John Taylor, chief executive officer and president of the National Community Reinvestment Coalition (NCRC), urged the conference committee to withstand pressure to remove independent appraisal requirements on mortgages in S.3217, the Restoring American Financial Stability Act of 2010, and expressed disappointment with its failure to resolve the troubling conflict of interest between credit rating agencies and Wall Street. Taylor also urged inclusion of an Office of the Homeowner Advocate in the Home Affordable Modification Program (HAMP) to conduct loan modification appeals brought by homeowners and serve as a policy voice for homeowners.
“Financial reform cannot happen with removing the existing monetary incentives we have allowed the financial industry to build into financial products, including mortgages and the services rating agencies provide," said Taylor. "We took a step backward yesterday by refusing to deal with the rating agencies’ conflict of interest. We cannot afford to take another step backwards by caving to pressure from the brokers and Realtors to remove independent appraisals on mortgages. Inflated valuations on homes helped blow the housing bubble bigger and bigger until it burst. To prevent another crisis, we need to remove the financial incentives to do more harm than good.”
Taylor said industry efforts are underway to weaken a federal independent appraisal standard, put into place by New York Attorney General Andrew Cuomo through a settlement with Fannie Mae and Freddie Mac and later adopted by the Federal Housing Administration (FHA). As a result, virtually all mortgages are currently required to have a independent appraisal.
Taylor also said the committee “removed an important page” in the financial reform plan by requiring further study and refusing to adopt an amendment by Sen. Al Franken, which would have established a government unit to assign agencies new issue ratings.
“Sen. Franken should be commended for opening a can of worms that needed opening. Despite the potential of studying this problem to death, I don’t believe it will disappear," said Taylor. "The agencies have systemic problems that must be resolved. However, an important page in the financial reform plan has been removed by refusing to end the conflict of interest between credit rating agencies and Wall Street. To require further study instead is kicking the can down the road, an exercise we cannot afford if we are serious about protecting investors and, ultimately, taxpayers. If the credit rating agencies had stood their ground and focused on substance rather than profits, the debate around deficit spending and taxes would be very different today.
“The good news, though, is the Senate approved Sen. Franken’s proposal to create an office to advocate on behalf of homeowners seeking loan modifications with HAMP. Given the failure of HAMP to help more homeowners who, through no fault of their own, are facing foreclosure, this assistance is sorely needed. Banks have been happy to take from taxpayers but not so enthusiastic about giving back to homeowners harmed by the economic crisis the banks caused. We urge the committee to adopt Senator Franken’s proposal.”
By a vote of 63-33, the Senate passed Sen. Franken’s proposal as an amendment to the tax extender bill.