Separating Appraisal Fees from AMC Fees
Disclosures regarding payments for appraisal management services versus appraisal fees
On July 1, 2015, the Network of State Appraiser Organizations (NSAO) submitted a joint letter in response to the CFPB request for comments on the proposed amendment to the “Know Before You Owe” mortgage disclosure rule, which proposes to move the rule’s effective date to October 3, 2015. It specifically addresses the lack of requirement to mandate disclosure to the consumer that the fee paid for an “appraisal” be clearly defined and break down what portion is being paid to the lenders’ third party appraisal management company and which portion of the fee is actually paid to the appraiser.
Dear Ms. Jackson,
This letter is in response to the Consumer Financial Protection Bureau (CFPB) request for comments on the proposed amendment to the “Know Before You Owe” mortgage disclosure rule, which proposes to move the rule’s effective date to October 3, 2015. The undersigned represent a networked council of professional state appraiser organizations. We appreciate this opportunity to comment.
We applaud the caution that the Consumer Financial Protection Bureau has exercised in delaying the implementation of the new mortgage disclosure rule. As the new integrated disclosure rule emphasizes a clear understanding of payments and terms of a newly originated mortgage loan to consumers under the auspices of “Truth In Lending”, we, once again, appeal to the Bureau to incorporate clear disclosures regarding payments for appraisal management services versus appraisal fees.
There is no requirement within the new rule to mandate disclosure to the consumer that the fee paid for an “appraisal” be clearly defined and break down what portion is being paid to the lenders’ third party appraisal management company and which portion of the fee is actually paid to the appraiser. These are actually two separate fees lumped into one which misleads the consumer. The Bureau is well aware of this issue and has avoided addressing the sizable increase in appraisal fees due to the use of third party appraisal management companies (AMCs) by lenders. These AMC fees have nothing to do with the actual completion of an appraisal report by a licensed professional. The AMC’s primary function is selecting an appraiser to complete the report and varying other services the lender requests of them. Yet, AMC fees can often make up 50% or more of the fee put forth on a disclosure under “appraisal fee”. This can be a significant misdirection of the consumer and should not be allowed to continue. These AMC fees are clearly service fees or bank administrative fees and not actual “appraisal” fees.
“Appraisal” fees to consumers continue to rise while the actual payments to appraisers have fallen. As with any business, a focus of third party appraisal management companies is to increase their profits. Under the current disclosures, there is no benefit or accountability to the consumer since the AMC fees are not listed independently. The result of this lumping together of the fee often leads to an appraisal report that is completed by the cheapest appraiser the management company can find; not the most qualified. Currently, (with no separation requirement), a consumer might see an “appraisal” fee for $600 or more, with no awareness that the appraiser they met at their home and has completed their report is only being paid as little as $300 or less.
We ask that the Bureau recognize our concern and take this proposed delay, in an attempt to “get it right”, as an opportunity to address this issue. We implore that you implement this simple solution of requiring the actual appraisal fee to be disclosed on its own, not an inflated fee that includes other administrative bank or AMC “add-ons”. We sincerely appreciate your consideration of these comments. An in-person meeting could be arranged if that would be helpful for further discussion. If you should have any questions, please feel free to contact Peter Gallo at 704-752-6252 x101/p…@homesightllc.com, or the leadership from any of the below organizations which participate in our Network of State Appraiser Organizations (NSAO).
Sincerely,
Appraiser’s Coalition of Washington
Arizona Association of Real Estate Appraisers
California Coalition of Appraisal Professionals
Delaware Association of Appraisers
Georgia Coalition of Appraisal Professionals
Idaho Coalition of Appraisal Professionals
Illinois Coalition of Appraisal Professionals
Kentucky Association of Real Estate Appraisers
Louisiana Real Estate Appraisers Coalition
Maryland Association of Appraisers
Mississippi Coalition of Appraisers
North Carolina Real Estate Appraiser Association
Ohio Coalition of Appraisal Professionals
Oklahoma Professional Appraisers’ Coalition
Real Estate Appraisers Association (CA)
South Carolina Professional Appraisers Coalition
Tennessee Appraiser Coalition
United Appraisers of Utah
Virginia Coalition of Appraisal Professionals
West Virginia Council of Appraiser Professionals
Wisconsin Coalition of Appraisers
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I predict to see HUD-1 fee transparency 1 year after Andrew Cuomo is impeached as president.
Hint To Appraisal Organizations Fighting For This Change:
You will find it far easier to have the name “Truth In Lending Law” changed to “Zero Truth In Lending Law” than you will obtaining HUD-1 transparency.
Someone on the AF posted a link and asked for appraisers to also write in and support this necessary correction regarding separate fees for separate services. Anyone have that link here?
If fees were appropriately separated, then amc’s could be audited for C&R compliance. You can bet that some of them will continue to lobby and fight against transparency in billing. If the amc service is worthwhile, valid, and is worth the expense, there should be separated billing. Distinctly different services should require distinctly separated billing disclosures. Same old story; Many an amc will simply call down the list of appraisers until they find the cheapest servicer regardless of quality or depth of the appraisal product, to maximize profits. And with flat rate billing policies, when one appraiser wins on C&R, the next appraiser is forced to lose, in order for the amc to maintain a profitable operation. The reason being is they have agreements with lenders where all orders have a flat compensation rate. Amc’s actually operate as suppressors of free market appraisal fees, in those scenarios. Appraisers who discount more, provide more financial incentive to be the preferred selectee, which is not how a non-advocate appraiser is supposed to operate. Cost savings from lower cost services should be returned to the borrowing consumer, and not pocketed as a financial incentive to select that appraisal servicer. A more appropriate billing structure would be to force each individual appraiser and amc management fee be tied to that individual deal, and to prohibit flat rate billing by amc’s. Don’t take my word for it, but rather read into the issue with this highly detailed and informative explanation page put forward by one of the many appraisal professional groups out there.
One of the best explanation pages on the amc business structure question I’ve ever read. http://appraisersblogs.com/appraisal/amc-dangers/