill to stem fallout from the housing crisis to block Fannie Mae and Freddie Mac's appraisal-standards agreement with New York Attorney General Andrew Cuomo from going into effect.
The groups hope to persuade Senate Banking Committee leaders, who are scheduled to vote on the bill today, to add an amendment from Sen. Elizabeth Dole, R-N.C., that would specify that new appraisal standards must be set by federal — not state — regulation.
The amendment would effectively upend the deal Mr. Cuomo struck with the government-sponsored enterprises on March 3, which would require any lender or broker selling mortgages to Fannie and Freddie to use an outside appraiser.
Industry groups have argued the deal may be illegal because it was not established through the usual federal rulemaking process and circumvented preemption powers enjoyed by national banks and federal thrifts.
The Cuomo agreement, and others like it, "pose serious procedural and substantive concerns that present safety and soundness risk to the GSEs and financial institutions generally," Stephen O'Connor, the Mortgage Bankers Association's senior vice president for government affairs, wrote in a letter sent to committee leaders last week.
Paul Leonard, a lobbyist with the Financial Services Roundtable, said his group was also pushing the Dole amendment. "We support strong appraisal standards, but the right approach is to have notice and comment … OFHEO should set the standards," he said.
The Office of Federal Housing Enterprise Oversight endorsed the Cuomo deal, but did not issue it as a proposal for public comment, which banking groups argue is required by the Administrative Procedures Act.
But the amendment faces an uphill battle. Though industry lobbyists say that privately many members of the committee are sympathetic to the amendment, Sen. Charles Schumer, D-N.Y., vigorously opposes it.
"This would snatch defeat from the jaws of victory in the fight against predatory lending practices," the Democrat said in an e-mail to American Banker. "This settlement was a major breakthrough in rooting out the inflated appraisals that fueled the subprime mortgage mess. An attempt to totally undo this deal would represent a step backwards."
The legislation includes two measures: one to allow the Federal Housing Administration to insure mortgages worth more than the value of a home after lenders and servicers take a haircut, and another to revamp regulation of Fannie and Freddie.
In a brief interview last week, Sen. Dole declined to say whether the amendment was necessary for her to support the housing bill, but argued that federal regulators should set appraisal standards for the GSEs — not the states.
"It should be done by OFHEO, not by the attorney general of New York," she said. "It's going to be an important amendment. I want to look at the entire piece. I think there's a lot to look at, at this point."
Mr. Cuomo's office did not return calls seeking comment.
Under Mr. Cuomo's agreement, lenders that want to sell mortgages to Fannie and Freddie would be prohibited from using in-house staff members or an appraisal company they own or control for appraisals.
