Customary and Reasonable Fees: Appraisers Under Fire

I don't know if this quite falls under the "No good deed goes unpunished" category, but the proposed simplified combined version of the GFE and TIL is coming under pressure already." Industry groups say the revisions may lead to limits on innovation and variety in lending, while consumer advocates are resisting changes that might limit borrowers' right to sue to stop a foreclosure." CanWeAllBeHappy?

 The latest Dodd Frank turmoil is over appraisers. Under the Act, lenders are now required to pay "customary and reasonable" fees to appraisers. What the heck does that mean? Can you imagine telling your 15-yr old that her allowance would be "customary and reasonable"? How about telling a car salesman that you would pay them something that was customary and reasonable for the car?

Kate Berry with American Banker published an article focusing on the current state of the appraisal biz and the attempt to address a long-standing appraiser complaint: That appraisal management companies, hired or owned by lenders, have been driving down fees at the expense of quality. The law's goal is to ensure lenders seek the most competent appraisers rather than the cheapest ones. Her article goes on, "But appraisers and independent AMCs have complained to regulators that some lenders have lowered their fees since this part of Dodd-Frank took effect on April 1 - and that other lenders have effectively done so, by demanding more work for the same pay as before. Interim federal guidance allows a bank to look at the fees it's paid in the past year to determine what is 'customary and reasonable.' So many banks have been holding their fees steady. At the same time, given a shaky housing market in which distressed sales make up as much as 40% of current listings, banks also are asking for more information in valuation reports" so lenders want more items in the appraisal, like two listings on top of the three comps, for the same price. The article highlights the problem a free market has, and will have, when the government controls prices, in addition to the problems that arise when there are few competitors.

An appraisal veteran wrote to me saying, "This is absolutely true. There is an implied pressure on any provider (in any industry) whenever any that field is dominated by so few players. Witness the LSI's and CoreLogic's Valuation Services of the world choosing to maintain their pricing model to appraisers in the face of Dodd-Frank's bright line. They operate on the 'law of large numbers'. The amount of money they can make in the time it takes any regulatory agency to find them at fault will vastly exceed any potential fine they may incur. One could argue that HVCC was created to protect appraisers from bank pressure when, in my opinion, it was a vehicle to enhance capture rate for lenders and seed control over the appraisal process - a goal of large lenders for decades.

"Secondly, as the required data mounts that appraisers are being asked to provide and the fees stay static, or in many cases actually decline, there's a 'self-preservation' that takes place. Appraisers tilt towards the most conservative approach so as to try and avoid a burdensome litany of revisions and explanations driven by some clumsy AVM data dump that an all too inexperienced (an underpaid) underwriter is using to determine whether an appraisal is 'accurate'.  The bottom line is that borrowers suffer from a diminished quality appraisal, markets suffer from the best and the brightest being driven from their industry by higher workloads and ever-diminishing fees and the public faces an ever growing risk of history repeating itself."
 
So this provision of the Dodd-Frank Act where lenders are now required to pay "customary and reasonable" fees to appraisers is meant to address the complaint that the AMC's have been driving down fees at the expense of quality. And we may see investors focusing on, or advertising, their appraisal process. For example, SunTrust told brokers, "SunTrust Pays Our Appraisers 100% of the Appraisal Fee. We Think You Get What You Pay For! This process should help the turn times, quality, and the all-around appraisal experience." The investor provided brokers simple instructions on how its credit card payment process works, saying that the LO or the borrower may pay for the appraisal. For certain scenarios, ClearPoint Funding "encourages and accepts the use of streamlined appraisal alternatives as directed by the DU/DO Automated Underwriting System. A Property Inspection Waiver is now permitted when recommend by DU/DO for the following scenarios: 1 unit, purchase & R/T refinances, standard loan balances, all occupancies permitted (excluding investment in TX), but the property may not be an REO, recent foreclosure or new construction. (Refer to CPF Guidelines for complete details and restrictions.)

Chase made a non-agency loan price adjustment" improvement. "This change applies to Non-Agency Fixed Rate; Non-Agency Interest Only; and Non-Agency ARM transactions" for best efforts loans, and includes loans that are re-priced to current market due to a relock, product change, or renegotiation. If a credit score is greater than or equal to 740, and the loan has an LTV at less than 70%, the price adjustment is now a point (1.0) better.

Suntrust issued eight new bulletins, which included COR11-100, its 100th of the year. These included guidance concerning borrowers whose qualifying income involves a mandatory employee furlough, reminding clients that SunTrust requires registration of loans with MERS prior to purchase, revising guidance for borrowers purchasing non-owner occupied properties (it now requires borrowers to demonstrate a 24-month property management history within the last five years), introducing guideline updates to the Key Loan program that include revised guidelines for rate/term refinances of non-purchase money seconds and requirements for borrowers with bankruptcy, foreclosure, or deed-in-lieu, telling correspondents that loans under the temporary high-cost loan limits must be delivered by 9/16, and "Due to the ECOA SunTrust Mortgage is enforcing a new credit report pricing structure. It will require a refund prior to purchasing any loan where there is a greater charge for unmarried joint applicant's credit reports than for credit reports compared to married joint applicants.

Friday had its share of bank closings (although the pace certainly is off that of 2010's). CertusBank, SC, acquired the banking operations, including all the deposits, of Georgia's Atlantic Southern Bank and First Georgia Banking Company after having the FDIC being appointed as receiver. Across the country in Washington Summit Bank was closed and Columbia State Bank of Tacoma assumed the deposits.

Plaza Home Mortgage, effective for all submissions received on or after today, will allow itemization of reasonable and customary unallowable fees, if an origination fee is not charged. The aggregate amount of these fees charged to the veteran cannot exceed 1% of the amount on purchase and cash out refinance transactions and 1% of the unpaid balance plus the cost of any energy efficient items less any cash payments from the veteran for any IRRRL transactions. With this change, for lender paid transactions, Plaza Home Mortgage will cover the amount of any unallowable fees that exceed the limits set by VA for the veteran to pay as noted above on refinance transactions and purchase transactions, where the seller is not contributing to the borrower's closing costs. As a reminder, brokers cannot charge any fees or earn any fees that are paid by the borrower or other third party when compensation is paid by the lender. On lender paid transactions, Plaza Home Mortgage will pay compensation to the broker based on the agreement in place at the time the loan is submitted.

Looking at rates, we have zip for scheduled news today, but in spite of that the worries about European debt have caused overseas stock markets to sell off, and are causing some flight to quality here in the US. Our 10-year yield is down to 3.11% and MBS prices have improved by about .250. Tomorrow is New Home Sales and Wednesday is Durable Goods, an important but volatile indicator of economic growth. I can hardly wait for Thursday when we have revisions to first quarter's GDP - old news. Friday, ahead of the 3-day weekend, will be the biggest day with Core PCE inflation, Personal Income, Pending Home Sales, and Consumer Sentiment. Throw in some Treasury auctions tomorrow, Wednesday, and Thursday, and who knows what will happen.  ECON CALENDAR

Some theologians predicted that "The Rapture" was to occur on Saturday with the good people swept up to Heaven and the bad people left behind to wait for the world to end. The predictions fell short (although plenty of pranksters bought shoes and old clothes from the Salvation army, then filled them with dry ice and left them on city streets to see what passer-by's thought.) Just in case we have predictions of Rapture in the future, keep this checklist handy of the top things to do before The Rapture occurs (assuming you're one of the good people).

1. Lock the house. Considering the caliber of people who will be left behind, your electronic equipment would be gone by noon the next day.
2. Feed the fish. We know that dogs will be leaving and cats will be left behind, but cats can take care of themselves. They're resourceful. We don't know the fate of the fish, and they're pretty helpless swimming around in that aquarium with no food.
3. Dress nicely. Doesn't have to be formal wear. A nice pair of jeans and sneakers should be fine. But, you know, look presentable. Kids, don't look all punk or all trashy. You're going to be wearing these clothes for a long, long time. Don't pick something you'll regret down the line. Some jewelry is fine, but don't go overboard - you don't want to look like you're trying to "take it with you."
4. If you use glasses, contact lenses or hearing aids, keep them nearby. If The Rapture happens a few minutes ahead of schedule, you'd hate to be caught unprepared and have to spend all of eternity squinting to read and asking people to repeat themselves.
5. Put a few bucks in the charity jar on the counter at 7-Eleven. Just in case you're on the bubble.