This past week, I had the opportunity to discuss TRID with appraisers, lenders, and AMCs when I attended and spoke at the Appraisal Summit and Expo (http://www.appraisalsummit.net). Clearly, there are misunderstandings of this lender disclosure rule.
A few basics about the TRID rule (TILA RESPA Integrated Disclosure):
- The lender must disclose the appraisal fee to the borrower, and cannot collect more than the disclosed amount from the borrower at closing. This is a “Zero Tolerance” disclosure item.
- After the amount is quoted to the borrower, if the lender learns of a previously-unknown complexity related to the appraisal, that event may qualify as a “Changed Circumstance”, which may give the lender the option to re-disclose the higher fee amount to the borrower.
- If the lender already knew of the complexity (or reasonably should have known), then the lender cannot re-disclose (nor collect) a higher fee to the borrower. (Additionally, the lender always has the option to simply not re-disclose the higher fee to the borrower, but then cannot collect the higher fee at closing.)
Did you notice…? None of the above actions involve the appraiser!
TRID is a rule that governs activity and disclosure between the lender and the borrower – not the appraiser. In contrast, Customary and Reasonable Compensation (C & R) rules govern activity and payment between the lender and the appraiser.
The lender cannot pick and choose: it must comply with both sets of rules – TRID with the borrower, and C & R with the appraiser. Let’s look at an example…
The lender takes in an application for a single-family property with no known complexities. The lender engages an appraiser who agrees to perform the specific assignment for $X, and the lender discloses that fee to the borrower.
After the inspection, though, the appraiser notifies the lender that, since the property actually has an accessory unit, he/she will require a fee of $Y (higher) due to that complexity. What are the lender’s options in handling this situation?
The lender may agree to pay the higher $Y fee to the appraiser, so that the fee reflects the complexity in compliance with C & R. In terms of complying with TRID, the lender has a few options, depending on the specific situation and the lender’s interpretation of “changed circumstance”:
- the lender may choose to re-disclose the higher $Y fee to the borrower so that it can collect that fee from the borrower at closing, if the lender believes the scenario meets the definition of “changed circumstance”; or,
- the lender may choose to not re-disclose the higher fee to the borrower, and simply absorb the difference itself when it pays the appraiser.
Regardless of the lender’s handling of “changed circumstance” or TRID disclosures, the lender is still subject to the C & R appraisal fee rules.
Appraisers are reporting that some lenders have stated the following in newsletters, blast emails, or other announcements:
- The lender will not ever increase the appraiser’s fee even upon discovering complexities; and or
- The lender will pay only a set fee to an appraiser (such as based on county or state) regardless of the complexity of the property or assignment.
The above-two lender policies are just that: lender decisions. Nowhere does TRID suggest that lenders should ignore complexities in an appraisal assignment when determining a C & R fee to pay an appraiser. In fact, the above policies may prove to be problematic for lenders, due to AIR violations (appraiser independence rules) resulting from non-compliance with C & R rules.
After all, how could a lender produce a believable argument that the C & R appraisal fee for a property – now known to be complex – would be the same amount as when the property was originally believed to be non-complex?
Here are a few tips for appraisers:
- Conduct basic research about a subject property and quote the appropriate fee.
- When requesting fee increases, always cite the reasoning.
- “TRID” is not a compliant excuse for paying a non-C & R fee to an appraiser. TRID regulates disclosure between the lender and the borrower, and does not release the lender from its regulatory responsibility to pay C & R fees, including when a property is complex.
As with most government rules, lenders may end up having procedures that look slightly different from one lender to another. However, TRID-related lender policies should never distract from, be confused with, or “trump” compliance with the payment of customary and reasonable fees to appraisers when faced with complex properties or assignments. Complying with one rule at the expense of another, is never an acceptable approach to compliance.
Good article, Josh. And I attended your session at the Summit. (I also responded separately to another message about the MC form you sent to me…so now you know who this is!)
You offered two options the lender can do. When they use option 1 (disclose a new higher fee to the borrower), the dating issue comes into play. Per TRID rules, when a change in fee happens, the lender must re-start the clock in terms of the disclosure days the borrower is entitled to have…..which is 3 days after the issuance of the Loan Estimate.
For this reason, many lenders might not be too excited about starting over, because that may affect the loan lock date timing.
So you are absolutely correct. Appraisers should research every property prior to acceptance, and if a higher fee is warranted, request it before obtaining the actual assignment order.
Lenders are going to have to be smarter about this TRID stuff, and don’t just ‘assume’ that every hunk of real estate is exactly the same as the last property loan they processed. They really should contact individual appraisers directly (and quit ‘broadcasting’ potential assignments) to see what the appraiser can find out about the property BEFORE quoting the fee to the borrower.