Rise of the Rentals

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20 | Th e M Rep o RT Feature established under the Truth in Lending Act (TILA). In addition, the state regulator for AMCs would need to have the power to approve or deny AMC registration applications; examine AMC books and re- cords; verify that AMC appraisers hold valid state certifications or licenses; and conduct investiga- tions, discipline AMCs for non- compliance with related laws, and report violations to the Appraisal Subcommittee (ASC). A Lack of Parity? T he six agencies' in the proposed rule provides states that elect to participate 36 months after the date it takes effect in order to enforce the minimum requisites. But, an AMC that is technically termed a subsidiary of a financial or- ganization, which is subject to regulations by a federal financial institution regulatory agency, is mandated by section 1124 and the proposed rule to adhere to the identical minimum require- ments as AMCs. However, an AMC that falls into the category of those already federally regu- lated financial institutions is not required to register with a state. In essence, lenders that operate their own internal appraisal desk or a captive AMC—an AMC they own that only manages the appraisal process for their loans (which is similar to that of an AMC model but removes the AMC middleman from the picture)—would be exempt. This type of lender would employ a process using the internal manage- ment of its own policies, proce- dures, and appraiser networks in the states in which it is licensed. The lender is already governed by appraisal rules and regulations but remains unaffected by the fees and oversight of the joint proposed rule. In this case, the exclusion makes sense and reduces overlap and duplication of efforts that the new proposal introduces. The issue is that there are many AMCs that are lender-owned that perform ap- praisal management for other lenders. So, a lender that basi- cally operates its own AMC and competes with non-lender-owned AMCs is free from the financial burden of hundreds of thousands of dollars in state registrations and bonding fees—even though they must comply with the ap- praisal rules themselves. Where is the fairness and parity in that loophole? Absent. The Implications M ost of the proposed rule regulation already exist in many regards in the states that have adopted their own regulations. The industry really doesn't need more of it, at least not in the structure of the proposed rule. The existing state-based compliance system is working well. What the proposed rule does ultimately hurts AMCs and drives up costs for lenders and consumers. Moreover, the proposed rule does not require states to adopt a regulatory structure for AMC registration and supervision, and it should. There is no penalty imposed on a state that does not establish a regulatory structure for AMCs. Consequently, if a state does not adopt it, the AMC is barred by section 1124 from providing appraisal management services for federally related trans- actions in that state. According the Mortgage Bankers Association, the net cost to origi- nate a loan increased to $5,171 per loan in Q 4 2013, up from $4,573 in Q 3. Cost to originate loans is at an all-time high, with compliance ad- herence being a major driver. This joint proposed rule will further increase costs. States already impose fees for AMC registration; with additional requirements, AMCs' costs could rise considerably further. As an example, some states charge as much as $5,000 annually for AMC registration plus bonding fees. The annual expense for national AMCs could escalate exponentially. Because states reap financial benefits as a result of fees collected from AMCs for compliance man- agement coupled with the fact that they can actually implement tighter, more stringent rules than federal rules, there is significant incentive for a spike in state participation. Furthermore, the ASC retains the ability to impose additional registration fees at a later date. Many smaller AMCs will struggle with this barrier to entry, reduc- ing competition and forcing the consumer to pay more for their appraisal report. There are lots of smaller, regionally based AMCs that are very good at what they do and serve a key portion of the lender market. They will unequiv- ocally be affected if the proposed rule is implemented as it is cur- rently structured. The prospect of more fees is alarming. This proposed rule could literal- ly close the doors of many AMCs nationally over the next 36 months and cost thousands of jobs. The intent of the proposed rule is clearly designed to reduce redundancy but ultimately creates an unfair competitive advantage for lender-owned AMCs—thus threatening the existence of many quality AMCS—and ultimately results in higher costs for lender clients and consumers. What's Next? C onstantly changing rules have and continue to make keeping apace of valuation com- pliance very challenging for lend- ers and AMCs to effectively and consistently manage. Compliance has already dramatically driven up costs for lending entities of all types across the board. The pro- posed rule isn't designed to hurt AMCs, but it will. Comments on the proposed rule are due 60 days after the proposal is published in the Federal Register. To comment, go to and search for "Docket ID OCC-2014-0002." "If you don't know what your numbers are, if you don't know how you compare to your peers, then you are running blind." —Jim Blatt, Mortgage Returns "Cost to originate loans is at an all- time high, with compliance adherence being a major driver. This joint proposed rule will further increase costs." —Vladimir Bien-Aime', Global DMS

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