Restraint of Trade Investigation
…suppression of appraisal service free trade & fair price competition…
United States Federal Trade Commission, Acting Director of the Bureau of Competition, Abbott (Tad) Lipsky
Dear Mr. Lipsky:
My name is Mike Ford, and I am a Vice President (Special Projects), and Chairman of the National Appraiser Peer Review Committee of the American Guild of Appraisers (AGA), Office and Professional Employees International Union (#44/OPEIU) of the AFL-CIO.
Sir, the FTC press release referenced below prompted this communication and formal complaint. We’ve followed your published links complaint directions but if a specific FTC form is required, please let us know.
The AGA, OPEIU, AFL/CIO represents the appraisal interests and concerns of our own direct membership as well as the over thirteen million taxpaying and consumer members, their families and retirees of our parent union – the AFL/CIO. In this specific issue AGA is also speaking out on behalf and in advocacy of the entire adult consumer population of the United States of America.
I am heartened that the Federal Trade Commission has recognized the need to assure that appraisal
“…consumers deserve to benefit from a free market where those fees are set by competition.”
It appears that your complaint may have been instigated by the very special interests that are most responsible for suppression of appraisal service free trade and fair price competition in America today. By that I am referring to the entities broadly described as Appraisal Management Companies (AMCs), and in this specific complaint – the Federal National Mortgage Association, also known as Fannie Mae and/or FNMA .
Regardless of how your actions originated, we sincerely applaud the fact that the FTC is taking some action to remedy potential cases of restraint of free trade.
This (new) complaint may also extend to the individual federal governmental agencies that are collectively known as the Federal Financial Institutions Examination Council and any other entities established by the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) or successor legislation known as Dodd-Frank.
Where your existing action in Louisiana is limited to one state, this complaint involves all fifty states plus the District of Columbia and U.S. Territories where FNMA purchased loans originate.
- FNMA is now a tax payer guaranteed Government Sponsored Enterprise (GSE) responsible for making home mortgage financing available in transactions for an estimated 50% to 75%± of all residential one to four unit conventionally financed (non HUD/FHA or VA) properties in America today. Each of these transactions requires verification of the market value of the underlying collateral securing the loans, by a state licensed or certified real estate appraiser.
- Without ability of direct or ‘originating’ lenders to immediately sell discounted loans to FNMA that they have made, the entire real estate market as it is currently operated in the United States would collapse overnight.
- FNMA sells the securitized loans as bundled securities to national and international investors.
- FNMA rules specifically prohibit the purchase of any loan in which the appraiser was directly selected by the borrower or in which the borrower ordered the appraisal.
- Further the Truth in Lending (TILA) Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) final rule adopted by the FFIEC virtually eliminates any possibility of effective or meaningful negotiation of appraisal fees by consumers.
The complaint issue is:
When consumers are prohibited from choosing their appraiser; and the appraisal price is predetermined by third parties in advance of their decision to engage in a mortgage transaction; and substantial obstructions are built into the federal mandated disclosure process; how then is the consumer able to ‘negotiate’ the fee in a free market where fees are set by competition?
It is a closed system where the consumer is excluded from negotiation.
- FNMA policies prohibit direct selection of appraisers by the consumers that pay for their services.
- The lenders that make loans have pre-existing Service Level Agreements (SLAs) with specific Appraisal Management Companies wherein the fees for the ‘appraisal’ and management service are lumped into a single fee. The fee is typically preset in a range of from $550.00 to $650.00. Absent C&R fee enforcement by States, the appraisers frequently only received from $175 to $300 of this total.
- Originating loan brokers or correspondent lenders are only allowed to order appraisals through AMCs already approved by the funding or direct lender that sells the loans to FNMA.
- Appraisals are not ordered until well after credit and income verifications have been performed and a tentative or pre approval has been obtained subject to an appraisal.
- The consumer is quoted a fee from $550 to $650 at the time they make their initial loan application for a mortgage loan transaction. They are not even told the truth about how much will actually be paid to the appraiser for the appraisal
- It’s ONLY the AMC that determines how much they will subsequently pay for the actual appraisal.
- Nearly all AMCs require $150 or more for their operating overhead out of the $550 to $650.
- There is no enforceable rule prohibiting the AMCs from paying far less than is required for a competently performed appraisal completed in accordance with the requirements of USPAP (and pocketing the difference up to the SLA payment).
- AMCs frequently pay appraisers fees that are so low as to virtually guarantee sub-par appraisals in violation of Dodd Frank.
- Some states (such as Louisiana and others) have attempted to remedy these unfair restraints against trade and consumer deprivation by enacting legislation to enforce the otherwise feckless appraisal provisions of the Dodd Frank Act.
- This appears to be the point where the FTC has joined in the issue against the State of Louisiana. Presumably at the urging of REVAA or similar other AMC special interests.
While the primary failure to protect the consumers lies with the federal government for not including enforcement mechanisms into Dodd Franks “Reasonable and Customary Fee” appraisal requirements, FNMA also has a direct role.
By establishing rules and procedures that prohibit the purchase of loans secured by collateral where the consumer has had an opportunity to select the appraiser or to negotiate the fee to be paid they virtually eliminate the consumers ability to engage in fee negotiations in an open and free competitive market. Ultimately FNMA has the sole ability to correct this unfair policy that amounts to unfair restraint of trade.
Respectfully, please investigate the above claims and order or file a formal legal complaint requiring FNMA to cease their unfair restraint of trade. When that has been resolved, a follow up complaint for the same reasons should be opened against the Federal Home Loan Mortgage Corporation (FreddyMac).
FNMA has the separate ability (and responsibility) to assure appraisals are not biased in favor of a borrower by ordering and paying for their own appraisal reviews from competent professionals. Their choice not to do so is purely a business decision that should not serve as justification to deprive consumers of their rights to select their own professional appraiser or to negotiate their own fees for those services. Additionally fees required by FNMA rules for AMC services should not be hidden in the TRID Disclosure Documents as “the appraisal fee.”
Please don’t hesitate to contact me by phone or email if you require additional information.
Michael F. Ford,
VP/Chairman AGA, OPEIU-AFL/CIO
FTC Challenges Louisiana Real Estate Appraisal Board Regulations that Restrict Competition
Restrictions on fee setting violate federal antitrust rules, agency alleges
FOR RELEASE – May 31, 2017
The Federal Trade Commission has filed a complaint against the Louisiana Real Estate Appraisal Board, alleging that the group is unreasonably restraining price competition for appraisal services in Louisiana, contrary to federal antitrust law. The complaint will be submitted to adjudication before an Administrative Law Judge, who will review it and render an initial decision.
In the administrative complaint, the FTC alleges that the Louisiana appraisal board limits the freedom of individual appraisers and their customers to engage in bona fide negotiations to set appraisal fees for real estate appraisals in Louisiana.
According to the FTC’s complaint, the 2010 Wall Street Reform and Consumer Protection Act, popularly known as “Dodd-Frank”, required appraisal management companies to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The FTC alleged in its complaint that the appraisal board’s regulations exceeded the scope of the federal mandate. Specifically, the board required appraisal fees to equal or exceed the median fees identified in survey reports commissioned and published by the board. The board then investigated and sanctioned companies that paid fees below the specified levels. The complaint alleges that Dodd-Frank neither requires nor authorizes the restrictions that the board placed on appraisal fees.
Acting Director of the Bureau of Competition, Abbott (Tad) Lipsky, stated: “The Bureau is committed to the judicious exercise of its enforcement discretion as mapped out by the Supreme Court in the North Carolina State Board of Dental Examiners case. The great preponderance of state board activity across the country occurs without significant antitrust concern, and the Commission will respect the authority of such boards when they operate within the defined scope of antitrust law. Today’s action – the first such Commission complaint against a state board since the Supreme Court decision in North Carolina Dental – shows that the Commission remains vigilant and will exercise its prescribed authority when economically sound and otherwise consistent with the public interest. Nearly everyone that purchases or refinances a home in the state of Louisiana pays appraisal fees, these consumers deserve to benefit from a free market where those fees are set by competition.”
The Commission vote to issue the administrative complaint was 2-0. The administrative trial is scheduled to begin on January 30, 2018.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. A complaint constitutes an allegation, but does not constitute a determination that the law has been violated as alleged.