Along with new oversight of the reverse mortgage industry, passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) brings new appraisal independence requirements and grant funding for state oversight and enforcement of the regulations.
“This bill will mean good news for consumers because they should see more reliable home appraisals,” said Leslie Sellers, President of the Appraisal Institute. “It will encourage the use of highly trained and competent real estate appraisers and will provide much-needed resources for oversight and enforcement.”
H.R. 4173 creates the Bureau of Consumer Financial Protection and is charged with drafting new regulations that define acts or practices that violate the bill’s appraisal independence requirements. The regulations are to be drafted within 90 days of President Obama signing the bill and will supersede the Home Valuation Code of Conduct (HVCC) rules adopted by Fannie Mae and Freddie Mac in 2009.
Under the new law, Appraisal Management Companies (AMC) must register with state agencies and stipulate that both lenders and AMCs pay “reasonable and customary” fees to appraisers. Lenders must establish what’s reasonable and customary by citing objective third-party information, such as government agency fee schedules, academic studies, and independent private-sector surveys. But fee studies can’t include assignments ordered by AMCs.
Mortgage brokers complain the growth of appraisal management companies has increased the costs of appraisals, while individual appraisers say they’re being paid less since the HVCC was implemented. According to the bill, reasonable and customary fees will reflect what the appraiser would typically be paid for the assignment absent the involvement of an AMC.
“We encourage AMCs to justify the legitimate services they are providing to lenders by charging for those services, rather than penalizing highly trained and competent appraisers, whom they should be seeking to do business with,” said Sellers.
The new law may help with the quality of appraisals, but the use of AMCs in the reverse mortgage industry is here to stay unless the Federal Housing Administration changes its policy. According to FHA guidelines, mortgage brokers and commission based lender staff are prohibited from ordering appraisals, but they are not required to use AMC’s or other third party providers.
However, since FHA requires lenders take responsibility to assure appraiser independence, the use of AMCs throughout the reverse mortgage industry is common practice and odds are will not be changing.
In a letter to clients, the law firm K&L Gates said it best, “While the HVCC may be fading into the sunset, don’t expect the same fate for AMCs, AVMs, and BPOs.”