Lender Must Pay AMC Fee Proposal!
Appraisal fee charged to consumer must not include AMC fee
This is huge. The New Jersey Department of Banking is proposing to change the current regulations of mortgage lenders. The change will require the maximum fee charged to the borrower for appraisal services is no more than the actual fee the appraiser is paid. In other words, any fee charged by the AMC must be paid by the lender. We all need to support New Jersey in this action. This is about Consumer Protection!
Please note this did not initiate from appraisers, this came from the New Jersey Department of Banking.
Passages from the article by Robert M Jaworski below:
… On June 5, 2017, the New Jersey Department of Banking and Insurance (“Department”) published a proposal to repeal a regulation first adopted in 2002 and readopted every 5 years thereafter. See 49 N.J. Reg. 1273-1274. That regulation, N.J.A.C. 3:1-16.2(a)3, required the Department to conduct and publish in the New Jersey Register an annual survey of third party appraisal fees (the “Annual Survey”). The purpose of the Annual Survey was to enable the Department to determine the current “usual, customary and reasonable” fee (“Customary Fee”) that lenders would be permitted to charge their borrowers for the cost of an appraisal, whether “performed and delivered in-house” or obtained from an appraisal management company (“AMC”). The regulation states that for in-house appraisals, “the fee shall approximate the [Customary Fee] for comparable appraisals by third-party appraisers based on the [Annual Survey]”; and for appraisals obtained from AMCs, “the fee shall not exceed the amount charged by the [AMC] and shall approximate the [Customary Fee] for comparable appraisals by third party appraisers based on the [Annual Survey].”
The part of the regulation that addressed appraisals obtained from AMC was prompted by the Department’s desire to protect consumers from lenders who try to pass along inappropriate costs in appraisal fees. The “inappropriate costs” of concern to the Department were what it perceived to be extra fees that AMCs (which were often owned by lenders) would charge lenders over and above the fees the AMCs paid to the independent third party appraisers they hired to perform the appraisals and prepare the appraisal reports. (AMCs generally manage the appraisal process for lenders. They select and hire appraisers, negotiate their fees, review the reports they prepare and submit those reports to the lenders in the form the lender requires.)
The Department has now changed its mind. It explains, in the Summary section of the proposal, that its prior concerns about AMCs “have subsided” and that the Annual Survey “could effectively represent an unwarranted restraint on a free market for appraisal charges, … have a negative impact on the business community, and … constitute an unneeded and burdensome regulatory requirement imposed upon lenders.”
However, despite that the Department’s concerns about AMCs have apparently subsided, its proposal appears to adversely impact AMCs and lenders that choose to use them. The proposal states that lenders may only recover from the borrower “the direct cost of the fee charged by a duly credentialed real estate appraiser for an appraisal in connection with a mortgage loan application.” Whether or not so intended, this provision can be read to limit the amount of an AMC’s fee that a lender may pass through to the borrower to the amount the AMC actually pays to the third-party appraiser it hires to perform the appraisal…
Effective December 16, 2002, the Department amended N.J.A.C. 3:1-16.2(a)3 to its current form. The Department was responding to marketplace developments and related consumer protection concerns at that time. Appraisal services were then increasingly obtained from in-house resources at the lenders, or from appraisal management companies (AMCs), often affiliated with lenders, rather than from the traditional third-party appraiser community. Concerns were raised that borrowers were being charged for the cost of appraisals, plus the added cost of in-house or AMC services. In the 2002 amendments, the Department undertook to guard consumers against such added charges by establishing a “usual, customary and reasonable fee” standard for the direct cost of an appraisal. Thus, the 2002 amendments provided for the Department to conduct an annual “survey” of third party appraisal fees charged by lenders to determine current “usual, customary and reasonable” fees that would be the benchmark for permissible fee amounts published in the New Jersey Register. Furthermore, the 2002 amendments provided that “[i]f the appraisal is performed and delivered in-house, the fee shall approximate the usual, customary and reasonable fee for comparable appraisals by third party appraisers” established pursuant to the survey. Similarly, the 2002 amendments provided that, “[i]f the appraisal is performed by a third party appraiser and delivered by an [AMC], the fee shall not exceed the amount charged by the [AMC] and shall approximate the usual, customary and reasonable fee for comparable appraisals by third party appraisers” established pursuant to the survey.
The Department has determined that its concerns about appraisal management company charges have subsided. In fact, the Department has approved the pass-through to a borrower of a reasonable AMC fee as a separate third-party fee deemed permissible pursuant to the process afforded under N.J.A.C. 3:1-16.2(a)7xv. In addition, there is a concern that the survey could effectively represent an unwarranted restraint on a free market for appraisal charges, may have a negative impact on the business community, and may now constitute an unneeded and burdensome regulatory requirement imposed upon lenders. Thus, the Department is concerned that the survey effectively imposes a cap on these fees, while not significantly protecting borrowers.
appraisal fee charged to a consumer must total no more than the amount charged by the 3rd-party appraisersThe Department, therefore, proposes to amend the existing paragraph (a)3 to eliminate the survey and the “usual, customary and reasonable” fee pricing regulatory concept that it serves. The Department proposes to adopt a simpler requirement that an appraisal fee charged to a consumer must total no more than the amount charged by the third-party appraisers.
In addition, the Department notes that with the vast majority of loan applications only one appraisal is needed. Also noted is the fact unusual circumstances may develop in conjunction with individual residential real estate properties that necessitate a second appraisal. The Department, therefore, proposes to include a process for the lender to charge a consumer for a second appraisal in connection with the same loan when certain criteria are met. Proposed criteria for charging a consumer such a second appraisal fee would include a change of circumstances materially affecting the value of the property to be used as collateral for the loan, a delay between the first appraisal and the scheduled closing not caused by the lender, and any applicable Federal regulations.
The Department’s notice of proposal provides for a comment period of 60 days and, therefore, pursuant to N.J.A.C. 1:30-3.3(a)5, is excepted from the provisions of N.J.A.C. 1:30-3.1 and 3.2 governing rulemaking calendars.
The proposed amendment would impact residential first mortgage lenders and their customers. They will assist the Department in protecting consumers from mortgage lenders who may try to pass along inappropriate costs to consumers in amounts charged for appraisals, or to charge for a second appraisal that does not benefit the borrower. Thus, it will have a positive social impact on the residential first mortgage industry and New Jersey residential mortgage consumers.
The Department does not anticipate any significant economic impact on residential mortgage lenders as a result of the proposed amendment. Only appropriate appraisal fees will be passed along to residential first mortgage consumers. Lenders will save the time and expense of complying with the fee ranges generated by the Department’s current appraisal fee survey, which is being eliminated as part of the proposed amendment…
Proposed Amendment: N.J.A.C. 3:1-16.2 below