Trade groups urge Federal Reserve to adjust Reg Z's rule on appraisal fees
Four appraisal trade associations urged the Federal Reserve Board to require appraisal management companies to disclose their fees to consumers and to reconsider the language and implementation of an interim rule that requires AMCs to pay “customary and reasonable” appraiser fees. The goal of the rule is to encourage appraiser independence and objectivity through a standard fee system. It amends Regulation Z, the Truth in Lending Act. The Appraisal Institute, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers and the National Association of Independent Appraisers said in a letter they believe the Federal Reserve "incorrectly interpreted Congress' plain language, intent and public policy purposes" concerning the rule. Together the organizations represent more than 35,000 members. The letter is indicative of the growing resentment between independent appraisers and appraisal management companies with independent appraisers complaining that the recent growth and proliferation of AMCs has resulted in cut-rate fees and the use of less qualified appraisers. Under the interim rule, there are two presumptions in determining a customary or reasonable appraisal fee. The first states that lenders comply with the provisions of the rule if the amount of appraiser compensation is reasonably related with recent rates for appraisal services in the geographic area. According to the second presumption in considering compensation, a lender or agent is in compliance if it establishes a fee by relying on objective third-party information such as fee schedules, studies and surveys. However, the third-party information must exclude fees paid to appraisers for appraisals ordered by AMCs. The organizations believe the statutes are inconsistent with one another. They take issue with the role of AMCs in both. "Our groups strongly urge the board to amend the first presumption to explicitly exclude fees paid by AMCs from consideration under the first presumption," the letter said. "Our organizations strongly object to this feature ... and urge its removal from the final rule." The letter continues, "While the second presumption specifically excludes assignments ordered by known appraisal management companies, the first presumption specifically does not require that a creditor use third-party information that excludes appraisals ordered by AMCs." A literal interpretation of this statement would create a significant departure from the intent of the legislation — defining customary and reasonable fees as appraisal assignments absent the involvement of AMCs." The trade associations said they think the two presumptions will perpetuate the current climate, where AMCs set the standard for appraisal fees. This, they said, would harshly affect small lenders and appraisers, as well as limit appraiser independence. Instead, they suggested, the Federal Reserve should be aware of and make a distinction between the terms "customary" and "reasonable," and establish a rule that is void of AMC involvement. Write to Christine Ricciardi.