Will Dodd-Frank, which will replace Cuomo's rule, make things better? Even skeptical appraisers were initially hopeful. Although the law does nothing to discourage the proliferation of AMCs, it does require more state enforcement of appraisal standards, and it requires AMCs to pay "customary and reasonable" fees to appraisers. It also says that federal regulators are supposed to delineate "with specificity acts or practices that violate appraisal independence."
But as is the case with much of Dodd-Frank, crucial details are left to the federal regulators to decide. So far, the signs aren't auspicious. In mid-October, the Federal Reserve issued an "interim final rule." But Joan Trice, a long-time appraiser who founded an industry forum called the Collateral Risk Network, says that in the face of fierce lobbying from lenders and AMCs, the regulators watered down the "customary and reasonable" provision to the point where she thinks it actually contradicts the law.
The Fed's rule does prohibit anyone from attempting or causing "the value assigned to the consumer's principal dwelling to be based on a factor other than the independent judgment" of the person doing the appraisal. All the language sounds really good. But if appraisal independence wasn't enforced the last time around, why should we believe it will be enforced this time? Some skepticism is warranted given that when Cuomo was proposing his law, the federal regulators wrote a letter in which they claimed that, with changes they were considering making to prohibit mortgage brokers or creditors from coercing the appraiser, "issues regarding appraiser independence and protection from coercion are already adequately addressed …"
There are more details to come, like the role of federal regulators in overseeing state enforcement efforts. If lenders and appraisers could anticipate certain punishment for bad appraisals, that would be the most effective deterrent of all. "We'll see what kind of stomach they have," says one appraiser about the federal regulations to come. "[They] have kowtowed to the big banks before. I am hopeful, but I'm not optimistic."
If it's so hard to get something as seemingly small and straightforward as appraisals right, you have to wonder whether the larger problems addressed by Dodd-Frank will ever get fixed.
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