Some banks and appraisal management companies may be misinterpreting Presumption 1 of the Federal Reserve’s Interim Final Rule “customary and reasonable” fee language, the Fed’s staff said April 10 at the Association of Appraiser Regulatory Officials spring conference in San Antonio.
In a presentation covering the Interim Final Rule, representatives from the Federal Reserve indicated that utilizing AMC-involved assignments when assessing fees as part of a six-part test under Presumption 1 may be inconsistent with the Rule, which became effective on April 1. Federal Reserve officials indicated that AMC fees were not to be included in any assessment of recent fees paid to appraisers.
Further, officials suggested that use of blanket schedules for fees within states may not rise to the requirements to satisfy both “customary” and “reasonable” as defined by Presumption 1. Separately, he officials also reiterated the provision of the Interim Final Rule that states that just because an AMC requires an appraiser to sign a document indicating that the fee that they are paid for an assignment is customary and reasonable does not necessarily satisfy the AMC’s responsibility to ensure that an appraiser is actually paid a customary and reasonable fee.
The Interim Final Rule defines two separate presumptions of compliance. Presumption 2 relies on fee schedules adopted by government agencies or independence organizations and is more consistent with the statutory language found in the Dodd-Frank Act, whereas Presumption 1 requires adherence to a review process of several factors. In determining this amount under Presumption 1, a creditor or its agents shall review the factors and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable. These factors include the type of property, the scope of work, the time in which the appraisal services are required to be performed, the fee appraiser qualifications, the fee appraiser experience and professional record and the fee appraiser work quality.
Some have speculated that creditors and their agents may not be interpreting the lengthy explanation in the preamble for the customary and reasonable fee rule. Doing so may be place the creditor at risk of significant fines and penalties. Unfortunately, it is up to an appraiser to proactively rebut Presumption 1, and it’s not clear what information is necessary for a satisfactory rebuttal.
Federal Reserve staff indicated they take complaints on this issue seriously, although no word was given on whether the Fed plans to issue any clarifying guidance regarding Presumption 1.
“There is a serious problem if the very entities favoring Presumption 1 are not interpreting it correctly,” said Richard Maloy, MAI, SRPA, SRA, chair of the Appraisal Institute’s Government Relations Committee. “Not only is there obvious confusion, but there remains an ongoing potential inconsistency with the Dodd-Frank statute itself.”
Maloy indicated that AI’s Government Relations Committee is undertaking a thorough review of the facts and is embarking on a multi-faceted campaign to help ensure that Congress’ intent is carried out.
In related news, the Appraisal Subcommittee released information on April 15 on where appraisers can direct questions and comments regarding the issue of appraisal independence. According to a notice posted on the agency’s website, the appropriate agency to receive an appraiser’s concern about a creditor’s compliance with the Truth in Lending Act, including the creditor or the creditor’s agent paying an appraiser a customary and responsible fee, is the agency that enforces TILA for the creditor. If the agent or appraisal management company is affiliated with a federally-regulated creditor, the appropriate agency to receive complaints against the AMC is the affiliated creditor’s federal regulator. If the agent (or AMC) is not affiliated with a federally-regulated creditor, the appropriate agency to receive the complaint is the Federal Trade Commission.