Fellow Professional Appraiser,
I am asking you to take a moment from your busy day to PARTICIPATE in an important industry effort.
That issue is referred to within Title XIV of the Dodd-Frank legislation as "Customary and Reasonable Fees":
CUSTOMARY AND REASONABLE FEE
In General - Lenders and their agents shall compensate fee appraisers at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised. 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. Fee studies shall exclude assignments ordered by known appraisal management companies.
Subsequent to the original Dodd-Frank Act, the Federal Reserve enacted the "Interim Final Rule". Among its provisions, this rule added the following guidance related to Customary and Reasonable Fees:
Customary and reasonable rate of compensation for fee appraisers. Under the interim final rule, a creditor and its agent must pay a fee appraiser at a rate that is reasonable and customary in the geographic market where the property is located. The rule provides two presumptions of compliance. Under the first, a creditor and its agent is presumed to have paid a customary and reasonable fee if the fee is reasonably related to recent rates paid for appraisal services in the relevant geographic market, and, in setting the fee, the creditor or its agent has:
Taken into account specific factors, which include, for example, the type of property and the scope of work; and Not engaged in any anticompetitive actions, in violation of state or federal law, that affect the appraisal fee, such as price-fixing or restricting others from entering the market. - (aka Presumption 1)
Second, a creditor or its agent would also be presumed to comply if it establishes a fee by relying on rates established by third party information, such as the appraisal fee schedule issued by the Veteran's Administration, and/or fee surveys and reports that are performed by an independent third party (the Act provides that these surveys and reports must not include fees paid by AMCs). - (aka Presumption 2)
I would like my peers and colleagues to join in a petition to the Consumer Financial Protection Bureau (CFPB):
Specifically, this petition does respectfully submit that the Interim Final Rule blatantly contradicts and undermines the intent of the original Dodd-Frank provision on Customary and Reasonable Fees. Clearly, that issue was specifically addressed with the law because undue leverage and pressure by Lenders and their Agents (AMCs) to select the cheapest Appraiser will harm the Consumer. The Interim Final Rule language supports a misaligned incentive that brings harm to the global economy and US housing finance system. The original Dodd-Frank provision was intended to create a level playing field with respect to fees that would incentivize the Lender and/or Agent to select the most competent and ethical Appraiser.
Regarding Presumption 1, this does NOT preclude the inclusion of fees paid to Appraisers by AMCs in the establishment of what is Customary or Reasonable. By allowing an AMC to use its existing fee schedule, a self-fulfilling prophecy is created. This directly circumvents explicit language in the Dodd-Frank Act. Since the obvious intent was to establish APPRAISER INDEPENDENCE and PROTECT THE CONSUMER, this is an astounding modification. This completely ignores the imbalance of power between the Lender/Agent and the Appraiser and is in fact anti-competitive by definition.
Presumption 2 does preserve the provision that AMC fees must be excluded from any fee studies, surveys, etc. Since that has been preserved within Presumption 2 as a means to examine data not corrupted by fees from AMCs whose margins are directly impacted by prioritizing low cost provider over most competent provider, this seemingly contradicts the enormous loophole created by Presumption 1.
We strongly request that a "Cost-Plus" fee provision be adopted. Cost-Plus is defined as a segregation of the fee paid to the Appraiser for producing an actual appraisal report from the fee paid by a Lender to an AMC for the services they provide related to the management of the collateral risk process. The "Appraisal Fee" was never intended to blend these two distinct and different services. Often the Lenders themselves are not fully aware of fees paid to their approved appraiser panel by an AMC within a bundled fee structure.
The unintended consequence of UNreasonable fees - i.e. fees below the prevailing market rate due to AMC leverage - is the under-appreciated risk to collateral risk management via adverse selection. Many excellent appraisers opt out of doing business with certain AMCs based on their fee schedule. Throughout our nation’s housing markets, the most educated, experienced and knowledgeable appraisers are opting out of mortgage lending work as a result of the commoditization of appraisal reports. This has created a culture of "form fillers" to the detriment of experienced professionals who prioritize actual valuation expertise. Unlike most parties that are involved in the mortgage process, the real estate appraiser is largely unrepresented on a national scale, despite the importance of their role in mortgage lending as "neutral valuation experts." This pressure on the appraisal industry deprives the Consumer, the Taxpayer, the Lender, and the Capital Markets of having the highest caliber valuation professionals in the role of "trusted advisor" for making informed lending decisions. As a result of the Interim Final Rule, the appraisal management industry has prioritized its own financial profit interest above the intended goal of optimum appraisal services and risk management.
In summary, by electronically signing this web page, you are firmly providing your support to petition the CFPB and its related regulatory bodies to repeal or amend the Interim Final Rule language related to Customary and Reasonable Fees based on the following principles:
- The original Dodd-Frank Act is intended to protect Consumer Interests
- Appraiser Independence is an important Consumer protection
- The original Customary and Reasonable Fee provision clearly identified the need for an environment that eliminated an unhealthy incentive to engage the lowest cost provider at the expense of the most competent and ethical provider
- The Interim Final Rule has rendered the original intent unenforceable
- The Customary and Reasonable Fee language in the Interim Final Rule should revert back to the original Dodd-Frank language and intent
- A "Cost-Plus" fee structure for Lenders that engage AMCs will preserve the Customary and Reasonable intent
- This provides enhanced Consumer protection
- Since the Consumer is precluded from selecting an Appraiser, it is imperative to enforce an environment that encourages the Lender or its Agent to select of the highest caliber professional
- This provides Regulatory transparency
- The "Appraisal Fee" on the HUD1 settlement form was never intended to include co-mingled fees with other services provided by a third party for the Lender (which is also misleading to the Consumer)
- The services of the Appraiser are distinct from the services of the AMC
- As such, their costs should be segregated
- A Cost-Plus fee structure will allow the Customary and Reasonable Fee provision, a component of Appraiser Independence, to be more readily adopted
- This provides enhanced Consumer protection