Jan. 2, 2016: “Know Before You Owe” continues to attract critical comments; more thoughts on the appraisal industry

Sometimes I am asked why I send out a commentary on a Saturday, especially near a holiday, when fewer people are going to read it. Questions of my mental competency aside, even with holidays I continue to receive valuable, well-thought-out notes from people in the biz that I know will be of value to others. I collect them during the week, so it is already written by the time Saturday morning rolls around – all I have to do is send it out which is relatively easy. And plenty of folks read it when they return to work Monday.


The big CFPB news this week centered on its “Know Before You Owe” initiative and assuring residential lenders and investors that it isn’t as bad as everyone thinks. Its letter, however, did little to assure the people who have to deal with it on an every day basis. And senior management is very much aware of the penalty structure: the CFPB can impose civil money penalties of $5,000 per day per violation for noncompliance, $25,000 per day for reckless violations and $1 million per day for knowing violations. So if the lender doesn’t list the fees in alphabetical order, which is a violation, could they be fined millions of dollars?


“Hey Rob – I am starting a grass roots effort to get the 3 day waiting period on TRID revoked. After doing a little research it appears that there are approximately 370,000 mortgages closed in month in the U.S. If each consumer that got a mortgage mailed a letter to the CFBP telling them how it affected them the CFPB would get approximately 18,500 pieces of mail a day asking for it to be revoked. In 90 days they would have over 1 million requests to make the change. If it took a year then they would receive over 4 million requests. It would also help the US post office at 49 cents per complaint the post office would earn between $500,000 and $2,000,000. All they have to do is address it to the Consumer Financial Protection Bureau, Attention: Wendy Kamenshine CFPB Ombudsman, 1700 G Street, NW., Washington, D.C. 20552. (Or CFPBOmbudsman@cfpb.gov.)”


Another wrote, “Rob, I need to know who I can contact to express what a nightmare TRID is for our industry and how it will create a monopoly for the big lenders. Yes, I am with a big lender but it is still a bad decision by regulators who have no idea what this business is about and how they are totally aggravating the consumer and making the buying or refinancing experience lengthy and costly and a PAIN!!! And delaying my loan officers their income. First you take away yield spread for loan officer, cutting their pay in a huge way and then now you delay when they can get paid due to TRID. How on earth can Congress allow such a program that says they are here for the consumer and their protection? Oh, but by the way, it is going to cost you more in every way from the attorney’s fees, to the appraisal fees, and the lender fees!  And by the way you will not be closing on time either and you must wait 3 days. And really you have a moving truck coming, well, you try and the consumer can no longer close and they must wait due to a change on the CD.


“It is such a disaster and the numbers for all lenders have dropped dramatically everyone at the top needs to know and to make this stop! Just disgusting that they would make the lenders responsible for something that was the job of a paralegal from the beginning of time and now my processors have to act like paralegals! Ridiculous!”


Jeanine N. writes, “When there is a delay in an item such as an incorrect CD there are two people to blame loan officer and loan processor. Loan officers and processors should be looking at their LEs and CDs for accuracy. What I find nowadays are loan officers and processors don’t care to double check other people’s work. Unfortunately in this day in age it absolutely takes much more time and micromanaging to put together a file, process a file, and close the file. If we do our do our jobs right, along with better training of admin staff who prepare these items, and double check everything up front the delays will be less. The days where we would assume everyone knows what they are doing or are doing their job thoroughly are long gone ( originator, processor, loan assistant, title officer, escrow officer, doc drawer, compliance, funder, underwriter, and anyone that touches a loan) . Don’t get me wrong there are really good loan professionals out there; they are just scarce now and too few/ hard to find.”


And ace American Banker reporter Kate Berry scribed, prior to the CFPB’s letter to the MBA, “New consumer-disclosure requirements are doing more than delaying the closings of some home loans. Now the mortgage industry is sounding a bigger alarm, claiming some investors are refusing to buy certain loans once they close because of potential compliance failures.


“The bottleneck is happening when lenders immediately try to sell loans in the secondary market. The fear is that some lenders could get stuck with loans if investors refuse to buy them, causing potential liquidity problems, especially for independent mortgage banks. Fannie Mae, Freddie Mac and the Federal Housing Administration have given lenders a grace period for technical compliance with the Consumer Financial Protection Bureau’s disclosure rules, known as “Know Before You Owe” or TRID, for Truth in Lending Act and Real Estate Settlement Procedures Act integrated disclosures. But banks and other private investors, fearing liability, are not granting that leeway.


“Mark Mason, the chairman and chief executive of $5 billion-asset HomeStreet Bank in Seattle, said some non-agency jumbo loans, custom home construction loans, and down-payment-assistance loans offered through state housing finance agencies are not being purchased by investors…’A lot of [investors] are being very cautious and defensive and may be cutting back on purchases, so it’s another restraint on credit,’ Mason said. ‘Banks are better able to weather any storm because they have their own portfolios. Nonbanks, if they originate loans that are rejected by a buyer, what are they going to do with them?’


“’The investors are taking a very strict view of TRID compliance and are trying to understand if some of the issues can be cured,’ Mills said. ‘Mortgage lenders that buy and package loans for sale into private-label mortgage-backed securities — a tiny market that never fully recovered from the downturn — are kicking back some loans because they don’t meet the new regulations.’


“The chances of a TRID mistake are fairly high because the rule has some rigid conditions, such as requiring that fees be listed in alphabetical order. Yet most of the problems are technical, said Forster at Moody’s. Experts cited several examples of issues lenders and investors are grappling with — including the proper use of hyphens, supplying figures with an ample number of decimal places, and the correct spelling of counterparty names.


The costs for violators also are steep, which is one reason investors may be rejecting some loans. TRID essentially expands the amount of potentially erroneous information that a residential mortgage-backed securitized trust could be liable for, Forster said.”


Regarding current trends with appraisers, from Louisiana I received this note from Joseph A. Mier, SRA, AI-RRS, MAA with Joseph Mier & Associates, Real Estate Appraisal Services &

Real Estate Consultants. “Thank you for sharing this great article with me and in my opinion, you hit the nail on the head on many points. This is about public trust and transparency. You are correct that the appraisal process is VERY messed up right now. Again, (History repeats itself) some are trying to remove the only independent part of the process of protecting our largest economic engine (housing) and replace it with the cheapest and sometimes the least qualified person/business/software in the room.


“When Dodd/Frank became law, there were some AMCs that came out of the gate with a bad business model. A bad business model that removed many of the most experienced appraisers from the market due to the business model of taking a portion (and in many cases a large portion) of the fee that appraisers were receiving from their direct bank/lender clients overnight. It was a ‘take or leave it’ offer and due to the costs and liability some of the appraisers decided they could not accept those offers under duress.


“That bad business model then flowed into the market of the local mid-size to smaller lenders that were being told to be in compliance they MUST use an AMC.


“Do not get me wrong I am not ANTI-AMC. There are many that operate in a very good professional manner and follow the rules and laws of operating an AMC. As with many of the regulations, however, it only takes a few bad apples in the bunch to cause major problems in the whole batch, isn’t that what caused the new Dodd/Frank laws in the first place.


“Some AMCs made the decision to take a portion of the appraisal fee that the consumers are told “this is the fee for the Appraisal.” The fee for providing the professional services of a certified/licensed professional that has met the requirements and expense of becoming the professional as you quoted “Qualifying Education For A Certified Residential Appraiser.”


“I find it ironic that many of the bad players in the AMC industry spend a lot of money promoting their goods while at the same time telling the lenders that their costs of the appraisal services that they have been getting will not increase if they use their AMC services. How can a company that is providing a completely different service follow the rules of Dodd/Frank and take a portion of the professional appraisal fee and not charge for the service they are providing? In my humble opinion, this is clearly violating Dodd/Frank law.


“Transparency and public trust are a major issue at this point. What the consumer and in many cases the lender has not realized is that in some instances as much as 60% of the fee has been diverted from the professional services of the appraiser. What they thought was paying for the professional services of an appraiser has been split by the third party vendor. In many cases, it has not been transparent how the fee applies for the services provided by the appraiser vs. the AMC. This is a public trust issue that is beyond out of control.


“Dodd/Frank is very clear, so this appears to be a recipe for disaster for the lenders from a liability standpoint in the future. The lenders are responsible for their vendors. The OCC from what I understand will be looking very closing at third party vendors when doing regulation inspections in 2016. Unfortunately, this seems to be the only way some of the AMCs will change and do what is only right. I agree with Mr. Simmons of Axis AMC who said, ‘Behaviors change when responsible parties are held accountable.’


“The beat of the drum is growing louder and louder and here in Louisiana appraisers are filing complaints with the State Appraisers Board when AMCs are not following the laws and rules. Appraisers are fearful about filing complaints due to possibly being blacklisted. Here in Louisiana, however, the appraiser’s board has provided a way for appraisers to file a complaint anonymously to avoid being blacklisted for speaking up.


“Appraisers and lenders in other states need to know that they can file complaints with the FDIC and CFPB if their state is not set up to receive complaints.


“Recently in many articles that AMCs have released they claim that there is a major appraiser shortage. I will not deny that in some areas of the country there may be a legitimate appraiser shortage; however, I would have to disagree that overall there is an appraiser shortage in general. Appraisers stand ready to meet the supply and demand as with any profession when properly compensated and treated fair and reasonable. When that happens, there will be more than enough appraisers in the current market and many new professionals seeking to join the profession.


“As appraisers, we have the four ‘T’s’ that I think best describes appraisers: Truthful, Trustworthy, Transparent, and Tough. Appraisers have been playing catch up for the last eight years, and they are now engaged in the conversation and are speaking up for the public trust and transparency of the real estate economic engine that our country requires. I truly believe that 2016 will be the year that transparency will come back to the consumer and the appraiser profession. It will do so because lenders will stand shoulder to shoulder with appraiser professionals like the state coalition organizations that are participating in grass-root networking effort on behalf of appraisers and begin to speak up and demand change together.”



Here’s a short work of “greeting card art” to greet the New Year.





(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman