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Mortgage Forms Should Include More Transparency, Appraisal Institute Tells Federal Reserve

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RISMEDIA, January 7, 2011—One of the nation’s largest real estate appraisal organizations called on the Federal Reserve last week to require appraisal management companies to disclose their fees to consumers as the Fed implements landmark appraisal regulatory reforms passed by Congress.

The Appraisal Institute and the three other professional appraisal associations, together representing more than 35,000 members, also urged the Fed to reconsider how it interpreted language in last year’s Dodd-Frank Act requiring appraisal management companies to pay appraisers “customary and reasonable” fees.

Under current interpretations of the Real Estate Settlement Procedures Act (RESPA), “Consumers are led to believe the ‘Appraisal Fee’ being paid to a creditor is for a property appraisal, when in fact it is for the appraisal as well as appraisal management services,” the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers told the Federal Reserve System’s Board of Governors in a December 27 letter responding to the Fed’s interim final rule. “We believe the RESPA policy that compels consumers to pay for both the appraisal fee and the AMC fee as a bundled fee is in dire need of reexamination. Additionally, we recommend that the Board, in subsequent rulemakings, use their authority to require the separate disclosure of fees paid to appraisers and fees paid to AMCs on the HUD-1 form.”

The organizations also wrote: “We strongly urge the Federal Reserve to remove language that allows for the consideration of fees paid by AMCs when adhering to the first presumption of compliance with the customary and reasonable fee regulations.”

Appraisers have complained that with the growth of appraisal management companies since the Home Valuation Code of Conduct’s implementation in May 2009, they have experienced sharply reduced fees from AMCs. The Dodd-Frank Act called for “customary and reasonable” fees that would reflect what the appraiser typically would be paid for the assignment absent the involvement of an AMC, with violations subject to severe penalties under the Truth in Lending Act. The Fed’s interim final rule could be interpreted to significantly depart from the legislation’s intent, the appraisal groups wrote.

“The Federal Reserve should avoid establishing a revised IFR (interim final rule) or Final Rule that is inconsistent, or alternatively, weak, ineffective and contrary to the spirit of the Dodd-Frank Act,” the appraisal organizations wrote.

The Appraisal Institute has said that the lower fees paid by many appraisal management companies has led to appraisals being done by the least qualified and least competent appraisers. Requiring “customary and reasonable” fees, the Appraisal Institute has said, will encourage the most qualified and most competent appraisers to seek assignments from appraisal management companies, resulting in greater reliability for consumers. On a related topic, the appraisal organizations’ letter stated, “We strongly believe that professional appraisal designations should be considered as one of the factors when determining a reasonable and customary fee.”

Title XIV of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama last July, represents the most comprehensive overhaul of U.S. real estate appraisal regulations since the Financial Institutions Reform, Recovery and Enforcement Act was enacted in 1989. The Fed’s interim final rule, issued in October, is scheduled to take effect April 1.

For more information, visit www.appraisalinstitute.org.

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