"Dodd-Frank" may be the filthiest epithet in most financiers’ vocabularies these days, but there’s one industry segment swept up in the new federal financial regulations that’s actually pretty happy about it: Appraisers.

"This is the biggest reform in the appraisal mortgage industry in a generation. ….it’s looking [to be] very big for appraisers," said Jonathan Asker, CEO of North Atlantic Appraisal Management in West Bridgewater.

The law contains a provision ending the much-loathed Home Valuation Code of Conduct (HVCC), a set of guidelines governing the hiring of appraisers adopted by Fannie Mae and Freddie Mac in the wake of a lawsuit from New York Attorney General Andrew Cuomo. HVCC prohibited direct contact between loan originators and mortgage brokers and appraisers, forcing many to seek work through assignments from appraisal management companies (AMC).

Whether HVCC achieved its good intention – shielding appraisers from pressure to alter their reports in order to facilitate deals – is debatable. What’s certain is that many appraisers took a big hit to their bottom lines, with many AMCs offering appraisers about $150 to $200 per appraisal, about half what independent appraisers usually charge lenders.  

The new federal law calls for appraisers to be paid a "customary and reasonable fee," which will be determined by a survey of fees in their area – a survey from which AMCs’ rates will be excluded.  A la mode, an Oklahoma-based real estate analytics firm, conducted a survey in February of this year of appraisal fees across the country; in Massachusetts, the median fee was $300 and the average fee $322.  

"What this will result is appraiser compensation returning to the levels that it had been at historically," said Stephen Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers.

But while the new bill declares the HVCC no longer in effect, it does not specifically permit direct contact between brokers and appraisers – such language had been proposed, but didn’t make it into the final version. That means there may still be a role for AMCs.

"If the appraisal management companies stay involved in the process, then who’s gonna pay for all this?" wondered Sousa. "A natural, expected outcome of this might be that the fee charged to the consumer for an appraisal will go up. And it could go up substantially."

The new law’s silence on the matter does leave open the possibility that the industry’s new masters – the yet-to-be-formed Consumer Financial Protection Agency, which will be a part of the Federal Reserve Board – will permit direct contact between appraisers and brokers.

While it will be months before the CFPA is up and running, in the meantime the Fed is set to come out with interim rules for enforcing the new law in September.

Too Much Red Tape?

The customary and reasonable fees switch isn’t the only new change: The law also beefs up fines against companies that violate appraisal independence, with $10,000 for a first offense and $20,000 for a repeat, and limits the circumstances in which broker price opinions can be used for pricing properties.

In describing to whom its strictures apply, the law also aims to define what an AMC is – a definition which may sweep up some mid-size appraisal firms under its umbrella.  If a firm has more than 15 licensed appraisers working for it in one state, or more than 25 overall, it would be subject to the same strictures on registration and licensing as bigger AMCs. Some of these new regulations include registering in each state in which its appraisers operate, and subject to each state’s rules, and paying a fee of $25 per appraiser to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council, a federal regulatory agency.

For mid-size firms, all that new red tape might be more of headache than they can handle, sources told Banker & Tradesman.

"You can’t be in a small appraisal management company. To fit under this bill, you have to be big," said Asker. His own firm has about 40 appraisers on its roster, independent contractors to whom he assigns jobs, but who can also pursue other work.  He’s not yet sure what he’ll do to deal with the regulation, but he may have to reduce the number of appraisers he works with.

The AMCs themselves aren’t too pleased, either. State regulation is "going to be chaos, and it’s not going to work. It’d be like getting a driver’s license in all 50 states," said Jeff Schurman, executive director of the Title Appraiser Vendor Management Association (TAVMA), a trade organization for AMCs. TAVMA fears that the increased fees will cause AMCs to reduce their rosters of appraisers and restrict the number of states in which they operate.

Schurman pointed out that bank-owned AMCs will not be subject to some of the restrictions.

"It’s a bifurcation," Schurman said. "Our position has been that it ought to be federal oversight. Federal oversight would be very good for the AMCs, we’d have no beef with that. But what we’re finding with the 50 different states, some are stricter… it’s a train wreck."