A "Customary and Reasonable" appraisal fee is the fee the borrower paid for the appraisal service.
Not the fee from the appraiser's fee schedule, but the "appraisal fee" the borrower/buyer paid.
This fee is always specifically identified on the HUD-1, a Federally required form, as "the appraisal fee." [Ed. - Line 804]
So the fees are already known and the market has been paying them, and the market (and appraisers) have third-party proof.
Now do the AMCs understand what kind of hole they are in?
Richard Hagar SRA
Showing posts with label Customary and Reasonable. Show all posts
Showing posts with label Customary and Reasonable. Show all posts
Wednesday, April 20, 2011
Monday, April 11, 2011
"Customary and Reasonable" fees
There are a number of emails circulating regarding the issue of "Customary and Reasonable" fees, and the topic is becoming more indistinct with the aggregation of opinions.
1. The "Part 1 Provision" that AMCs and CoreLogic are talking about is a misrepresentation. AMCs must be in compliance with all 6 parts of the presumption, or they are not in compliance at all. They cannot break out one or two sections and claim exemption while disregarding the rest of the law.
2. Your appraisal fee is reported on line 804 of the HUD-1. Or, it is the fee you charged before AMCs began skimming your fees. It's really that simple.
3. If you are still being pressured by an AMC, report them to the Fed here, and the FTC here.
4. In the meantime, stop agreeing to work for less than your normal fee!
5. Richard Hagar has an online class about this, "Appraiser Independence and Mandatory Reporting of USPAP Violations." Part 2, "Appraiser Independence," includes a discussion about the "Customary and Reasonable" provisions.
1. The "Part 1 Provision" that AMCs and CoreLogic are talking about is a misrepresentation. AMCs must be in compliance with all 6 parts of the presumption, or they are not in compliance at all. They cannot break out one or two sections and claim exemption while disregarding the rest of the law.
2. Your appraisal fee is reported on line 804 of the HUD-1. Or, it is the fee you charged before AMCs began skimming your fees. It's really that simple.
3. If you are still being pressured by an AMC, report them to the Fed here, and the FTC here.
4. In the meantime, stop agreeing to work for less than your normal fee!
5. Richard Hagar has an online class about this, "Appraiser Independence and Mandatory Reporting of USPAP Violations." Part 2, "Appraiser Independence," includes a discussion about the "Customary and Reasonable" provisions.
Tuesday, October 19, 2010
"Customary and Reasonable" fee regulations
Dave Biggers, Chairman of alamode has written an op-ed that might be of interest to all of you. This is an excerpted version:
As many of you may know, the Federal Reserve issued 132 pages of “interim final regulations” yesterday on the hot-button issue of “customary and reasonable” fees – and more – as mandated by the Dodd-Frank Act. Since I was preparing a broader memo on a wide variety of other timely topics anyway, I decided to combine a first look at the new regs with the other information, and so here you have it all together. It's a little long as a result, but there's a lot to cover, so bear with me.
First Look at the Dodd-Frank Act (or “DFA”) Regs
There's one bombshell hidden in here aside from what we expected. Everyone knew that the HVCC was being eliminated and that the issue of customary and reasonable fees would be covered, but I for one wasn't expecting the Fed to take the position that even though the DFA refers to “appraiser” and “appraisal”, the logical approach is to make the regulations include any person performing “valuations” and make them subject to the same rules.
So, under the new regs, BPOs and agents are subject to the same restrictions regarding coercion and direct or indirect interests as appraisals and appraisers. It doesn't mean agents have to abide by USPAP, but it does mean that incenting them with a shot at a listing (real or implied) when doing a BPO would be a violation, as would telling them to hit predetermined numbers.
Among the other issues that stand out:
• The big one, customary and reasonable fees, is a mixed bag. On the one hand, it seems that they bowed to AMC pressure and essentially made it “customary OR reasonable” fees, not customary AND reasonable. On the other hand, they seemed to signal to the legal community that there was more safety in advising lenders to follow a third party reasonable standard than just hide behind customary AMC fees.
• The crux of the fee issue comes down to allowing AMCs to include their own fees (seemingly in contradiction to the DFA's intent) in their determination of what are the recent market fees being paid to appraisers, and to have that be one of the two separate and alternative presumptions of compliance, so long as the AMC did not engage in anticompetitive behavior as defined by the Sherman Antitrust Act.
• The second presumption of compliance, using third party data, provides more shelter to the lender – avoiding $10,000 per day fines – than does the first, which the regulators signal by expressly defining what sort of evidence would not be sufficient to overcome the presumption of compliance. In other words, a lender using third party studies which eliminate the AMC fees will almost always win in court if someone challenges them and will almost never be fined, because simply using the fee studies or surveys is considered de facto compliance with the law. Trotting out a different third party study showing higher fees isn't enough on its own to overturn the fact that the lender used sufficient best efforts by relying on non-AMC third party data in the first place. That's great, and will provide the necessary added protection for many risk-averse lenders to refuse to allow AMC-tainted fees to be the basis of their customary and reasonable legal strategy.
• The HVCC is eliminated as expected. However, realize that the firewall restrictions of the HVCC are not eliminated, because they were nearly identically encoded in the 2008 Appraisal Independence Rules (often referred to as the “Interagency Rules”), and the interim final rule enshrines the Interagency Rules virtually unmodified as part of the new law. The chief distinction is that the Interagency Rules do not bar particular people (mortgage brokers, agents, etc.) from expressly engaging in the process of engaging or communicating with appraisers as the HVCC did in blanket fashion, but rather bar anyone – regardless of their position – from influencing the appraiser in a manner intended to materially mischaracterize the value of the consumer's residence.
• The Fed invalidated the fee stipulations that many AMCs have demanded appraisers sign, exactly as we've argued. In crystal clear language, they showed that one appraiser being forced to agree to a fee does not mean that appraiser has abdicated protection under the statute, nor has the appraiser given safe harbor to the AMC, since the appraiser cannot attest on his or her own as to what a customary and reasonable fee would be under the statute: “the Board understands that some AMCs have begun requiring fee appraisers to agree that the fee is customary and reasonable as a condition of obtaining the appraisal assignment. In these situations, the Board believes that an appraiser’s agreement that a fee is customary and reasonable is an unreliable measure of whether the fee in fact meets the statutory standard.”
This is just the quick summary. Meanwhile, you can and should read the regulations yourself at:
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20101018a1.pdf
As many of you may know, the Federal Reserve issued 132 pages of “interim final regulations” yesterday on the hot-button issue of “customary and reasonable” fees – and more – as mandated by the Dodd-Frank Act. Since I was preparing a broader memo on a wide variety of other timely topics anyway, I decided to combine a first look at the new regs with the other information, and so here you have it all together. It's a little long as a result, but there's a lot to cover, so bear with me.
First Look at the Dodd-Frank Act (or “DFA”) Regs
There's one bombshell hidden in here aside from what we expected. Everyone knew that the HVCC was being eliminated and that the issue of customary and reasonable fees would be covered, but I for one wasn't expecting the Fed to take the position that even though the DFA refers to “appraiser” and “appraisal”, the logical approach is to make the regulations include any person performing “valuations” and make them subject to the same rules.
So, under the new regs, BPOs and agents are subject to the same restrictions regarding coercion and direct or indirect interests as appraisals and appraisers. It doesn't mean agents have to abide by USPAP, but it does mean that incenting them with a shot at a listing (real or implied) when doing a BPO would be a violation, as would telling them to hit predetermined numbers.
Among the other issues that stand out:
• The big one, customary and reasonable fees, is a mixed bag. On the one hand, it seems that they bowed to AMC pressure and essentially made it “customary OR reasonable” fees, not customary AND reasonable. On the other hand, they seemed to signal to the legal community that there was more safety in advising lenders to follow a third party reasonable standard than just hide behind customary AMC fees.
• The crux of the fee issue comes down to allowing AMCs to include their own fees (seemingly in contradiction to the DFA's intent) in their determination of what are the recent market fees being paid to appraisers, and to have that be one of the two separate and alternative presumptions of compliance, so long as the AMC did not engage in anticompetitive behavior as defined by the Sherman Antitrust Act.
• The second presumption of compliance, using third party data, provides more shelter to the lender – avoiding $10,000 per day fines – than does the first, which the regulators signal by expressly defining what sort of evidence would not be sufficient to overcome the presumption of compliance. In other words, a lender using third party studies which eliminate the AMC fees will almost always win in court if someone challenges them and will almost never be fined, because simply using the fee studies or surveys is considered de facto compliance with the law. Trotting out a different third party study showing higher fees isn't enough on its own to overturn the fact that the lender used sufficient best efforts by relying on non-AMC third party data in the first place. That's great, and will provide the necessary added protection for many risk-averse lenders to refuse to allow AMC-tainted fees to be the basis of their customary and reasonable legal strategy.
• The HVCC is eliminated as expected. However, realize that the firewall restrictions of the HVCC are not eliminated, because they were nearly identically encoded in the 2008 Appraisal Independence Rules (often referred to as the “Interagency Rules”), and the interim final rule enshrines the Interagency Rules virtually unmodified as part of the new law. The chief distinction is that the Interagency Rules do not bar particular people (mortgage brokers, agents, etc.) from expressly engaging in the process of engaging or communicating with appraisers as the HVCC did in blanket fashion, but rather bar anyone – regardless of their position – from influencing the appraiser in a manner intended to materially mischaracterize the value of the consumer's residence.
• The Fed invalidated the fee stipulations that many AMCs have demanded appraisers sign, exactly as we've argued. In crystal clear language, they showed that one appraiser being forced to agree to a fee does not mean that appraiser has abdicated protection under the statute, nor has the appraiser given safe harbor to the AMC, since the appraiser cannot attest on his or her own as to what a customary and reasonable fee would be under the statute: “the Board understands that some AMCs have begun requiring fee appraisers to agree that the fee is customary and reasonable as a condition of obtaining the appraisal assignment. In these situations, the Board believes that an appraiser’s agreement that a fee is customary and reasonable is an unreliable measure of whether the fee in fact meets the statutory standard.”
This is just the quick summary. Meanwhile, you can and should read the regulations yourself at:
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20101018a1.pdf
Subscribe to:
Posts (Atom)
