Effective August 1, 2015 under the new TRID (TILA-RESPA Integrated Disclosure) regulations, variances in the cost of appraisals will no longer fall into the 10% tolerance bucket, and only if a valid changed circumstance occurs can the cost of an appraisal to the borrower exceed what was disclosed on the Loan Estimate (LE).
By habit, mortgage professionals discuss with and gather from the prospective borrower all details of the transaction – employment, income, assets, debts, occupancy. The one aspect of the transaction that gets little discussion is the subject property. We have always relied on the appraisers to handle that piece of the puzzle in their appraisal report.
What happens if it is determined after the Loan Estimate is delivered to the borrower that the subject property is complex and appraisers request more money for the appraisal assignment? TRID commentary states that location is not a valid changed circumstance since the property address was known at the time of disclosure. Other property attributes may be considered a valid changed circumstance. The following is a brief list of property attributes that alone, or combined with other attributes, may put a property in the complex category, thus commanding a higher fee to the appraiser:
- Unique architectural style – log home, dome home, berm home
- Manufactured housing
- Historic homes
- Homes with accessory units (garage apartments, in law suites, guest houses)
- Large and/or high end, luxury homes
- Ocean front, lakefront, mountain homes
- Homes on acreage
- Anything that is atypical or unique for the market
VMG believes that adding an appraisal aspect to the application process should become a best practice for lenders. It would only add a few minutes to the process but could save lenders the possible expense of incurable Loan Estimate under-disclosures, and the frustrations of re-disclosing and possible appraisal and/or closing delays. Here are a few suggested questions to pose to borrowers during the application process:
- Can you tell me a little about your home or the home you are purchasing? Square footage, site built or manufactured?
- Any recent renovations or additions?
- Any unique or special attributes?
- Is your site/lot over an acre?
In some instances, your loan amount and/or sales price will indicate that the subject property may be complex. If in doubt, please contact your Valuation Management Group Client Specialist to discuss. Remember, most owners and/or buyers do not view their existing or future home as unique. Your questions should be posed in such a way as to get a clear understanding of the subject property. You may even want to Google the property to make certain you have a good idea of its location and anything that would be considered atypical.
VMG currently handles the bid process as an appraisal management service for our clients if it is known at the time of order placement that the property is complex. We will continue to obtain bids for our clients for complex properties to ensure that the fee on the Loan Estimate is accurate. Clients will notate in the special instructions field of the order form the details of the complexity. This will alert us to place the order out to bid to the appropriate appraisers for fee and turn time. By placing the appraisal assignment out for bid, the mortgage lender can obtain competitive pricing for their borrower and properly disclose.
Valuation Management Group wanted to get the thoughts from an expert on TRID. Fowler Williams, President of Crescent Mortgage Company, has become a relied upon resource and has been speaking to many organizations and involved in training webinars. Fowler was appointed by the Mortgage Bankers Association to be the Chairman, 2015-2016 of the Mortgage Action Alliance. Here are the words of Fowler:
“It’s a meaningful change that will require some meaningful planning on the part of lenders. I have stated to the bureau that, while agency guidelines and prudent lending standards won’t allow for a borrower to “shop” for their appraisal, appraisal independence rules prohibit a lender for “shopping” for an appraisal as well. It would have made more sense to make any appraisal management fees, not the fee paid to the appraiser, to be zero tolerance since they should be known by the lender. However, not all appraisers in all areas charge the same price for their valuable service.”
“Another issue I see is that if a lender retains an appraiser within that 3 day period so that they have a rock solid fee to disclose, you can’t have the borrower pay for the appraisal until a loan estimate is delivered. So, will lenders place orders to execute on the fee quoted prior to a borrower being able to make payment for it?”
“First, keep in mind you have three days from receiving the new “6 pieces ” of information that constitutes an application under TRID, to when you must deliver the loan estimate. Can you find an accurate fee in 3 days? Probably.”
“Second, look at how your institution currently orders and collects payments from borrowers for these services. Does this need to be moved sooner in the process? Again, keeping in mind you cannot charge the borrower until you issue a Loan Estimate.”
“Third, if you “over quote” the fee knowing that it can decrease, how competitive will you be with competition quoting accurate, lower prices.”
“Certainly the lenders who prepare a process and strategy to receive, and in turn disclose, accurate appraisal fees on the Loan Estimate at first issuance will be a step ahead of competitors who haven’t reconciled their workflows for this important “zero-tolerance” fee under TRID.”
Valuation Management Group is proud to be the appraisal management resource for Fowler and Crescent Mortgage Company.
As a national commercial and residential appraisal management company, Valuation Management Group (VMG) is able to assist lenders with all of their appraisal management services. VMG handles the entire appraisal process for commercial and residential appraisals, from engaging the appraiser to completing robust appraisal reviews. The Valuation Management Group appraisal review ensures an appraisal conforms to appraisal regulations and is acceptable to the lender. VMG is proud to be able to assist financial institutions in maintaining appraisal compliance and appraiser independence.
Valuation Management Group is a national, full service appraisal management company that manages the appraisal process for community banks, mortgage bankers and credit unions. We offer the full array of commercial and residential appraisal products and services. We take the appraisal process from ordinary to extraordinary.
This article is being provided as informational purposes only and is not intended to be legal advice. Please consult with your compliance officer or legal counsel for guidance on your company’s policy with regard to what constitutes a valid changed circumstance.