RHL Appraisals Network News Blog

Obama Signs Financial Regulatory Reform Bill

President Obama signed the historic financial regulatory reform bill into law July 21, ushering in a dramatic rewrite of the rules governing financial service providers and products and ending a nearly year-long struggle to enact meaningful reforms.

"These reforms represent the strongest consumer financial protections in history," Obama said in his prepared remarks, released by the White House before the signing ceremony. "These protections will be enforced by a new consumer watchdog with just one job: looking out for people – not big banks, not lenders, not investment houses – in the financial system. Now, that's not just good for consumers; that's good for the economy."

Federal regulators will now implement the 2,300-page bill, which passed the House on June 30 and the Senate on July 15. The new rules will regulate complex derivatives, set up controls to identify and shut down troubled financial companies, and establish an independent consumer bureau within the Federal Reserve to protect borrowers against abuses in mortgage, credit card and other types of lending.

While the Dodd-Frank Wall Street Reform and Consumer Protection Act is notable for its reforms to Wall Street and government regulatory oversight, the Appraisal Institute applauded the legislation’s inclusion of the first modernization of real estate appraisal regulations in more than 20 years.

“This bill will mean good news for consumers because they should see more reliable home appraisals,” said Appraisal Institute President Leslie Sellers, MAI, SRA. “It will encourage the use of highly trained and competent real estate appraisers and will provide much-needed resources for oversight and enforcement.”

Sellers noted that in addition to authorizing grant funding for state oversight and enforcement, H.R. 4173 will require that “reasonable and customary” fees be paid to appraisers to reflect what an appraiser would typically earn for an assignment absent the involvement of an appraisal management company. AMCs that violate “customary and reasonable” requirements will be subject to severe penalties under the Truth in Lending Act.

H.R. 4173 also provides provisions to sunset the controversial Home Valuation Code of Conduct by directing for the establishment of a federal appraisal independence standard. The HVCC, which took effect in May 2009, has been largely criticized by many real estate professionals.

Among its other key appraisal provisions, H.R. 4173 also will do the following:

• Require AMCs to register with state agencies.
• Enhance appraiser competency provisions, including clarification regarding consideration of professional appraisal designations.
• Provide financial resources for oversight and enforcement of appraisal rules.
• Separate AMC and appraisal fees on the HUD-1 Statement.

The Washington Post reported July 15 that federal agencies have been hard at work for weeks in anticipation of the reform bill’s passage. The Treasury Department has already assigned dozens of employees to carry out various provisions, such as the creation of the consumer protection bureau, while agencies such as the Securities and Exchange Commission, the Federal Deposit Insurance Corp., and the Federal Reserve, have been holding daily meetings to plan how they will carry out their new responsibilities.

Due to the legislation’s size, H.R. 4173 will be rolled out in stages. As noted by the Post, the first step will be to set up a new Federal Insurance Office to allow the government the authority to seize large-scale failing financial firms. Within three months of that, the new Financial Services Oversight Council must hold its first meeting and within three months of that, new rules providing shareholders with more of a say on executive pay must have taken effect.

Within the first year of its enactment, the Post has reported that the legislation calls for the Fed to have the consumer protection bureau up and running while the Office of Thrift Supervision -- one of several bank regulators that failed to preempt the financial meltdown -- must be abolished.

The Post has also detailed that 18 months after taking effect, the reform bill requires that new rules be issued to restrict the proprietary trading that financial companies can do with their own accounts while within two years, regulators must have simpler mortgage disclosure forms proposed as an alternative to the current versions.