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AMC Fined Over C&R Fees
By Isaac Peck, Editor

The Louisiana Real Estate Appraisal Lath (LREAB) has again taken activity to ensure that Customary and Reasonable (C&R) Fees are being paid past AMCs and lenders in the state.

On December 8, 2015, after a hearing that lasted over 12 hours and was closely watched and attended by appraisers, AMCs, and lenders akin, the Board ruled confronting iMortgage Services, LLC and issued a Terminal Guild that included a fine of $10,000 and a six-month license suspension. The interruption was stayed, provided that iMortgage provides a C&R compliance plan to the Lath no later than March 21, 2016.

In contrast to Louisiana'southward previous C&R enforcement action involving Coester VMS, where there was no admission of guilt past Coester, this is the first judgement against an AMC that leaves no question on the determination of guilt. The Board's final guild establishes that iMortgage failed to comply with Louisiana law and violated the C&R fee requirements fix in place past the Board.

Initial Investigation
Demonstrating the glacial speed at which many state lath investigations operate, the initial complaint against iMortgage was filed two years ago in January 2014 after iMortgage sent out an appraisal order for a full 1004MC FHA appraisal with a fee of $200. The investigation was not opened until May 2014, with the hearing taking place in December 2015.

In its written response to the initial investigation letter of the alphabet, iMortgage'due south Chief Run a risk and Compliance Officer, Dean Kelker, explains that iMortgage'due south fees were based, in part, on a fee survey that iMortgage was given past one of its large origination clients (subsequently revealed to be Flagstar Bank), and that he "can't speak to the details of the survey because information technology was conducted without our interest."

Kelker writes that iMortgage works on a cost-plus basis, having been provided a minimum fee for each geographic market by Flagstar.  iMortgage then adds a "service fee" to the appraiser's fee in society to develop a final borrower price for the assignment.

In addition to the Flagstar fee survey, Kelker says that iMortgage as well determines fees based on its "experience in the market" and the fees that appraisers quote and have within detail local markets.  Kelker argues that iMortgage complies with both C&R presumptions of compliance, every bit it relies on what he says is an independent tertiary party fee study (Flagstar's study), likewise as iMortgage'south internal market data regarding what it has been paying appraisers and what appraisers have been accepting.

It is worth noting that that the linguistic communication of the C&R fee provision of Dodd Frank states unequivocally that "Fee studies shall exclude assignments ordered by known appraisal direction companies." However, because iMortgage did non know the details of the fee survey, it is unknown whether the Flagstar survey, which served as iMortgage's get-go line of defense, used AMCs fees in its determination that $200 is C&R for a 1004MC FHA appraisal social club.

In his letter of the alphabet to the Lath, Kelker raises his objections with Dodd-Frank, writing that iMortgage's problem with "broad fee studies," possibly referencing the Louisiana Board's fee report, is that they are "general in nature and do not specifically encompass the scope of work associated with an private mortgage assignment." Furthermore, Kelker writes that whatever fee studies that "specifically exclude appraisal direction companies in their limerick create a potential bias due to the significant participation share of AMCs in the mortgage market." While opposite to the diction of the Dodd-Frank C&R fee provision, this sentiment echoes many other AMCs that insist that the fees they pay should be included in fee surveys and that fees consistently paid by AMCs institute C&R fees because appraisers are accepting them.

Afterwards submitting the documentation requested by the Board, including appraisals ordered by iMortgage in Louisiana from December i, 2013 to July 1, 2014, iMortgage was served with a preliminary discover of arbitrament in November 2014. Information technology cited iMortgage with 150 violations of failure to pay C&R fees. After discussions with the staff of the Louisiana Board, 141 of the alleged violations were dismissed- with only 9 violations remaining by the fourth dimension the hearing took identify in December 2015. The reason why may be news to appraisers.

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Federal Covered Transactions
Ane nuanced point that will be of interest to appraisers is that the initial order of the 1004MC FHA appraisal, that began the investigation, was not one of the nine violations that iMortgage was ultimately charged with. Co-ordinate to the testimony of Robert Rieger and Kellen Mathews, iMortgage's attorneys, the 1004MC FHA appraisal did non run into the definition of a federal covered transaction, and therefore, the Dodd-Frank C&R fee provision did not apply.  Based on the hearing transcript, dozens of the originally noted 150 C&R violations against iMortgage were dismissed because they were deemed to exist transactions "non covered" or having no C&R fee protection nether Dodd Frank.

A careful reading of Dodd-Frank reveals that Section 129E, which includes the Appraiser Independence and C&R fee provisions, applies specifically to "consumer credit transaction(southward) secured past the principal dwelling of the consumer." In other words, appraisals for foreclosure and REO purposes, investor purchases and refinances, and any other transaction not involving a credit transaction secured by the "principal dwelling of the consumer," are non regulated nor covered under these of import sections of Dodd-Frank. As a upshot, appraisers cannot rely on the protections of the appraiser independence and C&R provisions of Dodd-Frank for a big multifariousness of appraisal transactions. Though appraiser independence in covered by other federal statutes.

This signal is not widely known by appraisers, nor was information technology immediately articulate to the Lath's investigators. Only afterward in the investigation process were the 150 appraisals in question examined to run across if they were covered transactions, at which point a big segment of them dismissed.

100,000 words, 500 Pages
The Louisiana Board did not immediately release the transcript of the hearing on December 8, which lasted over 12 hours. Working RE requested the transcript straight following the hearing and has only recently received a re-create.  The transcript is nearly 100,000 words and 500 pages long in its original form. Judge Darrell White presided over the hearing, with the Board serving as the jury and maintaining responsibility for rendering a decision. Throughout the hearing, several facts were brought to light that are of concern to appraisers.

In her opening statement, the chaser representing the Louisiana Lath, Arlene Edwards, clearly lays out the case against iMortgage, arguing that the AMC violated the Lath'south rules and regulations requiring that appraisers be paid C&R fees. Edwards argues that iMortgage's response to the complaint filed in May 2014 "clearly showed that they did non follow our laws. Their response indicated that they sometimes use what an appraiser would hold to have.  They also used what they called, I believe, a fee written report washed by ane of their own clients." Edwards also draws a distinction between federal and state constabulary, stating "what we are hither to evidence is not that they are in violation of federal law, simply that they are in violation of Louisiana law and our own rules and regulations considering their ain response showed that they failed to follow what is required under Louisiana law and rules."

iMortgage's lawyers spent the amend half of the twenty-four hours questioning the two investigators regarding the Board's rules and procedures for an investigation, hoping to uncover and testify that the investigation was conducted sloppily and in violation of the Board's ain rules. The attorneys argued that missing or incomplete notes were fabricated in the files regarding the investigation, that investigators improperly handled certain authoritative items, and that standard investigations are supposed to be completed within 120 days, while the investigation against iMortgage dragged on for months at fourth dimension with no action taken.

iMortgage's lawyers then called a William Wade Matchneer III as a witness in the instance, an chaser who served as past senior counsel for the Consumer Financial Protection Bureau. Through examination and cantankerous-examination, Matchneer highlighted an of import bespeak regarding Dodd-Frank's ii presumptions of compliance regarding C&R fees, stating that "a presumption is simply a suggestion. It's not a requirement." In other words, complying with i of Dodd Frank'south C&R presumptions of compliance is a mode to exist sure to comply with the C&R fee provision, but information technology is not the only style to comply with the police force and an AMC may claim to have complied in a different manner. Matchneer also revealed that his presence at the hearing was, in part, due to the Real Estate Valuation Advocacy Association (REVAA) putting him in touch with iMortgage's attorneys. Jeff Dickstein, the Chief Compliance Officer of Pro-Teck, a member of REVAA, also appeared as a witness on iMortgage's behalf.

Flagstar's Fee Schedule

At the finish of the mean solar day, the final witness called to testify was Dean Kelker, iMortgage's Chief Risk Officer. Kelker's testimony centered around the Flagstar fee survey that was used for the nine appraisals establish in violation by the Louisiana Board. Kelker argued that iMortgage was required to utilise the fee schedule it was provided past Flagstar as a condition of doing business, and because the fee survey was conducted by Flagstar, it was objective and independent, and consequently iMortgage was in compliance with Louisiana and Federal laws.

However, a problem arose in that Flagstar refused to provide the fee survey to the Lath, or to iMortgage for that matter. According to Kelker's testimony, he requested the survey from Flagstar and they "elected not to produce it."

Kelker did bring a signed affidavit from Joseph Kuzner, the Chief Residential Appraiser at Flagstar Depository financial institution, which attempts to explicate how the fee survey was conducted. The affidavit reads: "To complete the study, Flagstar obtained objective third-party data regarding customary and reasonable appraisal fees from Joan Trice.  Ms. Trice conducted an objective nationwide survey of both Louisiana mortgage lenders and Louisiana licensed residential real estate appraisers to collect a diverse sample of data regarding the typical appraisement fees for each geographic market within the state.  Ms. Trice's nationwide survey reflects third-party data and obtains responses from approximately three,400 appraisers."

The affidavit goes on to explain that in add-on to Trice'due south data, Flagstar also used its own cognition of the market to develop a proprietary fee survey. All the same, upon closer examination, Kelker admits that he has no knowledge of the details of how Flagstar's survey was compiled or conducted. Kelker later antiseptic that he did not know how many parishes Trice surveyed or whether a formal survey was published at all. "If we are going to differentiate between the data and a survey, she did not publish a survey. Flagstar used her information as part of their data. They also used their own internal experience that may accept included broader data.  I don't know.  I don't know if they had complete survey data from the land of Louisiana. I didn't come across it," says Kelker.

Kelker connected to assert that it was an independent fee report, as information technology had originated outside of iMortgage.  Edwards, the Board's attorney, strongly questioned the independence of a fee survey conducted by a lender and delivered to its amanuensis, an AMC, and pointed out that there was no way of knowing whether the survey, or information compilation (as Kelker puts it), was conducted in compliance with state and federal constabulary (excluding AMC fees).

When contacted for comment, Joan Trice explains that the data being referenced is ClearBox data and that the fees in ClearBox are input by appraisers per county, per production. "It is not bearding, and so these are real appraisers setting their fees. The fees presented are what appraisers charge for both lender and AMC clients. ClearBox does not create a fee schedule, information technology but presents the data to AMCs and lenders. Anyone tin can exist a subscriber and go access.  We are agnostic on how somebody analyzes or uses that data.  We tell you what the general population is, what the appraiser ratio is in a given area, the VA fee schedule, the academic studies available in the six states that have them, and more. Our goal is to give our clients as much data as humanly possible," says Trice.   "It's simpler to comply with the law than trying to debate or challenge whether or not people similar Dodd-Frank.  I remember it'due south pretty articulate what C&R fees are, and compliance is non that difficult," says Trice.

1 point that was non closely examined is that, of the nine appraisal orders iMortgage was charged with, only five were ordered past Flagstar. The four others were ordered past other banks, including JP-Morgan Chase, and that the Flagstar fee "survey" was not used for these orders, which included a 1004 FHA appraisement with Market Conditions addendum for $250. At that place was piffling give-and-take as to how iMortgage calculated those fees to be C&R. Information technology's worth noting that iMortgage was paid $465 for the lodge, and the appraiser was but paid $250. (Click here to see the ix appraisals establish in violation.)

State Board Complaints- Beware
While not related directly to C&R fees, Kelker also revealed a fact that some appraisers may detect unsettling. During exam, Kelker testified that iMortgage does not let any appraiser on their panel with a disciplinary action. Kelker reveals that many of iMortgage'due south lender clients practice non permit appraisers with disciplinary actions and states that "any appraiser that is involved anywhere in the transaction that has disciplinary action, whether it is the original appraiser, the review appraiser, whatever, whoever has disciplinary activity automatically loses in that deal," says Kelker.

Kelker'south comments confirm what State Board complaint experts such every bit Bob Keith, MNAA, IFA and Tim Andersen, MAI have been saying for years, that a disciplinary action, even a minor one, tin can have a lasting effect on an appraiser's career and lead to the loss of both electric current and future clients. Appraisers who are faced with state board consent decrees or who are pressured into admitting guilt should take extra intendance and seek the advice of experts before signing off, as the long-term ramifications of a guilty judgement can be astringent, even if the complaint is frivolous or minor.

Guilty
In her closing argument, Edwards argued that the hearing proved the allegations against iMortgage fix forth in the written complaint, and that the Louisiana Real Estate Appraisers Board licensing laws and rules had non been followed.  "They're sound rules. They may be a little bit more than strict than the federal rules. They are allowed to exist as long equally they're not in disharmonize," Edwards says.

Shortly after closing arguments, Tommie McMorris, a member of the Board, proposed a motion: "I move the respondent, iMortgage, is guilty of the charges set along in the written complaint. Further, after hearing all of the testimony and legal documents submitted, it is obvious that the respondent did not follow Louisiana law and rules establishing that they paid reasonable and customary fees."

The motion was passed unanimously by the Louisiana Lath.

The Board and then moved to fine iMortgage $10,000 and impose a six month license break, which was stayed pending the Board's review of iMortgage's new compliance programme on March 21, 2016.

Click here to read the Hearing Transcript in its entirety.

Expert Help
For a webinar on how to effectively handle state lath complaints, provided gratuitous to all appraisers by OREP for a express fourth dimension, please see Fighting Appraisal Board Complaints: An Expert'south Communication. The presenter, Bob Keith, MNAA, IFA is the onetime Executive Director and Compliance Coordinator for the Oregon Appraisal Board and also provides consulting services on how to deal effectively with land board complaints.  OREP members enjoy the initial consultation costless.  Tim Andersen, MAI, provides workfile-review consulting services to show appraisers how to avert common workfile problems that can result in a board complaint. Anderson'south services are discounted for OREP members. For more than on either of these two services, please email subscription@workingre.com.

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Source: https://www.workingre.com/amc-fined-over-cr-fees/