From Our Desk to Yours
An Editorial by Michael Simmons
Here’s an interview I did that appeared in Valuation Review in February. You might find it of interest…
A Louisiana appraisal management company, iMortgage Services, has been in the news with regards to the issue of customary and reasonable (C&R) fees. The AMC recently was saddled with a $10,000 fine for its failure to pay customary and reasonable fees to appraisers, the second AMC to be sanctioned by the state. iMortgage Services also must pay all adjudication costs and face a six-month suspension of its AMC license. The suspension is on hold under the conditions that the AMC pay all fines and costs by March 2016 and submit a plan of compliance for following the rules and regulations for determining C&R fees. If the conditions are met in a timely fashion, a six-month suspension will be lifted.
In Louisiana, AMCs are responsible for paying C&R fees in relation to the fees gathered when Louisiana held its fee study. In other states that have conducted fee studies, such as Texas or Utah, the story is the same. Under the Dodd-Frank Act, the Consumer Financial Protection Bureau (CFPB) is supposed to promulgate rules for what qualifies as C&R fees. Because it has yet to do so – although the issue has been on the CFPB’s rulemaking agenda for more than a year – what standards do AMCs have to follow in a state which has not conducted their own fee studies?
“It’s more of a process issue regarding customary and reasonable fees,” AXIS Senior Vice President Michael Simmons told Valuation Review. “According to the Louisiana Real Estate Appraisers Coalition, iMortgage Services did not follow the prescribed state rules as mandated. While everyone is subject to federal laws and rules, the states do have the authority to adopt additional rules that can impose a greater burden. Some states, like Louisiana, have already put laws in place, but the industry hasn’t had to come face-to-face with the consequences – and the consequence is a key issue here.”
“I am a big believer in the idea that people change when we are compelled to change,” Simmons added. “The event that happened in Louisiana should be seen as a warning. On the federal level, from rules issued by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, appraisers are required to be paid a customary and reasonable fee for their service, but there is no statutory standard of how to determine what is customary and reasonable. That’s why states such as Louisiana, Kentucky, Georgia and others have gone through the process of studying fees to determine what C&R rates should be.” Simmons said if a state board gets a complaint from appraisers that they were not paid C&R fees, an AMC is called to explain how the C&R fee was determined.
The response, he said, usually is something like “well, we’ve been charging those fee amounts for years in your state and we know that is what they want.” Simmons, though, sees a problem with that response.
“A particular state’s regulations may say something different,” he said. “The state may have required the usage of independent studies, government studies and often not permitted fees that AMCs have historically paid. That response of ‘We’ve always charged those fees’ can be viewed as inadequate and non-compliant and a violation by the AMC.”
As for what iMortgage Services did, the Simmons wanted to make one point very clear. “What iMortgage did is what most businesses do in that they were accommodating their client,” Simmons said. “But you can’t do that if it violates state or federal laws. The unspoken part in all of this is that few are clear on what to do and who to hold accountable. Most businesses operate under the regime that until somebody imposes a consequence, we’ll go with the ‘law of large numbers,’ knowing they can make more on their current process than the amount that they will likely be fined. Some simply say ‘OK, we’re sorry; we won’t do it again’ and just bank the profit. But this perspective isn’t unique to the lending or appraisal industry.”
“It’s arguable whether most AMCs know what all of the requirements are regarding customary and reasonable fees. It’s not only complicated, but the rules vary state by state, with more states each day weighing in with their own rule set. Maintaining an up-to-date understanding of a complex regulatory landscape taxes even those of us with the staffs and resources built to manage these issues.”
The lender has the ultimate responsibility for seeing that C&R fees are paid because the AMC is acting on behalf of the lender when it is conducting an appraisal. That means lenders are supposed to conduct oversight of AMCs to ensure they are properly in compliance with state and federal regulations of appraisers, including whether C&R fees are being paid.
“Dodd-Frank says that as an AMC, we are an extension of the lender,” Simmons said. “We’re acting on behalf of the lender with the lender being responsible for the AMCs behavior. In the Louisiana case, I’m certain the board’s finding will drive a change in behavior that will extend beyond their borders. I think too it’s inevitable that the specter of Dodd-Frank will find a way to ‘remind’ lenders where the responsibility lies regarding customary and reasonable fees since it’s the lenders who ultimately set those fees. That will go a long way to curing the underlying problem.
“Some lenders try to promote lower appraisal fees, suggesting that’s how you capture business. That’s ridiculous. Nobody captures business based on appraisal fees. In fact, you may lose business because, in a world of scarce resources (i.e., a shrinking appraiser population), the best appraisers refuse to work for anything but reasonable fees.”
Who We Are
We are a team of real estate professionals who believe high-quality appraisals delivered with expert service are critical to successful mortgage lending operations. AXIS provides clients with real estate appraisals completed by local, talented appraisers who are compensated well above industry standards. We link lenders to highly experienced local appraisers to complete AIR compliant appraisals. AXIS is supported by a staff with significant industry experience and utilizes a team approach focused on customer service. Clients who partner with AXIS can rest assured that their appraisals drive the most profitable risk decisions while maintaining strict quality control and compliance standards.
That is the AXIS Advantage.
For more information about AXIS please visit http://www.axis-amc.com.