Are you sure the normal is in world space coming out of houdìni? Also, the normal you have assigned to your ‘Normal Map’ slot looks a bit weird. Like it doesn’t look similar to the position texture, but more like an actual normal map.
Other than that your setup looks fine to me.
I’ve had some issues in the past when my sims in houdini were scaled ‘too large’, but it would result in flickering when imported into UE, rather than weird normals.
The normal is a standard tangent space normal map created in substance painter.
In my setup you can see I’m transforming it from tangent to world.
I solved the scale prior to this post.
I’m late to the game, here, but in the latest Houdini VAT plugins, it says you need to uncheck the “Use Tangent Normals” option in the material. Maybe related?
