Appraisal Institute-ASA-ASFMRA-NAIFA reply regarding the pending Interim Final Rule on TILA

Here is the official comment letter of the Appraisal Institute-ASA-ASFMRA-NAIFA on the pending Interim Final Rule on TILA and customary and reasonable fees.

Download JointLetterToFederalReserveTILAAppraisalProvisions

This letter is divided into two parts: 

Part I provides brief, general observations regarding the impact of the HVCC and HOEPA’s anti-coercion provisions. 

Part II contains specific positions and recommendations regarding the contents of the interim final rule. 

You will note that in Part II they address the issue of “customary and reasonable” residential appraiser fees in great detail given this provision’s central importance to the new law’s appraisal independence requirements. 

"While implementation of the other aspects of the appraisal independence section are discussed in somewhat less detail, our organizations regard them as being of comparable public policy and consumer protection importance. We hope you find our comments helpful and responsive to the specific questions the Fed asked in connection with the conference call."

Here are several  excerpts from the letter:

 Customary And Reasonable Appraiser Fees: As we discussed during the September 8 conference call, the Dodd-Frank Act contains a provision requiring “customary and reasonable” fees be paid to appraisers to reflect what an appraiser would typically earn for an assignment absent the involvement of an appraisal management company (AMC). Under the Act, evidence for such fees may be established by objective third-party information, such as government agency fee schedules, academic studies, and independent private sector surveys. This issue is extremely important given evidence that indicates wide divergence between fees paid to appraisers through appraisal management companies and those retained directly by financial institutions. While some AMCs pay full fees and charge for their services on a “cost-plus” basis, many do not. Many of our members report having to accept reduce fees by as much as 50 percent since the inception of the Home Valuation Code of Conduct.

 Prohibitions on Conflicts of Interest: The Fed asks whether “small banks” should be exempt from the appraisal independence and anti-conflict of interest provisions of the Dodd-Frank Act. In a word, our answer is an emphatic “no”. Because many of our members operate small valuation firms, we appreciate the difficulty that small businesses sometimes experience in meeting federal and state requirements. Nevertheless, we believe that consumers whose collateralized loans are made by small banks would be ill-served by exempting those banks from the appraiser independence requirements. Clearly, mid-size and large financial institutions with in-house appraisal departments have the resources to establish “fire walls” between those departments and their mortgage production departments. If small financial institutions lack such resources, they can readily go outside the bank and hire independent appraisers. We do not believe that this represents an unreasonable requirement.

Mandatory Reporting of USPAP Violations: The Fed asks whether clarification is required in connection with new TILA section 129E(e), which requires individuals involved in a collateralized consumer credit transaction to report an appraiser’s violation of USPAP, federal and state appraisal laws or who is otherwise engaging in “unethical or unprofessional conduct” to his or her state appraiser licensing agency. We strongly believe that clarification is essential if frivolous complaints against appraisers and wasted investigative efforts by state appraiser licensing agencies are to be avoided.

 Our organizations support appraiser accountability. If an appraiser violates USPAP or otherwise engages in unprofessional conduct, we want these violations examined and the appraiser sanctioned if the alleged misbehavior is confirmed. However, because the language of the mandatory reporting provision is general in nature, we urge the Fed to establish specific ground rules that would govern and circumscribe the reporting of alleged appraiser misconduct. We believe that those ground rules should describe, as concretely as possible, and provide examples of, the acts of appraisers which might constitute a possible violation of the behavior addressed in the statute’s mandatory reporting language. Without such guidelines, a torrent of unfounded complaints to state appraiser licensing agencies could be unleashed – based, for example, on nothing more than an appraiser’s refusal to provide a desired opinion of value. Indeed, an unscrupulous user of appraisal services or even a disappointed borrower could use an unfocused and generalized mandatory reporting requirement, as a means to undermine the independence and objectivity of the appraiser.

HUD-1 Line Charges:  We urge the Fed, in its interim final regulations, to require that when an appraisal is procured through an AMC or through any other third party, that consumers are provided with clear and timely information on how the appraisal fee is to be split between the appraiser and the AMC or other third party. The consumer is entitled to such transparency. While we continue to seek clarification from HUD/FHA that under RESPA, the portion of appraisal fees collected by AMCs are, in reality, loan origination costs and should not be reported on the Appraisal line of the HUD-1 form, we strongly urge that the interim final rule require creditors to provide clear and timely information to consumer-borrowers showing appraisal costs broken-out between the fee actually paid to the appraiser and the administrative fee paid to the AMC.

Finally, we strongly oppose the recommendation of one interest group that the Federal Reserve delay promulgating interim final rules to implement the “customary and reasonable fee” provisions of the statute

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We believe that delaying implementation would violate the clear words of the statute which state that “for purposes of this section,” the Fed shall prescribe interim final regulations no later than 90 days after the date of enactment of this section…” (emphasis added). The “customary and reasonable fee” provision (129E(i)) is a part of “this section” (i.e., section 1472).

  Click here for the full TILA Appraisal Provisions Letter