If enacted, the recently introduced Appraisal Reform Act of 2019 would amend RESPA to require the disclosure of the appraisal management fee separate from the appraisal fee on the loan estimate (LE) and closing disclosure (CD). This could impose an additional burden on lenders and appraisal management companies (AMCs).
The LE provides disclosures intended to be helpful to consumers in understanding the mortgage loan transaction. By contrast, the CD must provide the actual costs of the transaction. As amended by the Dodd Frank Act, Section 4(c) of RESPA permits the optional disclosure of the appraisal management fee separate from the appraisal fee. However, it does not require separate itemization on the LE and CD. HR 3619, the Appraisal Reform Act of 2019, would make such disclosure mandatory. The measure, which Rep. William Lacy Clay (MO) is sponsoring, was introduced in the House on July 5, 2019 and referred to the House Financial Services Committee on the same date.
Impact on Current Law
AMCs facilitate more than two-thirds of all appraisals, according to estimates. For closed-end forward mortgage transactions, TRID requires a creditor to provide the consumer with a good faith estimate of the credit costs and transaction terms no later than the third business day after receiving the application. For certain unaffiliated charges for which the consumer is not allowed to shop (such as appraisal fees), the creditor must not charge the consumer more than the amount disclosed on the LE unless there is a valid changed circumstance. These are “zero tolerance” fees, meaning that the creditor must reimburse the consumer for the amount by which the actual charge exceeds the amount disclosed on the LE.
For purposes of providing a revised estimate and resetting the tolerance, a “changed circumstance” is:
- an extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;
- information specific to the consumer or transaction that the creditor relied upon when providing the disclosure and that was inaccurate or changed after the disclosures were provided; or
- new information specific to the consumer or transaction that the creditor did not rely when providing the disclosure.
Absent a valid changed circumstance, a creditor cannot adjust the amount of the appraisal management fee three days after the application is provided even if it determines that additional work is required.
HR 3919 is worth watching as it would in effect lock in the appraisal management fee at time of application.