Mortgage Disclosure Rule Alters Appraisal Fee Reporting
The Appraisal Institute on Dec. 17 finalized its review of the Consumer Financial Protection Bureau’s 1,888-page final rule on Integrated Mortgage Disclosures under the Real Estate Settlement Procedures Act and the Truth in Lending Act, and noted several provisions that impact real estate appraisers and how appraisal fees are reported.
The rule, which takes effect Aug. 1, 2015, mandates the use of two new disclosure forms, the Loan Estimate (which replaces both the Good Faith Estimate and the initial Truth in Lending Disclosure) and the Closing Disclosure (which replaces both the HUD-1 and the final Truth in Lending Disclosure). It also stipulates that borrowers must receive the Closing Disclosure at least three business days before closing.
The rule also states that lenders have the option to — but are not required to — disclose the appraisal management fee separate from the appraisal fee on the Closing Disclosure.
The Appraisal Institute had argued that this fee should be a required disclosure, but the CFPB favored the optional disclosure “because requiring breakouts of such charges to be disclosed in all cases may tend to produce information overload.”
It remains to be determined how this provision will be implemented by lenders and title agents given the lengthy implementation date, however, lenders typically disclose less information so as not to alarm consumers.
However, many states and the Federal Housing Administration allow or require appraisers to disclose within the report the fees paid. In these situations, consumers will see a different fee reported within the appraisal report than what is disclosed on the Consumer Disclosure form if the AMC fee is not separately disclosed.
The final rule also requires the Closing Disclosure to identify the ultimate entity or person to whom the fee is paid. The final rule includes examples where the creditor or someone else is collecting money that’s to be passed on to an ultimate provider (i.e., creditor collects appraisal fee or settlement agent collects the recording fees) with the disclosure identifying the ultimate payee. The Appraisal Institute has requested more information from the CFPB on this issue.
Another provision within the rule involves a new definition for “changed circumstances,” which should make it easier for appraisers to explain fee increases due to new information or assignment complexity.
Under existing rules, appraisers sometimes encounter resistance over fee changes because some lenders wrongly think it was not allowed under RESPA or because of a general reluctance to issue new disclosure forms to consumers. Under the final rule, changed circumstances will be allowed for extraordinary events beyond the control of any interested party or other unexpected event, inaccurate information relating to the transaction that was relied upon when providing a Good Faith Estimate to a consumer or new information specifically to the transaction.
When the rule takes effect, appraisal services will be lumped into a tighter zero percent tolerance category, which likely will force lenders to obtain more precise fee information from appraisers in advance of an assignment.
Under current rules, appraisal services fall within a 10 percent tolerance category that provides some leeway within a broad category of fees that are estimated and disclosed to consumers. Under the final rule, all fees assessed by the lender that the consumer did not shop for will fall into the zero percent tolerance category, which means that any change in an appraisal fee will trigger the issuance of a revised Loan Estimate to the consumer.
The final rule also makes conforming changes to other CFPB rulemaking related to consumer disclosure of appraisals and valuations three days prior to closing.
If you have questions relating to the final rule, contact Bill Garber, the Appraisal Institute’s director of government and external relations, at 202-298-5586 or email at bgarb…@appraisalinstitute.org