It is old news that the Dodd-Frank Act sets standards for pricing appraisals and subjects appraisal management companies, known as AMCs, to federal and state oversight. The news for 2012 is that lenders may need to contend with alternate state law requirements addressing the payment of fee appraisers, some of which may be inconsistent with federal law.
AMCs – the business entities that administer networks of independent appraisers to procure real estate appraisal assignments on behalf of lenders – are now subject to supervision by state governments through their appraisal boards. Under the Dodd-Frank Act, the federal banking agencies must jointly by rule establish minimum requirements to be applied by a state, including state registration and supervision of AMCs, and that appraisals be conducted in compliance with Section 129E of TILA. While states have three years from the date the federal agencies finalize their rules establishing minimum requirements, AMC registration laws now exist in 28 states.
Among the appraisal independence standards in Section 129E of TILA is a requirement that creditors and their agents (e.g., AMCs) compensate fee appraisers at a “customary and reasonable rate for appraisal services in the market area of the property being appraised.” The Federal Reserve Board promulgated interim final regulations providing that a creditor or its agent will be presumed to comply with the appraisal fee requirements if it compensates “[t]he fee appraiser in an amount that is reasonable related to recent rates paid for comparable appraiser services performed in the geographical market of the property being appraised” with the fee adjusted as necessary to account for six factors. This presumption recognizes that the marketplace is the best arbiter for setting appraisal fees.
The interim final regulations also provide an alternate presumption of compliance which is more appraiser-friendly as it likely will result in higher rates. Under the alternate presumption, a creditor or its agent will be presumed to comply with the “customary and reasonable” requirement if the creditor or its agent determines the amount of the appraiser’s compensation by relying on recent third party geographically relevant rate information that is contained in fee schedules such as that published by the VA or other independent surveys or studies that exclude compensation paid to appraisers ordered by AMCs. The interim final regulations eventually will be finalized by the CFPB.
In implementing state AMC laws, state appraisal boards, such as those in Kentucky, North Carolina and Texas, seek to set appraisal fees. For example, Kentucky’s proposed rule regulating AMCs would require an AMC to compensate Kentucky appraisers a fee mutually agreed upon provided the fee is equal to the amount set in the VA fee schedule for comparable properties. Kentucky’s one-size-fits-all approach not only is contrary to the Federal Reserve Board’s conclusion that a single standard price for appraisers cannot exist, but also is an attempt to undo the federal requirements. Lenders and AMCs alike should closely watch these and other states’ attempts to implement AMC laws and the CFPB’s actions to review the interim final regulations.