Monday, October 18, 2010

Federal Reserve Releases Final Interim Rule For Comment - Customary and Reasonable Appraisal Fees

It's HOT off the press! Here is the Interim Final Rule and Request for Public Comment from the Board of Governors of the Federal Reserve System to amend Regulation Z, Truth in Lending.

For immediate release:

The Federal Reserve Board on Monday announced an interim final rule to ensure that real estate appraisers are free to use their independent professional judgment in assigning home values without influence or pressure from those with interests in the transactions. The rule also seeks to ensure that appraisers receive customary and reasonable payments for their services.

The interim final rule includes several provisions that protect the integrity of the appraisal process when a consumer's home is securing the loan. The interim final rule:

  • Prohibits coercion and other similar actions designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment;
  • Prohibits appraisers and appraisal management companies hired by lenders from having financial or other interests in the properties or the credit transactions;
  • Prohibits creditors from extending credit based on appraisals if they know beforehand of violations involving appraiser coercion or conflicts of interest, unless the creditors determine that the values of the properties are not materially misstated;
  • Requires that creditors or settlement service providers that have information about appraiser misconduct file reports with the appropriate state licensing authorities; and
  • Requires the payment of reasonable and customary compensation to appraisers who are not employees of the creditors or of the appraisal management companies hired by the creditors.
The interim final rule is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Compliance will be mandatory on April 1, 2011. Public comments are due 60 days after the interim final rule is published in the Federal Register, which is expected soon.

The Board is publishing for public comment an interim final rule amending Regulation Z (Truth in Lending). The interim rule implements Section 129E of the Truth in Lending Act (TILA), which was enacted on July 21, 2010, as Section 1472 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. TILA Section 129E establishes new requirements for appraisal independence for consumer credit transactions secured by the consumer’s principal dwelling. The amendments are designed to ensure that real estate appraisals used to support creditors’ underwriting decisions are based on the appraiser’s independent professional judgment, free of any influence or pressure that may be exerted by parties that have an interest in the transaction. The amendments also seek to ensure that creditors and their agents pay customary and reasonable fees to appraisers. The Board seeks comment on all aspects of the interim final rule.
HERE is a link to a pdf of the rule. I have also posted a copy of the pdf on SCRIBD. That is available after the jump.

Most appraisers have been expressing interest and concern about how the Federal Reserve Board of Governors would deal with the section of the law addressing Customary and Reasonable Fees. There's quite a bit to chew on in there. To save time, read pages 57 - 59 for an overview, and pages 124 - 130 for the rule.

What do you think?

Just in case the link above goes bad, here's another copy of the notice.
Appraisal Independence FedRes Regs


Matt said...

It doesn't appear anything will change. Too much wiggle room for the AMC and too hard for an appraiser to prove.

Anonymous said...

What does this mean for us on the fee stuff Frank?

Frank Gregoire said...

To tell you the truth, all I've had a chance to do is make a quick read through the document. I need to spend some time reading and putting it all into perspective.

My initial impression is the rule goes much further than I expected, and leaves less "wiggle room" for the AMCs. The VA fee schedule is recognized. That's on the positive side for many appraisers.

The AMCs cannot make the assignment contingent on the fee appraiser's acknowledgement that the fee offered is Customary and Reasonable. That's gonna rub a bunch of AMCs the wrong way, and is good for many appraisers.

What do you think?

Anonymous said...

Im not sure yet. I have followed you page for a while and find some sensibility in your opinion. I, unfortunately, find myself in place were my business is dominated by AMC work. Only appraising for 3 to 4 years prior to the HVCC I have had a hard time moving into other areas of valuation products. After a not doing work for a while, a $200 fee is better than working at the local fast food joint. My biggest concern is the first presumption of compliance issued. This part of the final rule appear to allow AMC fees to be calculated into whats C&R. I look forward to hearing your thoughts on this. Thanks.

Anonymous said...


I am reding it to mean that if you pay based on a published fee schedule IE VA or Alamode fee survey, then the lender is good to go,,If you pay less then those published fees, then the lender could be opening themselfs up to the fine of $10,000 per order?

This could hurt those AMC's with a wait and see attitude and maybe all the appraisers should start complining those less then C & R fee assignments for prosecution, I know the State could use the cash....

Edd said...

Thanks for keeping us up to speed Frank, but I think the FRB just kicked the reasonable fee can down the road.

I'm glad they mentioned it and the VA and all, but the answer is still for appraisers to get strong and insist they be paid or no work.

I empathize with Anonymous, but there are just too many appraisers that for one good reason or another will work for fees and meet turn times that limit the amount of research and analysis that is needed to meet minimum appraisal standards.

We've about got it where an appraisal takes about as long as a BPO and probably says about the the same thing. Why would anyone want to pay reasonable appraisal fee for a BPO?

Somewhere in this mess is the predicate that somebody wants appraisals. Is that still true?

Also, does it not seem to you in in form filling appraisal that the customary and reasonable fees really are what the AMCs have been paying.

Anonymous said...

I read it to mean that AMCs will simply hire more and more staff appraisers in order to make their millions. Actually a pretty simple solution to keep them in business. I've been noticing for months that the 80% or more of the Appraisal Institute's job board was comprised of ads for AMC appraisers.

I guess there truly is more than one way to skin an appraiser.
The good news is that independent appraisers will indeed be paid market fees for their work. The bad news being that they'll only be sent a couple of orders per month.

Careful what you wish for appraisers because you may just get it. AMCs used the appraisers independece petition against them to create HVCC and they've just used this customary fee issue against them as well.

Edd said...


It won't be staff appraisers, it will be BPOs and AMCs.

While it may mention us, Dodd-Frank is about the government regulating the banks.

The government decided banks need to be regulated and for what-ever reason to use appraisals to keep the banks accountable.

The banks don't want to be accountable, so it's no surprise they don't want to pay for appraisals.

So far the banks are winning.

Be just nifty if everybody wanted good appraisals and believed that paying the appraiser would help insure that. But, a large, influential and adverse section of the population just doesn't want appraisals, and the rest of them could care less.

Appraisers can't offer a professional service without decent fees, so I guess that is where we got into this. But, just accept the fact that no matter how much those secondary market loan peddlers pay you, they don't want to and will, in the end, use you to your professional detriment.

Don't let 'em do that to you.

Patrick said...

I just started sending this to all AMC's that send me requests at sub standard fees. "Please increase fee to $XXX in order to comply with Regulation Z Section 226.42(f) of the Truth in Lending Act." They can either increase the fee or cancel the order. They now have until April 2011 to try to make all the profit they can until they must comply with cutomary fees. I forsee a bunch of lawsuits waiting to be filed against AMC's that don't comply.

Anonymous said...

Apply now appraisers! AMCs are hiring staff appraisers by the thousands. If you want to stay in the business this is the only way to do it.

Just search the Appraisal Institute's (AMC's best friend) job section online.

Edd said...


I just noticed your comment about the AI help-wanted listings.

Now, that is a study in 180 out.

The AI claims it is an effective advocate for the appraiser.

I frequently hear at AI gatherings that licensing was the death knell of ethical appraising.

And the AI advertises appraiser jobs with AMCs?

Do the math.

I'd think of all the appraiser organizations the AI would be more selective.

Guess not.

Anonymous said...

It appears that Dodd-Frank is a step in the right direction for appraisers, however, fees may not be the primary issue here. Appraisers beware! After perusing some of the AMC contracts with appraisers, it seems criminal that the AMC's are putting all the liability on the appraiser. Especially if there is negligence on the AMC's part. My insurance's attorney says I would not be covered if I sign this contract. Furthermore, my existing coverage will be affected by association with this AMC. Appraisers beware, fees are not the only issue. Oreo's dad.