Will Dodd-Frank be repealed?
With the inauguration of Donald Trump as our 45th President of the United States, there has come the possibility that Dodd-Frank might be repealed. What does this mean for us as appraisers?
Will things go back to the way they were before Dodd-Frank, or even before the HVCC (Home Valuation Code of Conduct)? What about those unintended consequences that arose from these two pieces of legislation?
It’s anyone’s guess as to what Donald Trump will do. It will be interesting to see if the major appraisal organizations will have a say so in what happens if Dodd-Frank is repealed.
It seems in the past that these organizations have been left out of the discussion when the major changes have been made to our profession. One would think that the opinion of the group most affected by the changes would get a seat at the table. I guess only time will tell if our voices will be heard moving forward.
So, if Dodd-Frank is repealed, what changes will we see in our day to day functioning as residential real estate appraisers? While there were some bad consequences of HVCC and Dodd-Frank, there were also some good things that happened.
I thought I would share my thoughts on what I would like to see stay as well as those policies that I hope I never see again. Please leave a comment below with your thoughts on what you would like to be kept as well as what you hope is done away with.
Things I’d like to see stay and go if Dodd-Frank is repealed
- Independent ordering of appraisals (rotation)– In my opinion, the practice of rotating appraisers with appraisal assignments helps to prevent loan officers from colluding with appraisers. In the past, it was possible for a loan officer to work with an appraiser that may give them the value they want, or who they could pressure into giving favorable values. This undermines the appraisal process and takes independence out of the transaction.
- Appraisal Independence– Regulations that prevent lenders from pressuring appraisers to hit values or threatening them from receiving future work should be kept and enforced. Efforts should also be made to prevent lenders from withholding timely payment of fees in retribution for low appraisals.
- Accurate disclosure of appraisal fee and appraisal management company fee– The whole Appraisal Management Company (AMC) model was built on paying less than customary and reasonable fees to appraisers. Rather than charging a fair fee for their services on top of the appraisal fee, many AMC’s have made it a common practice to take an unreasonable cut of what the appraiser is paid. An example would be the following: Instead of adding their fee of $150 on top of the appraiser’s fee of $400, for a total fee of $550, it is not uncommon for them to take their fee of $150 out of the appraiser’s fee of $400 so that the appraiser only gets $250. It is this practice that has contributed to the perceived shortage of appraisers. In most areas of the country, there is no shortage of appraisers but rather a shortage of appraisers willing to work for lower than normal fees.
- Limited communication with appraiser after the appraisal is completed– At the current time, there are no regulations prohibiting communication with the appraiser before the assignment is finished as long as the value is not discussed. It is reasonable for there to be a discussion between agent and appraiser when questions arise before the job is completed. After the appraisal is finished is another story because most of the time any conversations occurring at that time are because the value is too low. The appraiser should not be pressured or harassed into changing their value unless there is additional market data that supports a higher value. This is the type of information that should be provided before the appraisal is complete.
- Changes in appraiser/trainee inspection requirements– Under current regulations there are excessive restrictions on what appraiser trainees can do. Appraiser mentors must accompany trainees far too long in the process leading up to the trainee getting their full license. It is difficult for the mentor to accompany the trainee on all their assignments as well as their own so most seasoned appraisers will not do this. After sufficient training, the trainee should be able to complete appraisal inspections themselves to free up the mentor’s time. They would of course still review the work before it went out the door.
- Make AMC’s liable for using geographically incompetent appraisers– Another problem with many AMC’s is that their only criteria for an appraisal assignment is the low fee that they offer. They will shoot out a broadcast email to appraisers and whoever replies at the low fee will get the assignment, no matter where they are located. This is not right on so many levels. They should be required to offer a customary and reasonable fee only to those appraisers who are geographically competent to complete the assignments. Banks should also be liable for AMC’s whom they use that practice this type of behavior.
- Better enforcement of “customary and reasonable” fees– Since HVCC was created, and Dodd-Frank replaced it, little has been done to enforce customary and reasonable fees. There have been a couple of instances over the last several years but they are the exception rather than the rule. If this is not addressed the growth of our profession will continue to be stalled because no one will want to get into this business due to the low fees.
- Revise time frame for lenders to estimate appraisal fees– While not directly included in Dodd-Frank, this change in the interpretation of the three-day requirement was revised in the 2014 TILA-RESPA Integrated Disclosure Rule. It requires lenders to give exact quotes for appraisals to applicants, which on the surface is not all bad. The problem arises when there is a complex appraisal assignment that may require a higher fee. If an appraisal fee is quoted by the lender and later it is discovered that the appraisal is complex and requires a higher fee, it makes it very difficult to change the fee which may result in an appraiser not getting paid a customary and reasonable fee for the complexity of the assignment.
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