Appraisal Institute calls for withdrawal of HUD’s proposed RESPA ruleMortgagePress.comAppraisal Institute, HUD, RESPA rule, American Society of Appraisers, American Society of Farm Managers and Rural Appraisers, National Association of Independent Fee Appraisers
The Appraisal Institute has called for the withdrawal of
proposed changes to the Real Estate Settlement Procedures Act
(RESPA) because it fails to promote transparency of real estate
settlement costs to consumers. The Appraisal Institute was joined
by the American Society of Appraisers, American Society of Farm
Managers and Rural Appraisers, and the National Association of
Independent Fee Appraisers in expressing concerns with the
proposal, including allowing fees to be hidden or disguised from
consumers and charging some consumers more than actual costs
through average cost pricing, among other things.
"The sub-prime mortgage debacle boils down to one word: greed.
It has been replete with unethical, convoluted tactics to fool the
public and line pockets on every level," said R. Wayne Pugh, MAI,
president of the Appraisal Institute. "So many who were entrusted
with protecting consumers were either asleep at the wheel or in on
the deceit. Therefore, to avoid instances like this in the future,
it is essential to promote transparency as much as possible.
Unfortunately, HUD's proposed rule fails to accomplish this," added
Pugh.
The appraisal organizations expressed concern over common
industry practices that allow consumers to be charged additional
loan processing fees through the line item for appraisal fees. It
is increasingly common for local appraisers those actually
performing the appraisal assignment and subject to requirements of
the Uniform Standards of Professional Appraisal Practice to be paid
only a small percentage of the actual appraisal fee charged to the
consumer and presently reported on Line 803 of the HUD-1 as
"appraisal fee." As much as 60 percent of some "appraisal fees"
charged to consumers today are actually being paid to appraisal
management companies, which are actually loan processing functions,
according to the organizations. The result is that in many
transactions, loan processing fees are misleadingly labeled as
appraisal fees and being charged to consumers.
Further, the proposal to allow "average cost pricing" for
settlement services is essentially a green light to charge some
consumers more than what was actually paid to the appraiser
(settlement service provider) for the services conducted in the
performance of the consumer's loan. This is contrary to the goals
of adequately informing consumers of settlement services charges,
and the appraisal organizations fear it will result in widespread
consumer abuse.
For instance, as an alternative to a full appraisal inspection,
today it is common for lenders to utilize streamlined appraisal
processes (drive-by appraisals) or evaluations (automated valuation
models) on many loans. Oftentimes, the fees for conducting a
streamlined appraisal or an evaluation are well below the average
fully inspected appraisal costs. Yet, if these lesser services are
performed, and the consumer is charged the overall average, they
will be assessed a higher fee than the actual cost of the appraisal
services performed on their loan. Advancing a regulatory system
whereby loan originators are incentivized to order the lowest
service available and charge the consumer a higher average is ripe
for abuse, the appraisal organizations said.
To address these and other concerns--should HUD move forward
with a final rule despite near industry-wide opposition to the
rule--the appraisal organizations suggested that HUD distinguish
between appraisal fees and loan processing fees such as those
involved in appraisal management. In addition, the appraisal
organizations urged HUD to allow average cost pricing for
establishing estimates on the GFE only and prohibit their use,
under all circumstances, on the proposed new HUD-1 statement, among
other things.
For more information, visit www.appraisalinstitute.org.
