Real Estate & the Fed

04-17-2011, 02:21 AM

As an appraiser, I wanted to make sure everyone here saw this important petition for consideration. Over 7000 signatures since being created late last week.

Ken Harney from Inman news wrote the following in an article in Inman News on April 11, 2011.

"Cases in point: The long-awaited appraisal reform regulations that took effect April 1, and the "qualified residential mortgage" (QRM) proposals that were called for in last year's Dodd-Frank financial legislation. In both instances, regulators took straightforward statutory language and arrived at rules that vastly altered clear congressional intent.

Personally, I think they are the most egregious examples of regulatory perversion -- even nullification -- that I have seen in 30-plus years of observing and writing about Congress and housing.

Take the appraisal reforms. The Dodd-Frank law said explicitly that lenders must compensate appraisers at rates that are "customary and reasonable" for their geographic markets. But what exactly is customary and reasonable? Congress wrote just two sentences of instructions to the Federal Reserve Board, which was assigned the task of writing the implementing regulations.

For guidance on what is fair in each geographic area, lenders and others could look to "objective third-party information, such as government agency fee schedules, academic studies and independent private sector surveys. Fee studies shall exclude assignments by known appraisal management companies."

Sound pretty clear? Not to the Federal Reserve, which has its own axe to grind when it comes to big banks. (Full disclosure here: I served a three-year term on the Fed's Consumer Advisory Council, and saw the Fed's institutional biases up close and personal.)

When the Fed produced its rules implementing the Dodd-Frank language, an entirely new concept emerged on "customary and reasonable" appraisal fees. The Fed created a "safe harbor" -- a loophole -- for lenders and others to arrive at their own definitions of fair fees by incorporating recent amounts paid by appraisal management companies."