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New:
Customary and Reasonable Fee Survey:
The OREP/Working RE survey now has over 10,700 responses. If
you have participated pat yourself on the back - your input matters. If you
have not participated yet, the surveys are ongoing. You can
add your fee data here: www.surveymonkey.com/s/YZWHYT3.
Find a link to initial results
in sidebar. (Closed)
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Editor’s Note: Federal Reserve Board sheds new light on the
Customary and Reasonable Fee provision of Dodd-Frank. Survey data
may be important.
Fed Board Update: Customary and Reasonable
Fees
By David Brauner
As the April 1, 2011 implementation
date for Dodd-Frank approaches, there is new light shed on Federal
Reserve Board’s thinking regarding the implementation of the
customary and reasonable fee provision of the legislation.
The Federal Reserve Board, tasked with implementing the landmark
Dodd-Frank Financial Reform legislation passed last year, laid out
its guidance in the “Interim Final Rule” published in October 2010
(find it at WorkingRE.com, Sidebar: Interim Final Rule, 2010).
Since then, appraisers have been struggling to understand how the
customary and reasonable fee directive will be enforced. Authors of
Dodd-Frank clearly and specifically include language guaranteeing
“customary and reasonable fees” for appraisers as a vital element
for assuring appraisal quality. How this will be accomplished,
however, remains murky.
To date, appraisers have reported a few instances of appraisal
management companies (AMCs) raising fees- for whatever reason. In
general, appraisers report a disparity of fees paid- some fairer
than others, depending on the AMC and various market factors. Some
appraisers report working with AMCs that have always paid “fairly,”
though what is “fair” is a contentious issue among appraisers.
The Board, in the IFR, addresses the customary and reasonable fee
directive by providing two distinct presumptions of compliance,
saying that AMCs, lenders and others can meet the customary and
reasonable fee standard by satisfying either presumption,
without having to meet both. The first presumption outlines
“customary,” which seems to mean “recent” or the current fees paid
to appraisers by AMCs; the status quo in other words. The second
presumption, which outlines “reasonable,” calls for the use of
independent fee studies which specifically exclude fees paid by
AMCs. So not only do the two presumptions of compliance
contradict each other, by making compliance customary or
reasonable, thus enabling the status quo, the spirit of Dodd-Frank
seems to be missed. This is where we are until now.
(story continues below)
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(story
continues)
New Light In a recent interview with WRE, a Federal Reserve Board
spokesperson indicates that the Board is well aware of the continued
“controversy” surrounding customary and reasonable fees, as
evidenced by the feedback they received during the public comment
period, which ended December 27, 2010 (to view comments, visit
WorkingRE.com, Sidebars: Link to IFR Comments). The
spokesperson said the Board is analyzing the comments and that no
decisions or changes have been made. (Federal Reserve Board policy
does not permit staff to be quoted by name.) Any comments will be
announced in the form of a press release, she said.
The Board staff attorneys did provide new clarification to WRE,
however, which seems to point appraisers toward an appeal process if
they feel AMCs are not paying customary and reasonable fees.
According to the Board spokesperson, “Someone can rebut the
presumption(s) of compliance with evidence that a fee is not
reasonable or customary for a reason other than a condition
addressed in a presumption of compliance. What evidence supports an
allegation depends on the facts and circumstances of a particular
case. The rule addresses compensation paid in a particular
geographic market.”
This appeal or rebuttal process may be a mechanism set in place by
the Board to encourage some “self correction” by AMCs or face an
onslaught of complaints that apparently will be taken seriously.
This appears to be the Board’s strategy, rather than attempting the
impossible task of “setting” fair fees.
Survey Data One potential source of data that
appraisers may be able to use to challenge low fees is the OREP.org/Working
RE Customary and Reasonable Fee Survey, which recently surged past
the 10,000 appraiser threshold and is nearing the 11,000 mark.
The survey includes 365
Metropolitan Statistical Areas nationwide plus rural areas for each
state; eight products/services, including reviews and FHA reports,
and turnaround times. Pressure for unrealistic turn times remains a
sore point for many appraisers who complain that it is hurting
appraisal quality. If you have not contributed your fee data, it
is not too late. The survey is ongoing. The results are available
and free to all (visit WorkingRE.com for results and to take the
survey). It’s good
business to know what other appraisers in your area are
reporting.
Regarding the filing of complaints, the Board spokesperson told WRE,
“Violations should be reported to: (1) the creditor's federal
supervisory agency (e.g., Federal Reserve Board, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency,
etc.), if the allegation is about a creditor that is a depository
institution; (2) the FTC, if the allegation is about a person
(creditor or its agent) that is not a depository institution; or (3)
the state Attorney General.”
The Board spokesperson also underlined the following from the IFR,
which seems to support the notion that fees currently paid by AMCs
are not to be considered customary and reasonable by virtue of their
acceptance in the marketplace: “[T]he 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."
David
Brauner Insurance Services/ OREP/Working RE Magazine
David
Brauner Calif. Insurance License: 0C89873
(story continues)
Authority Transfer
The Board spokesperson also points out that under the
Truth in Lending Act, enforcement of Dodd-Frank
transfers from the Federal Reserve Board back to the
Inter Agencies (OCC, FDIC,
etc.), who can then offer further changes. The
designated date for “transferring authority to implement
the Truth in Lending Act and other ‘enumerated consumer
laws’ under Title X of the Dodd-Frank Act (see page
1597) currently is July 21, 2011.” (Find link below
to the Federal Reserve Board's table of statutory
deadlines for action and other information on regulatory
reform.)
The discussion of the rulemaking authority is on pages
2811-2189 of Dodd-Frank and
excerpted here (you can view it online at WorkingRE.com,
Sidebar: Dodd-Frank Act):
‘‘(g) RULES AND INTERPRETIVE GUIDELINES.—
‘‘(1) IN GENERAL.—Except as provided under paragraph
(2), the Board, the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, the National
Credit Union Administration Board, the Federal Housing
Finance Agency, and the Bureau may jointly issue rules,
interpretive guidelines, and general statements of
policy with respect to acts or practices that violate
appraisal independence in the provision of mortgage
lending services for a consumer credit transaction
secured by the principal dwelling of the consumer and
mortgage brokerage services for such a transaction,
within the meaning of subsections (a), (b), (c), (d),
(e), (f), (h), and (i).
‘‘(2) INTERIM FINAL REGULATIONS.—The Board shall, for
purposes of this section, prescribe interim final
regulations no later than 90 days after the date of
enactment of this section defining with specificity acts
or practices that violate appraisal independence in the
provision of mortgage lending services for a consumer
credit transaction secured by the principal dwelling of
the consumer or mortgage brokerage services for such a
transaction and defining any terms in this section or
such regulations. Rules prescribed by the Board under
this paragraph shall be deemed to be rules prescribed by
the agencies jointly under paragraph (1).
No Comment When asked whether the two presumptions of
compliance contradict each other, as one seems to permit
current AMC fees while the other specially disallows
current AMC fees when determining customary and
reasonable, the spokesperson had no comment but
reiterated that any changes will be announced
publically. Neither did she comment on whether the
status quo contradicts the spirit and intent of the
customary and reasonable fee provision of Dodd-Frank.
She would say only that the Board is “well aware” that the
customary and reasonable fee provision remains
“controversial.”
David Brauner is Editor of
Working RE magazine and Senior Broker at OREP.org, a
leading provider of E&O Insurance for appraisers,
inspectors and other real estate professionals in 49
states (OREP.org). He has covered the appraisal
profession for over 16 years. He can be contacted at
dbrauner@orep.org
or (888) 347-5273. Calif. Insurance Lic. #0C89873.
