UPDATE - Minimum Requirements for Appraisal Management Companies - Rule in the Works

UPDATE! 03/24/2014- Link to proposed rule is available at the end of this post.

During their regular monthly board meeting on March 20, 2014 the National Credit Union Administration proposed an interagency rule to implement minimum requirements for state oversight of appraisal management companies. Six other federal agencies are expected to join in support of the proposal. These include the Federal Reserve, CFPB, Treasury Department, FDIC; Federal Housing Finance Agency and Office of the Comptroller of the Currency.

The text of the proposed rule will not be available until all the agencies approve the language, but the NCUA Board Action Memorandum states:

The minimum requirements in the proposed rule would apply to States that elect to establish an appraiser certifying and licensing agency with the authority to register and supervise AMCs (participating States). Under the proposed rule, participating States would have to require that AMCs: (1) register in the State and be subject to its supervision; (2) use only State-certified or licensed appraisers are used for Federally related transactions (real estate-related financial transactions overseen by a Federal financial institution regulatory agency that require appraiser services); (3) require that appraisals comply with the Uniform Standards of Professional Appraisal Practice; (4) ensure selection of a competent and independent appraiser; and (5)establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards in the Truth in Lending Act.

The proposed rule would direct AMCs that are subsidiaries of banks and regulated by a Federal financial institution regulatory agency to meet the same minimum requirements, although such AMCs would not be required to register with a State.

We'll keep our eyes open, and post the proposed rule as soon as we see it published.

UPDATE! The proposed Interagency Rule is available at THIS LINK.

Ken Harney Weighs in on the FRB Interim Final Rule (TILA Section of Dodd-Frank)

If there is one national columnist with his ear close to the ground and regularly checking the pulse of the real estate and real estate appraisal professions, it's Ken Harney, of the Washington Post. In his latest column, Ken examines the Interim Final Rule released by the Board of Governors of the Federal Reserve System. The rule provides the implementation language for Appraiser Independence standards and Customary and Reasonable Fee requirements included in the Dodd-Frank Act amendments to the Truth in Lending Act (TILA).

Ken interviews a few appraisers, including Pat Turner (VA), Leslie Sellers (President of the Appraisal Institute) and yours truly. Although none of us talked with each other prior to the interview, it looks like we share the same concerns. Consumers, borrowers, and real estate agents should be concerned as well.

So what sort of changes are you likely to see? Experienced appraisers say probably not enough, at least in the proposal's current form.

"It's just a rehash of the [code]," says Pat Turner, a Richmond area appraiser and critic of the Fannie-Freddie rules.

Leslie Sellers, president of the 26,000-member Appraisal Institute, a professional group based in Chicago, says the Fed's proposals include important core principles of freedom from coercion and outside influence on valuations but don't lessen the current system's tilt toward cut-rate fees and short turnaround times over appraisal quality.

Frank Gregoire, past chairman of the Florida Real Estate Appraisal Board and incoming chairman of the National Association of Realtors' appraisal committee, says that "until the federal banking agencies decide to enforce some of the words they're putting on paper, the public can expect business as usual."

There's more, so please CLICK HERE and read the whole thing.

I've got more to say, but it's Friday night, and my wife, Fran, and I are headed out for some seafood ;-)

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?

CLICK to Read More

TAVMA to FED: Please Delay Rule on "Customary and Reasonable Fee" -UPDATED

It was inevitable, but the plea from TAVMA's Executive Director, Jeff Schurman to Federal Reserve Board Chairman Ben S. Bemanke is remarkably lame and pitiful.

In an August 25, 2010 letter to the Federal Reserve Chairman, TAVMA begs the FRB to delay consideration of  the “customary and reasonable” fee provision that would be part of the proposed interim final rule required by Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act. As Appraiser Active described in a recent posts (HERE and HERE), The Federal Reserve has the chore of  translating the legislative language into interim rules that will govern how brokers, lenders, appraisers and appraisal management companies will operate. Final rules will be developed by the federal banking agencies.

TAVMA is concerned about this section of the Dodd-Frank Act:
....and goes on with this claim:

(1) 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 offered by known appraisal management companies.

At present it is unclear whether the “customary and reasonable” provision should be adopted in the 90 day interim final regulations. TAVMA believes that the effective date should be delayed under Title XIV Section 1400(c)(3) until after a formal rule making process. Additionally, we believe that the provision should not be adopted yet, because the “customary and reasonable fees” requirement is not an appraisal independence requirement. Further, the fee provision was added late in the Congressional Conference Committee process and never received any meaningful legislative discussion or clarification.

It's amusing to read TAVMA's claim that AMC compensation of appraisers is the "predominate fee model now in use." The only reason it may be is because of the Home Valuation Code of Conduct. Appraisal Management Companies did not gain their share of the market by competition with appraisers; it was handed to them on a silver platter. TAVMA, your "predominate fee model now in use" is not market based, has no relationship to reality, and the new statutory requirement to ignore it in the determination of customary and reasonable for appraisal services is one of the few high points in the dismal legislation. Quit whining!

Of course, this bothers TAVMA and the 58 "appraisal transaction management companies" counted among its members. TAVMA says:

The wording of 129E(i) Appraisal independence requirements, “Customary and Reasonable Fees” seems to either ignore or outright reject FHA’s and HUD’s prior interpretation; however, it fails to provide any direction or guidance about what the term means and/or how it is to be calculated other than that fees negotiated with AMCs should be excluded from the determination, i.e., that market participants should ignore the predominate fee model now in use. It is unreasonable given this history and marketplace realities to expect the FRB to formulate a definition of “reasonable and customary fees” within the few weeks leading up to the October 20, 2010 effective date of the interim, final rule.

TAVMA's plea to Bernake becomes REALLY desperate with their offering of this reason for delay:

Appraiser Trainees. Fee parity (non-negotiated fees) will create a preponderance of “experienced appraisers,” which on one hand is good in that the most experienced appraisers will compete on quality and service for assignments; however, what will be the impact on appraiser-trainee development? Will appraisal firms have any motivation to train new appraisers, and will less experienced appraisers be able to compete for appraisal work if fees are not a factor?

Where was all this concern for appraiser-trainees in the past? How many appraiser readers of this post are willing to provide engagement letters or orders from TAVMA members with the wording "Trainee Appraisers cannot sign the appraisal", or word to that effect.
 
TAVMA, get off your knees and get with the program.

My fellow appraisers, it's time to fire up the letter writing machine and let Ben Bernake know what the real story is.

More on this subject, along with a slew of comments at Appraisal Scoop. Brian Davis has a particularly good one:

Maybe someone can explain to me why we need studies and surveys on customary and reasonable fees when appraisal fees have been reported for years on the HUD closing statements? I've always assumed that the information on the HUD form was collected and databased somewhere?

If this hasn't been done in the past . . .it could certainly be implemented NOW. The HUD form shows exactly what the borrower was CHARGED for the appraisal . . . right?

Well said, Brian. This aint brain surgery.

UPDATE - From several sources comes this tidbit:

The direct contact person at the Federal Reserve Board where you can send a letter to discuss your personal AMC and Customary and Reasonable Fee situations, or anything else having to do with appraiser independence. (Can include Stips and mandatory comparable requirements and mandatory Cost Approach).


Please do so in the next few days, as new appraisal regulations are being drafted now, with implementation set for October, or perhaps sooner.


Here is the contact information for the person at the Fed that is handling the Interim rulemaking on appraiser independence (including customary & reasonable fees):


Ms. Sandra Braunstein, Director
Division of Consumer and Community Affairs
Federal Reserve Board
1709 New York Avenue, NW
Washington, DC 20006

I strongly suggest you provide your own letter in your own words, rather than rely on ‘template’ content from another source. Keep it short and to the point.