Effective October 3rd, property appraisals will generally be subject to a zero tolerance threshold under the Integrated Disclosure Rule (“TRID”). TRID provides that fees paid for a third-party settlement service for which the member is not permitted to shop fall into the zero tolerance category. What this means for your credit union is that the appraisal fee you disclose on the Loan Estimate must be exactly what the member is required to pay at closing, absent the occurrence of a valid changed circumstance. In this two-part blog series we’ll identify the challenges associated with this requirement and the steps your credit union can take to be compliant.
What Is All The Fuss About?
Currently under the RESPA rules governing the Good Faith Estimate (“GFE”), the appraisal fee falls within the 10% tolerance category. This means that the member may be asked to pay more for the appraisal if for some reason the cost of the report increases between application and closing. This has led many cooperatives to take the approach of disclosing a “ballpark” appraisal fee on the GFE. Obviously after October 3rd this approach will no longer work. Remember the old idiom – close only counts in horseshoes (and hand grenades).
So what happens if upon further inspection of the property some of its features have your appraiser calling and asking for more money to complete the report? Is the answer to just inflate the cost of every appraisal on the Loan Estimate? Because the rule only provides that the member cannot pay MORE at closing, right? Not so fast. Regulation Z provides that a credit union must disclose an estimate of settlement charges on the Loan Estimate in good faith and consistent with the best information reasonably available at the time of the disclosure. So now what?
In this week’s installment we’ll discuss how your credit union can protect itself against unexpected increases in the appraisal fee. On September 15th we’ll review the concept of “changed circumstances” and how the occurrence of a valid changed circumstance may allow your institution to increase the appraisal fee before closing.
Protecting Against Unexpected Increases in the Appraisal Fee
There are a number of things your credit union can do to proactively minimize the potential of an increase in the appraisal fee.
- Include more property specific questions in your loan interview
- Can you tell me more about the features of the home that you are purchasing?
- Have there been any recent renovations or additions to the property?
- Does the property have any unique attributes or special characteristics?
- Consider sequencing. The TRID rule provides that your credit union may delay provision of the Loan Estimate by postponing the collection of one (or more) of the six pieces of information that constitutes an application. Take this additional time to find out more about the subject property.
- Remember that you have three business days from the time you receive an application to deliver the Loan Estimate. Take this time to communicate with your appraiser
- Share with them the property specific information that you were able to gather from your loan interview and subsequent research
- Request that they review the property assessment card available from the local governmental jurisdiction for general impressions about the property and how those impressions may affect their fee
- Ask for a firm commitment on the cost of the appraisal report
To be continued… Check back on September 15th for “Are You Communicating Enough With Your Appraisers? – Part Two.”