RHL Appraisals Network News Blog

Customary and reasonable real estate appraisal fees

On July 21, 2010, President Obama signed H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act, into law, ushering in a rewrite of the rules governing financial service providers and products and ending a nearly year-long struggle to enact meaningful reforms.

According to the law that is to be enforced on October 19, 2010, Lenders or their Agent (i.e. AMC's) are required to pay Customary and Reasonable fees to Real Estate Appraisers. Failure to pay an appraiser these customary and reasonable fees may constitute a violation of the Truth in Lending Act and can be fined tens of thousands of dollars per day.

Homeowners underwater on their mortgages could be getting relief through a government program designed to encourage principal write-downs for responsible borrowers, according to a Department of Housing and Urban Development news release issued Aug. 6.

In an effort to help responsible but struggling homeowners, HUD has detailed adjustments to its refinance program, which the agency hopes will enable lenders to provide additional refinancing options to homeowners who owe more than their home is worth.

Starting Sept. 7, the Federal Housing Administration will offer certain underwater non-FHA borrowers who are current on their existing mortgage and whose lenders agree to write off at least 10 percent of the unpaid principal balance of the first mortgage, the opportunity to qualify for a new FHA-insured mortgage, according to the HUD news release.

"We're throwing a life line out to those families who are current on their mortgage and are experiencing financial hardships because property values in their community have declined," FHA Commissioner David H. Stevens said in the HUD news release. "This is another tool to help overcome the negative equity problem facing many responsible homeowners who are looking to refinance into a safer, more secure mortgage product."

The FHA Short Refinance option is one of several Obama administration initiatives introduced as part of an administration plan to help stabilize residential markets by helping 3 to 4 million struggling homeowners through the end of 2012.

To be eligible for a new loan, the homeowner must owe more on their mortgage than their home is worth, be current on their existing mortgage, qualify for the new loan under standard FHA underwriting requirements, have a credit score equal to or greater than 500, and the property must be their primary residence. Also, the borrower's existing first lien holder must agree to write off at least 10 percent of the borrower’s unpaid principal balance, bringing that borrower's combined loan-to-value ratio to no greater than 115 percent.

Existing FHA-insured loans cannot be refinanced, and the refinanced FHA-insured first mortgage must have a loan-to-value ratio of no more than 97.75 percent.

To facilitate the refinancing of new FHA-insured loans under this program, the Treasury Department will provide incentives to existing second lien holders who agree to provide principal write-downs. To be eligible for the program, servicers are required to execute a Servicer Participation Agreement with Fannie Mae on or before Oct. 3.

For more information on the FHA Short Refinance option, read the FHA's recent mortgagee letter.

New Regulations for AMCs!

Page 2223 of the congressional bill contains the following language regarding Appraisal Management Companies:

‘‘SEC. 1124. APPRAISAL MANAGEMENT COMPANY MINIMUM

REQUIREMENTS.

(a) IN GENERAL.—The Board of Governors of the Federal Reserve System, the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection shall jointly, by rule, establish minimum requirements to be applied by a State in the registration of appraisal management companies. Such requirements shall include a requirement that such companies—

(1) register with and be subject to supervision by a State appraiser certifying and licensing agency in each State in which such company operates;

(2) verify that only licensed or certified appraisers are used for federally related transactions;

(3) require that appraisals coordinated by an appraisal management company comply with the Uniform Standards of Professional Appraisal Practice; and

(4) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to the appraisal independence

standards established under section 129E of theTruth in Lending Act.”

AMC's - One word of caution!

If you have an appraisal company “that oversees a network or panel of more than 15 certified or licensed appraisers in a State or 25 or more nationally with in a given year…” you will be classified as an AMC.

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.