Should Appraisal Fees & Management Fees for Mortgage Applications be Disclosed to Consumers Up Front? (H.R. 3619)
Do you support or oppose this bill?
What is H.R. 3619?
(Updated April 13, 2020)
This bill — the Appraisal Reform Act of 2019 — would amend the TILA-RESPA Integrated Disclosure (TRID) rules to require the disclosure of the appraisal management fee separate from the appraisal fee on the Loan Estimate (LE) and Closing Disclosure (CD). This would mean each fee would need to be disclosed separately.
Further, this bill would require the creditor to not charge the consumer more than the amount disclosed on the LE unless there’s a valid “changed circumstance,” defined as:
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An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;
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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 wouldn’t be able to adjust the appraisal management fee three days after a mortgage application is provided, even if it determines that additional work is needed.
Argument in favor
Prospective homebuyers should receive as much transparency as possible about the fees associated with their home purchase. Therefore, they should receive separate estimates of the appraisal fee and appraisal management fee. Preventing creditors from charging customers the amount disclosed on the LE will protect customers from unscrupulous creditors who may try to raise appraisal management fees on customers midway through the loan process in order to make an extra buck.
Argument opposed
This bill would effectively lock in appraisal management fees at the time of a mortgage application, and while that’s good for prospective homebuyers, it increases pressure on lenders and AMCs. This could lead to one of two undesirable situations: either lenders and AMCs lose money if they underestimate their appraisal management fees or lenders and AMCs respond to this bill by raising appraisal management fees to give themselves leeway on the fees, leading to higher costs for potential homebuyers.
Impact
Homebuyers; lenders and appraisal management companies (AMCs); Loan Estimates (LEs) for mortgages; Closing Disclosures (CDs) for mortgages; fee disclosures for mortgages; and TILA/RESPA.
Cost of H.R. 3619
A CBO cost estimate is unavailable.
Additional Info
In-Depth: Rep. William Lacy Clay (D-MO) introduced this bill to require lenders and appraisal management companies (AMCs) to disclose appraisal management upfront and give them to consumers shortly after receiving a mortgage application. In a press release, he says:
“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.”
Independent appraisers have pushed for separate fee disclosures since the TRID forms were implemented in 2015. Writing for Alston & Bird’s Consumer Finance ABstract, Nanci Weissgold notes that this bill could impose an additional burden on lenders and AMCs by effectively locking in appraisal management fees at the time of application.
This legislation passed the House Financial Services Committee by voice vote with the support of two bipartisan cosponsors (one from each party).
Of Note: The loan estimate (LE) provides disclosures meant to help consumers understand a mortgage loan transaction. The closing disclosure (CD) provides the actual transaction costs. As amended by the Dodd-Frank Act, Section 4(c) of the RESPA currently allows the optional disclosure of the appraisal management fee separate from the appraisal fee. However, it doesn’t require separate itemization on the LE and CD.
Media:
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Valuation Review
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Alston & Bird Consumer Finance ABstract
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House Financial Services Committee Subcommittee on Housing and Insurance Committee Hearing (Context)
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CFPB - TILA-RESPA Integrated Disclosures (Context)
Summary by Lorelei Yang
(Photo Credit: iStockphoto.com / valentinrussanov)
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