What will happen to amc fees on April Fools Day 2011?


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March, 2011

Index

- What will happen to AMC fees on April Fools Day 2011?

- Fannie’s new Uniform Appraisal Dataset, effective 9/1/11 What does it mean for you

- New Uniform Appraisal Dataset Spec. Requirements challenge adjustment process

- How to get more business today - Private money lending is increasing
This has some of the material from my December 2010 article on customary and reasonable fees.

The issue is which of the two alternatives fee methods AMCs will use. The original Dodd-Frank bill did not contain the First Presumption which allows using AMC fees.

It was added when the Interim Final Rule was published last November and includes two alternative, conflicting ways for determining Customary and reasonable fees.

The first presumption, which allows AMC fees to be considered, conflicts with the original Dodd-Frank bill which does not allow using AMC fees. This presumption was included in the Interim Final Rule - not in the Dodd-Frank bill.

The second presumption is clear as to how to determine C/R fees - no AMC fees are allowed. The only issue is which survey to use. This was the only choice in the original Dodd-Frank bill.
What's the word on the street?

Not much. Seems like the AMCs and lenders plan on using Presumption 1, which includes using AMC fees.
What's the good news?

The First Presumption requires fee pricing using a matrix of requirements, such as appraiser experience and qualifications, scope of work, etc. See below.

I don't know how this will be handled by the AMCs who have fixed prices for all appraisals, no matter who does them or how difficult they are.
What about state appraisal AMC regulations?

Some states may have regulations requiring customary and reasonable AMC regulations affecting AMC appraisal fees, such as not using AMC fees to determine c/r fees.
Customary and reasonable definitions - Dodd-Frank Act

"... to be "customary," the fee must be reasonably related to recent rates for appraisal services in the relevant geographic market."

"...to be "reasonable," the fee should be adjusted as necessary to account for factors in addition to geographic market that affect the level of compensation appropriate in a given transaction, such as the type of property and the scope of work.

The Board recognizes, however, that if some creditors or AMCs dominate the market through illegal anticompetitive acts, "recent rates" may be an inaccurate measure of what a "reasonable" fee should be. Thus, to qualify for the presumption of compliance, a creditor and its agents also must not commit anticompetitive acts in violation of state or federal law that affect the compensation of fee appraisers."
Second presumption of compliance - independent surveys not including AMC fees - in the original Dodd-Frank Act

"A creditor and its agent are also presumed to comply if the creditor or its agent establishes a fee by relying on rates in the geographic market of the property being appraised established by objective third-party information, including fee schedules, studies, and surveys prepared by independent third parties such as government agencies, academic institutions, and private research firms."

"The interim final rule follows the statute in requiring that fee schedules, studies, and surveys, or information derived from them, used to qualify for this presumption of compliance must exclude compensation paid to fee appraisers for appraisals ordered by appraisal management companies."...

"Specifically, a creditor and its agents are presumed to comply with the requirement if the creditor or its agents determine the amount of compensation paid to the fee appraiser by relying on rates in the geographic market of the property being appraised that satisfies three conditions."

"First, the information must be established by objective third-party information, including fee schedules, studies, and surveys prepared by independent third parties such as government agencies, academic institutions, and private research firms..."

"Second, it must be based on recent rates paid to a representative sample of providers of appraisal services in the geographic market of the property being appraised or the fee schedules of those providers ..."

"Third, in the case of fee schedules, studies, and surveys, such fee schedules, studies and surveys or information derived from them must exclude compensation paid to fee appraisers for appraisals ordered by an AMC, ...."

"Regarding this third condition, the Board recognizes that the express statutory language states, "Fee studies shall exclude assignments ordered by known appraisal management companies." TILA Section 129E(i)(1)(emphasis added). "

My comment: Not another AMC loophole because it does not allow using AMC fees.
First presumption of compliance - allows AMC fees - complicated and confusing, conflicts with Dodd-Frank

"First presumption of compliance. A creditor and its agent are presumed to compensate a fee appraiser at a customary and reasonable rate if:

The amount of compensation is reasonably related to recent rates for appraisal services performed in the geographic market of the property. The creditor or its agent must identify recent rates and make any adjustments necessary to account for specific factors, such as the type of property, the scope of work, and the fee appraiser's qualifications; and

2. The creditor and its agent do not engage in any anticompetitive actions in violation of state or federal law that affect the rate of compensation paid to fee appraisers, such as price-fixing or restricting others from entering the market."

First Presumption of Compliance with fees #1 - factors affecting fees

"... a creditor and its agents will be presumed to comply with the requirement to compensate a fee appraiser at a customary and reasonable rate if the creditor or its agent satisfy two conditions."

"First, the creditor or its agents must compensate the fee appraiser in an amount that is reasonably related to recent rates paid for comparable appraisal services performed in the

geographic market of the property being appraised. In determining this amount, the creditor or its agent must review the factors below and make any adjustments to recent rates paid in the relevant geographic market necessary to ensure that the amount of compensation is reasonable:

(1) The type of property;

(2) The scope of work;

(3) The time in which the appraisal services are required to be performed;

(4) Fee appraiser qualifications

(5) Fee appraiser experience and professional record; and

(6) Fee appraiser work quality"

My comment: No buzz on this, but may mean that fees will vary by the above criteria.
First Presumption of Compliance with fees #2 - no anticompetitive acts

"Second, the creditor and its agents must not engage in any anticompetitive acts in violation of state or federal law that affect the compensation paid to fee appraisers, including—

(1) Entering into any contracts or engaging in any conspiracies to restrain trade through methods such as price fixing or market allocation, as prohibited under section 1 of the Sherman Antitrust Act, 15 U.S.C. 1, or any other relevant antitrust laws; or (2) Engaging in any acts of monopolization such as restricting any person from entering the relevant geographic market or causing any person to leave the relevant geographic market, as prohibited under section 2 of the Sherman Antitrust Act, 15 U.S.C. 2, or any other relevant antitrust laws."

My comment: Lenders are worried about this. Or, maybe using it as an excuse to do nothing.
Steps for Presumption 1 - using AMC fees
Step 1 - Compensation Must be Reasonably Related to Recent Rates- identify recent rates in geographic market

"First, the creditor or its agent must identify recent rates paid for comparable appraisal services in the relevant geographic market."

"Second, once recent rates have been identified, the creditor or its agent must review the factors... and make any adjustments to recent rates appropriate to ensure that the amount of compensation is appropriate for the current transaction."

"....generally a rate would be considered "recent" if it had been charged within one year of the creditor's or its agent's reliance on this information to qualify for the presumption of compliance ..."

"... a creditor or its agent may gather information about recent rates by using a reasonable method that provides information about rates for appraisal services in the geographic market of the relevant property. The comment further provides that a creditor or its agent may, but is not required to, use or perform a fee survey."

"As indicated by this comment, qualifying for this presumption of compliance does not require that a creditor use third-party information that excludes appraisals ordered by AMCs ..."

My comment: This is very confusing and needs more explanation. AMCs can try to do their own surveys using their own fees - a potential loophole.
Step 2 - Compensation Must be Reasonably Related to Recent Rates - fee adjustment based on factors

"The factors that must be considered in this second step for determining the appropriate rate of fee appraiser compensation are... discussed in turn below.

Appraisal assignments vary and appraisers have different skills and experience, and these variations and differences may legitimately contribute to determining what level of

compensation for a particular assignment is reasonable."

"For example, an appraisal requiring an interior inspection may be more expensive to perform and may warrant greater compensation than an appraisal requiring only an exterior or "drive-by" inspection."

"Similarly, an appraisal of a dwelling in a rural area with several additional outbuildings and significant acreage in real property might be more expensive to perform and may warrant higher compensation for the appraiser than an appraisal of a detached single-family dwelling in a suburban area."

"At the same time, the Board recognizes that each of these factors may not in all transactions determine the quality of an appraisal and the value of appraisal services. For example, an appraiser with 20 years of experience appraising properties may not necessarily provide a higher quality appraisal than an appraiser with five years of experience. Thus, the interim final rule states that the rate must be adjusted as "necessary" to ensure a reasonable rate, and does not specify exact percentages or amounts by which compensation should vary based on each factor."

My comment: No buzz on this but may mean that fees will vary by the above criteria.
Factor 1 - Type of property

"After the creditor or its agent identifies recent rates in the relevant geographic market, the first factor that must be accounted for is the type of property. ... detached or attached single family property, condominium or cooperative unit, or manufactured home. The property type may contribute to, for example, the difficulty or ease of a particular appraisal assignment, and thus can affect the value of appraisal services."‘

My comment: No buzz on this but may mean that fees will vary by the above criteria.
Factor 2 - Scope of Work.

"...relevant elements of the scope of work to consider would include the type of inspection (for example, exterior only or both interior and exterior) and the number of comparable properties that the appraiser is required to review to perform the assignment. ...

The scope of work may vary based on a number of factors, such as the extent to which the property must be inspected, the type and extent of data that must be researched, and the type and extent of analyses required to reach credible conclusions. Thus, the compensation of an appraiser may reasonably be higher where the scope of work required for the appraisal is more extensive than the scope of work required for another appraisal performed by the same appraiser."

My comment: No buzz on this but may mean that fees will vary by the above criteria.
Factor 3 - time (turnaround).

"... The Board recognizes that required turnaround time can be a legitimate factor to consider in determining an appraiser's rate, but stresses that appraiser competency and accurate appraisals should be a creditor's chief concerns, not how quickly the assignment can be performed. ... the Board expects creditors and their agents to select an appraiser foremost on the basis of whether the appraiser has the requisite education, expertise and competence to complete the assignment."

My comment: No buzz on this but may mean that fees will vary by the above criteria.
Factor 4 - Fee appraiser qualifications.

"...professional qualifications that appropriately affect the value of appraisal services include whether the

appraiser is state-licensed or state-certified. For example, a state-licensed appraiser could legitimately command a higher rate for appraisal services than an appraiser-intraining who has not yet received a license. Relevant qualifications may also include the appraiser's completion of continuing education courses on effective appraisal methods and related topics."

My comment: No buzz on this, but may mean that fees will vary by the above criteria.
Factor 5 - Fee appraiser experience and professional record

"...the fee appraiser's level of experience may include, for example, the fee appraiser's years of service as a state-licensed or state-certified appraiser, or years of service appraising properties in a particular geographical area or of a particular type. In the Board's view, a fee for appraisal services may reasonably be higher when the fee appraiser has been state-licensed or state-certified for 15 years and has been appraising properties in the relevant geographic area during all that time than when the fee appraiser is more recently licensed and has appraised properties in that area for only six months."

"...may consider, for example, whether an appraiser has a past record of suspensions, disqualifications, debarments, or judgments for waste, fraud, abuse or breach of legal or professional standards.” My comment: No buzz on this, but may mean that fees will vary by the above criteria.
Factor 6 - Fee appraiser work quality.

"...the fee appraiser's work quality may include, for example, the past quality of appraisals performed by the appraiser based on the written performance and review criteria of the creditor or agent of the creditor..."

"The Board solicits comment on whether the factors in are

appropriate, and whether other factors should be included."

My comment: Some AMCs already do this, sort of. They have their own criteria for work q,uality but turnaround is much more important. No buzz on this, but may mean that fees will vary by the above criteria.
No Anticompetitive Acts

... must not engage in any anticompetitive acts in violation of state or federal law that affect the compensation of fee appraisers, including —

(1) Entering into any contracts or engaging in any conspiracies to restrain trade through methods such as price fixing or market allocation... or

(2) Engaging in any acts of monopolization such as restricting any person from entering the relevant geographic market or causing any person to leave the relevant geographic market, as

prohibited under section 2 of the Sherman Antitrust Act, .. a creditor or its agent would not qualify for... presumption of compliance if it engaged in any acts to restrain trade such as entering into a price fixing or market allocation agreement that affect the compensation of fee appraisers."

"For example, if appraisal management company A and appraisal management company B agreed to compensate fee appraisers at no more than a specific rate or range of rates, neither appraisal management company would qualify for the presumption of compliance...a creditor or its agent would not qualify for ...presumption of compliance if it engaged in any act of monopolization such as restricting entry into the relevant geographic market or causing any person to leave the relevant geographic market, resulting in anticompetitive effects that affect the compensation paid to fee appraisers."

My comment: Lenders are worried about being accused of price fixing.
Rebutting customary and reasonable fee by fee appraisers

"The comment further clarifies that a person may rebut this presumption with evidence that the rate of compensation paid to a fee appraiser by the creditor or its agent is not customary and reasonable."

"The creditor or its agent would already have satisfied the presumption of compliance by relying on information meeting the three conditions; therefore, evidence rebutting the presumption would have to be based on facts or information other than third-party information satisfying the presumption of compliance conditions..."

"This comment also explains that, if a creditor or its agent does not rely on information that meets the conditions in § 226.42(f)(3), the creditor's and its agent's compliance with the requirement to compensate fee appraisers at a customary and reasonable rate is determined based on all of the facts and circumstances without a presumption of either compliance or violation."

My comment: A potential way for appraisers to file complaints with someone. We will see what happens.
Recent rates - one year

"Comment 42(f)(3)-3 clarifies that whether rates may reasonably be considered "recent" under

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