When Customary Fees Become Unreasonable

[SpartanAG]

I do not know what drove banks to decide that an AMC was cheaper

Cheaper to whom? It is not cheaper for a borrower when an AMC is involved, but in virtually all cases it is cheaper for lender to use them since the AMC charges NOTHING to the lender. That is why so many lenders flock to AMC;s...their service is free to the lender. Of course nothing is free...appraisers subsdivize the service by having part of the borrower paid fee diverted to pay the AMC, end result is lender pays NOTHING. No wonder so many of them closed their ordering depts...but then something happened. The lenders saw the big profit potential with AMC's when they were able to drive appraiser fees down while collecting high amounts from borrower. So lenders decided to cut the AMC out, re open an ordering dept under a different name, and run it like an AMC (pay the appraisers as little as possible, keep as much as possible from the borrower paid fee for themselves)

The unintended consequence of HVCC / later DF was to change appraisals on res lending end from a service provided for evaluation, to a cash cow for the lenders, or if they outsource to AM, a subsidy for them to receive free service and enjoy the savings of cutting out an appraisal ordering dept.

How nice for them to get free service. I wish I could free services...such as my house cleaned, my car repaired and my lawn mowed for free...subsidized by the workers.

Banks contract with AMC's to perform a service to manage the process of obtaining an appraisal so the lender can make a lending decision. The lender feels that service is worth the fee they pay. Appraisers are paid out of the fee paid to the AMC. The fee the lenders pay to the AMC for managing the process of obtaining an appraisal is passed through to the borrower. Borrowers agree to pay the bank a fee for the appraisal. All parties involved are aware of and freely agree to accept and pay the fees involved.

The fee the borrower pays to the lender is not just for the appraisal; it is also for all costs (including profits) for the process of obtaining the appraisal. The fee the lender agrees to pay an AMC is for the AMC’s cost (including profits) of managing that process. The fee the appraiser agrees to, is the appraisers fee, which includes the appraisers cost of doing business and associated profits. Appraisers are owed no more than they agree to when engaged to perform an assignment. Appraisers aren’t victims of AMC’s, they are victims of their own poor business choices.

 

[DiverMike]

Because it is incorrect.



thank you J,

Appraiser accepted it because they had no choice.

HUD/FHA mortgagee Letter 2008-? (I'm thinking 48) said that the combination of the AMC and appraiser fee could not be MORE than the Customary and Reasonable Appraisal Fee, therefore the Fee Split was FORCED on appraisers by regulation.

It wasn't until after the Dodd Frank was signed into law that FHA rescinded that portion of the mortgage letter, but then they said that borrowers could not pay a management fee, and then did not enforce that, and then they rescinded that one and said the borrowers can pay a management fee.



Actually,
The AMCs that did exist prior to HVCC did pay the appraiser less than mortgage brokers, because the AMCs were still skimming fees then and mortgage brokers had no option to skim appraisal fees. Many appraisers were being paid at the door by the borrower directly.





Thank you J,

But unfortunately we won't change their minds, because they still believe they operate in a free market.


.

Actually so many of the posts are on the same page (sort of). The impact of AMCs pre HVCC was insignificant in the marketplace. LSI stopped being a serious player back in the early 1990's when they went from "reasonable-though slightly low" to ridiculous around 1993. Their original founders got mad and opened up a competing service called Appraisal Title Management (ATM) which started a price war between the two of them. Rels was never a serious player outside Wells Fargo once anyone checked with other appraisers that worked for them.

I got an email from a blog host/operator (NOT Wayne) a little while ago. She or He stated they used to get about $575 just outside Washington DC pre HVCC but almost immediately after that it was dropped down to $350...or don't work. I went through the same thing out in SoCal. My nothing special fee was $450. 25% of my SFR work though was from $1,000 to $3,000. HVCC all but eliminated the high end fees, and the low end was dominated by whatever Ocwen did. $350- then $325-then $300-then blast bid and anything from $200 to $275. I stopped doing work for them at $325; and went looking for a job with the feds.

Bottom line now- As lenders are (right now) asking for your TRID related "average" fee or in some cases "fixed fee" quotes for FNMA non complex, do you say $450 or do you say $585 to $685 and $767 for FHA? Make no mistake, whatever you say is what you are going to have to live with for the next five +- years. They are NOT going back to borrowers to ask for 'complex fee allowances' for minor or arguable issues. I'll "eat" the occasional "should have been $1,000" fee once in awhile if I am getting $685 the rest of the time. I Wont at $450. Guess they'll just cancel those on me and go on to the next appraiser if that happens.

I think one of the issues we also have to push for in the Minimum Fair /Reasonable Fee proposal is for appraisal orders to be identified as complex or non complex when ordered so we have a reasonable basis for arguing necessary complex fee increases when needed.

 

[J Grant]

Banks contract with AMC's to perform a service to manage the process of obtaining an appraisal so the lender can make a lending decision. The lender feels that service is worth the fee they pay.

Lenders typically do not pay anything to the AMC.

Appraisers are paid out of the fee paid to the AMC.

Correct

The fee the lenders pay to the AMC for managing the process of obtaining an appraisal is passed through to the borrower.

Again, the lenders do not pay a fee to the AMC. The borrower pays one fee for an appraisal, from which the AMC (or lender owned division AMC) pays the appraiser.

Borrowers agree to pay the bank a fee for the appraisal. All parties involved are aware of and freely agree to accept and pay the fees involved.

Seriously? I don't think so. Borrowers are typically not aware of what splits they are covering, even if the split is disclosed at closing or in appraisal, that is AFTER THE BORROWER has already paid, and it's too late for them to do question.

Where the borrower, and secondary market really get hurt is not so much in the amount charged (since the total amount is disclosed), but the way in which their money is spent. In a lending appraisal, the borrower does not choose the appraiser, the lender /AMC does. And this is where teh borrower is NOT AWARE of what is being done with their money, and what is the selection criteria on thier behalf.

When a borrower sits down with the loan officer and pays, let's say $500 for the appraisal, does the loan officer fully disclose how the appraiser will be chosen? Do they tell the borrower the AMC is going to shop their appraisal around like a flea market item, assigning it to the lowest bidder? Is the loan officer or bank contact person telling the borrower that many area well qualified appraisers whose fees are covered under the $500, won't be considered because the AMC wants to assign it for under $300?
If the loan officer is not telling the borrower at application hese truths, then the borrower is not aware.
I doubt that many loan officers themselves realize how poorly the appraisers are chosen (by lowest bids). They too are kept in the dark. If the loan officers don't know, they won't have it on their consistence to possibly share with the borrower.

The fee splits and how they are used for appraiser selection is an don't ask don't tell situation regarding the borrower. The borrower has no idea what questions to ask, therefore they are not told.

 

[Eli]

Market power exists due to an oligopsony, which is in violation of antitrust legislation. Fee splitting is a problem that is against the law, according to what I have been told. It is really simple economics and the current situation is not like the market 20 years ago because of a change in market structure. It is just a form of monopolistic competition in the arenas where AMC's dominate the market. The government knows it. That is the reason they passed C&R laws and are putting measures in place to enforce them, just like they have some control over health care fees, teachers pay, military pay, fireman's pay, etc, etc.

Look at it this way. If me and a few of my buddies owned all the food in the world, we could charge you about all you had in your bank account if we wanted to and if you were hungry and the government didn't break up our oligopoly or put price controls on us. That is the reason antitrust legislation was written. We would be way worse off with no laws governing business and other services that are very public oriented like police and military and Food and education and BANKING for damn sure.

 

[Meandering]

Banks contract with AMC's to perform a service to manage the process of obtaining an appraisal so the lender can make a lending decision. The lender feels that service is worth the fee they pay. Appraisers are paid out of the fee paid to the AMC. The fee the lenders pay to the AMC for managing the process of obtaining an appraisal is passed through to the borrower. Borrowers agree to pay the bank a fee for the appraisal. All parties involved are aware of and freely agree to accept and pay the fees involved.

The fee the borrower pays to the lender is not just for the appraisal; it is also for all costs (including profits) for the process of obtaining the appraisal. The fee the lender agrees to pay an AMC is for the AMC’s cost (including profits) of managing that process. The fee the appraiser agrees to, is the appraisers fee, which includes the appraisers cost of doing business and associated profits. Appraisers are owed no more than they agree to when engaged to perform an assignment. Appraisers aren’t victims of AMC’s, they are victims of their own poor business choices.

In a conspiracy,
everyone agrees.

That's actually a hallmark of a conspiracy.

Well,
At least they always agree, until something goes south.


The law is there, as written, doesn't matter if anyone involved agrees to something less or more, as the law is what stands.

.

 

[Meandering]

Bottom line now- As lenders are (right now) asking for your TRID related "average" fee or in some cases "fixed fee" quotes for FNMA non complex, do you say $450 or do you say $585 to $685 and $767 for FHA? Make no mistake, whatever you say is what you are going to have to live with for the next five +- years. They are NOT going back to borrowers to ask for 'complex fee allowances' for minor or arguable issues. I'll "eat" the occasional "should have been $1,000" fee once in awhile if I am getting $685 the rest of the time. I Wont at $450. Guess they'll just cancel those on me and go on to the next appraiser if that happens..

$800

.

 

[Eli]

Transportation is another major industry where the government has had to tackle monopolistic competition in the past, and we are better off as a result. It doesn't see that way sometimes, but I love capitalism and I hate monopolistic competition because it limits creativity and progress in so many ways. I'll bet a few in our industry would say that the profits that the boots on the ground appraiser was getting in the "old market structure", have now been shifted to the oligopsony and that some progress and creativity has been limited as a result of the profit being put in the "oligosony" market structures' hands.

 

[SpartanAG]

The law is there, as written, doesn't matter if anyone involved agrees to something less or more, as the law is what stands.

If the violations of the law are as obvious, egregious and blatant as have been alleged throughout this thread and others, why aren't the authorities going after all these slam dunk cases?

I understand and respect your position. Have you given any serious consideration to what I've posted throughout this thread? Have you given serious consideration to the questions I've asked? Have you actually tested the logic behind my statements or are you just so biased against AMC's that you are unwilling to impartially consider another possibilities?

For the record, I don't do AMC work. However, minimum fee would have an effect on the profession as a whole, so I decided to enter the debate and offer a different point of view.

 

[J Grant]

Fee splitting is a problem that is against the law, according to what I have been told.

FFee splitting may be against the law, but a third party that provides a secondary service (such as an AMC CAN add their fee of secondary service on top of that of the primary service (appraisal ) under the blended fee sections on the HUD closing statement. Covered services under blended fees are title work and appraisals, unfortunately.

The real problem are the amounts of each or percentage of each. The HUD states that the amount of the secondary fee ( they may use a different term for it) should be in proportion to its contribution to the primary fee.

 

[SpartanAG]

.

Lenders typically do not pay anything to the AMC

I’m certain that the payment to the AMC does not come directly from the borrower. The lender issues that payment to the AMC and takes that expense write-off. That allows the lender to record a small profit if they charge the borrower more than the AMC charges the lender for their service.

The fee the lenders pay to the AMC for managing the process of obtaining an appraisal is passed through to the borrower.

Again, the lenders do not pay a fee to the AMC. The borrower pays one fee for an appraisal, from which the AMC (or lender owned division AMC) pays the appraiser.

The chain of custody for the payments is: Borrower pays lender an agreed upon fee for the lender obtain the appraisal. Lender deposits the monies in to a specific account intended for payments to AMC’s for services rendered. The lender is then invoiced by the AMC for the service they provide. The lender then pays the AMC from a specific account intended for payments to AMC’s for services provided.

At no point does the borrower have any interaction with the AMC. At no point is the AMC paid directly by the borrower. Just because some or all of the fees the borrower pays the lender to obtain an appraisal goes to the AMC and then appraiser, does not mean the borrower pays the AMC or the appraiser.

If we follow your logic which states that "lenders do not pay a fee to the AMC." Then we must conclude the borrower pays the AMC. If the lender doesn't pay the AMC, then the AMC doesn't pay the appraiser. Therefore, it must be the borrower that pays the appraiser. While that all may be indirectly true, it is also nonsense.

When you buy gas at the gas station, are you paying Shell Oil directly? No, you are paying the service provider, who uses your payment to purchase more gas from their supplier, who purchased the gas from a refinery, who purchased the oil used to make the gas from Shell Oil. At no point in that transaction are you paying Shell Oil directly for your gas. Do you care how the price you pay for the gas is split between all the different entities it takes to bring the gas to you? No, of course not. You just want to put some gas in your tank.

Seriously? I don't think so. Borrowers are typically not aware of what splits they are covering, even if the split is disclosed at closing or in appraisal, that is AFTER THE BORROWER has already paid, and it's too late for them to do question.

Like it or not, that’s how it works. Most borrowers don’t care what the splits of their payment to the lender are. They just want to get the loan closed. Providing the lender with a payment for an appraisal is just one of the many hurdles they have to clear. To put it another way: Most borrowers don’t care how the sausage is made; they just want the final product.

Where the borrower, and secondary market really get hurt is not so much in the amount charged (since the total amount is disclosed), but the way in which their money is spent. In a lending appraisal, the borrower does not choose the appraiser, the lender /AMC does. And this is where the borrower is NOT AWARE of what is being done with their money, and what is the selection criteria on their behalf are.

As Marion is fond of reminding us: The law says the lender or lenders agent must choose the appraiser. The borrower should have no expectation that they have a say in the matter.

I’m certain most borrowers don’t care what is being done with their money once they agree to the lenders appraisal fee. They just want to close their loan.

When you go to the grocery store do you expect to have input on whom the store sources their products from? Are you concerned with what the grocery store does with the money you pay them for the products they provide? No, of course not. You just want your food.

When a borrower sits down with the loan officer and pays, let's say $500 for the appraisal, does the loan officer fully disclose how the appraiser will be chosen?

Maybe, maybe not. What does it matter to the borrower? They paid a fee to the lender to handle the process.

Do they tell the borrower the AMC is going to shop their appraisal around like a flea market item, assigning it to the lowest bidder?

Probably not. What difference would it make to the borrower who wants the loan? The borrowers desire for the loan will most likely out-weight any trepidation they may fee with how the appraiser may be selected. If the lowest bidder helps the loan close, the borrower will care not.

Is the loan officer or bank contact person telling the borrower that many well qualified appraisers whose fees are covered under the $500, won't be considered because the AMC wants to assign it for under $300?

Probably not. Most likely the lender and borrower don’t care how the appraiser is selected or how much they are paid as long as they get an appraisal that helps close the loan.

If the loan officer is not telling the borrower at application these truths, then the borrower is not aware.

Are loans officers required to tell borrowers these “truths”? More importantly, what will the borrower do different with that knowledge? They want the loan to close; everything else is a secondary concern for most borrowers.

I doubt that many loan officers themselves realize how poorly the appraisers are chosen (by lowest bids). They too are kept in the dark. If the loan officers don't know, they won't have it on their consistence to possibly share with the borrower.

Agreed.

The fee splits and how they are used for appraiser selection is a don't ask don't tell situation regarding the borrower. The borrower has no idea what questions to ask, therefore they are not told.

Can’t blame anyone but the borrower if they don’t take time to educate themselves about the lending process.

Take off your appraiser hat off for a minute and try to think about this from the borrower’s point of view. If you were one of the typical borrowers you encounter in the field every week, are you more concerned with how the fee paid to lender is split between the entities involved in obtaining the appraisal or are you just praying that the loan closes? I have rarely been asked how much my fee is by a borrower. I am routinely asked by borrowers with concerned looks on their faces if the appraisal will work out so the loan can close.

Borrowers for the most part don’t give a diddly poo about the appraiser. They just want the loan to close.