Four professional appraisal organizations have called on the HUD to rescind a 12-year old policy limiting the total appraisal fees that can be charged on FHA loans, warning that it presents significant risks to the federally-backed program.
Since the HVCC was implemented, appraisal management companies (AMCs) have been ordering most of the appraisals, but taking an unknown share of the total cost paid by borrower.
“Given the rapidly growing reliance by residential mortgage lenders on AMCs to provide appraisal services, the restriction on total appraisal fees to ‘no more than’ the customary fee for an appraisal has driven down the fees paid to large numbers of appraisers to well below what has been customary and reasonable in given market areas,” the groups wrote.
“Mortgagee Letter 97-46’s pricing restriction is causing many experienced and qualified appraisers decline FHA appraisal assignments ordered by AMCs because of their below market appraisal fees, adding unnecessary and substantial risk to the FHA program.”
The groups noted that the Mortgagee Letter makes no distinction between the fee paid to the individual who performs the work and the fee(s) charged by the AMC.
In other words, the AMC charges one lump sum to the borrower and gives the appraiser an unknown cut, presumably a smaller portion than they might have received in the past if ordered by a mortgage broker (One appraiser says his fee got cut in half).
“This leaves consumers with the mistaken impression that they are paying the customary fee for the highest level of service from an appraiser who has substantial experience in performing appraisals in their geographic area when, in fact, the consumer is receiving a much lower level of service.”
The appraiser groups argued that highly qualified and experienced appraisers are declining to perform assignments for the AMCs, forcing the companies to rely upon appraisers from distant locations with less experience and training, thus putting assessed values in question.
It looks now as if the HVCC may be crumbling.