Real estate appraisals are among the more consistent topics that we cover here at Chicago Agent, and for good reason – though real estate, after a prolonged slumber, has been posting some of its best numbers in years, the most recent membership survey by the National Association of Realtors still found 33 percent of members citing appraisal issues in their transactions.
Now, the Consumer Financial Protection Bureau (CFPB), in addition to its work on mortgage servicing and disclosures, has set its sights on real estate appraisals, and it’s suggesting a number of reforms to both simplify the process and render it more transparent.
Real Estate Appraisal Reform
The CFPB’s proposed real estate appraisal rule would amend the Equal Credit Opportunity Act (ECOA), a rule that prohibits discrimination in lending. The appraisal amendment would do the following:
- Require creditors to notify applicants, within three business days of receiving the application, of their right to receive a copy of written appraisals and valuations.
- Require that creditors provide applicants with copies of written appraisals and valuations no later than three business days before the mortgage closes.
- Permit applicants to waive timing requirements to receive those documents within that timeframe.
- Prohibit creditors from charging applicants for providing the appraisal/valuation copies; creditors are still allowed to charge applicants “a reasonable fee” to reimburse the costs of the appraisal/valuation itself.
Shadowy Appraisal Management Companies
As Kenneth Harney pointed out in a recent article on the CFPB’s latest initiative, the transparency the ECOA amendment seeks will be a big step in clarifying some of the lingering questions of the real estate appraisal process, especially how money is allocated.
Often, only a portion of the $450-600 appraisal fee goes to the appraiser, and the rest of the funds go to a seemingly anonymous appraisal management company that, in Harney’s words, “may be owned by, or affiliated with, your lender and is also getting a cut of the action.” So though the appraiser may receive $200 of that fee, the management company will receive the other $250, and that money could be directly returning to the creditor.
The ECOA amendment is open to the public for comment until October 15, and the public is encouraged to visit http://www.regulations.gov/ and share its thoughts on the measure.