TRID’s Troubling Impact on Appraisals

The new TILA-RESPA Integrated Disclosure Rule (TRID) for all loan applications will soon be upon us. As our industry prepares for the upcoming August 1 implementation date, I wanted to take a look at an issue that will affect both lenders and appraisers.

When TRID goes into effect, GFE and HUD-1 forms will be replaced with the Loan Estimate (LE) and Closing Disclosure forms. Appraisal fees will not be able to be charged, nor credit card information collected, prior to borrower confirmation of the intent to proceed with the loan after issuance of the LE, which must be delivered to the consumer within three days of application.

Because the appraiser’s service is not one the consumer can shop around for, appraisal fees are included in the CFPB’s zero tolerance section, which means they cannot be increased unless there is a valid ‘change of circumstance.’

How are appraisers and AMCs then to deal with more costly situations such as difficult rural assignments? Standard up-charges are ruled out.  Under the new rule such a situation does not qualify as a change of circumstance issue because the property address is known beforehand.

A proposal bandied about by multiple appraisal industry experts involves a programmed overestimation of the fee, the overage part of which would be refunded to the borrower once costs were finalized without additional expense to the appraiser.

Yet it appears that doing so may not be in compliance with TRID. Guidance from Wolters Kluwers on the company’s website states that “there is still an expectation that your estimates be consistent with the best information you have available at the time of disclosure. Over estimating to create a ‘cushion’ may be frowned upon by your regulator and not considered in compliance with the spirit of the law.

“The appraisal fee itself can still increase with a valid changed circumstance,” Wolters Kluwers continues. “For example, the appraisal was ordered for a single family residence per information provided by the borrower, however when the appraiser visited the property, it’s actually a condominium and thus a different schedule of appraisal fees applies. This is a valid changed circumstance.”

We see further guidance reinforcing the above coming from the BuckleySandler Law Firm, LLP, which offers a TRID Resource Center on its website. Partner Ben Olson, the former deputy assistant director for the CFPB’s Office of Regulations, advises, “The Bureau has said that deliberately ‘padding’ or over-disclosing is not disclosing the best information reasonably available. Instead, you should be looking to your own experience in that particular jurisdiction as to what things typically cost… [to] have information that allows you to provide a good faith estimate. But deliberately highballing it, in addition to creating a competitive issue, could put you out of compliance.”

However, there are cases when unforeseen circumstances cause appraisers and AMCs to face additional costs when valuating properties. My view is that many appraisers will look to raise mortgage fees across the board to average out the unexpected higher-cost cases.

There doesn’t appear to be a real resolution on the table yet for the appraisal industry with regard to TRID, but we at Nadlan are hopeful that an equitable arrangement will be reached in relatively short order. Stay tuned for more on this important issue.

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