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#2190707 - 08/27/18 06:28 PM LE and appraisal cost/CIC?
mdog76 Offline
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We ordered an evaluation and disclosed this cost on our LE. The evaluation came back too low to support the loan. Officer has decided to order a full market appraisal. Could this be considered a change in circumstance and reissue the LE with the cost of the appraisal?

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#2190711 - 08/27/18 06:39 PM Re: LE and appraisal cost/CIC? mdog76
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It is called shopping for value - it would also suggest that your evaluation process is flawed. TRID is not your issue here.
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#2190713 - 08/27/18 06:47 PM Re: LE and appraisal cost/CIC? mdog76
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An outside company did the evaluation. The officer was confident the value would be there because a loan was done similar to this one in the same location about 2 months ago and the evaluation came back fine. Technically can re-issue an LE as a CIC for the cost of an appraisal or is this customer going to get a free one?

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#2190715 - 08/27/18 06:51 PM Re: LE and appraisal cost/CIC? mdog76
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The officer was confident the value would be there

So you are saying that your area that is independent of the lending function that is in charge of ordering/reviewing/accepting evaluations and appraisals did not find any deficiencies and now the loan officer is potentially influencing the decision on the collateral evaluation process?

Like I said, this is not a TRID issue.
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#2190716 - 08/27/18 06:56 PM Re: LE and appraisal cost/CIC? mdog76
Adam Witmer Offline
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Randy's point is that you have bigger issues when you start getting multiple appraisals. I agree with him.

Originally Posted By mdog76
Technically can re-issue an LE as a CIC for the cost of an appraisal or is this customer going to get a free one?


This doesn't fit the definition of a changed circumstance:

(A) Changed circumstance affecting settlement charges. Changed circumstances cause the estimated charges to increase or, in the case of estimated charges identified in paragraph (e)(3)(ii) of this section, cause the aggregate amount of such charges to increase by more than 10 percent. For purposes of this paragraph, “changed circumstance” means:

(1) An extraordinary event beyond the control of any interested party or other unexpected event specific to the consumer or transaction;

(2) Information specific to the consumer or transaction that the creditor relied upon when providing the disclosures required under paragraph (e)(1)(i) of this section and that was inaccurate or changed after the disclosures were provided; or

(3) New information specific to the consumer or transaction that the creditor did not rely on when providing the original disclosures required under paragraph (e)(1)(i) of this section.
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#2190733 - 08/27/18 07:37 PM Re: LE and appraisal cost/CIC? mdog76
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Just to be clear, a valuation coming in lower than expected can certainly be a valid change of circumstance (New information specific to the transaction).

If you had a policy that if an AVM (I'm guessing the loan is under $250,000 or is somehow otherwise exempt from a full appraisal.) comes in too low, applicant can pay for a full appraisal, then I could certainly see this as a valid CiC, assuming the applicant wanted to get the full appraisal.

But "Officer has decided to order a full market appraisal" is not going to cut it. "Officer has decided [insert anything here]" is probably never going to cut it for a change in circumstance.

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#2190734 - 08/27/18 07:40 PM Re: LE and appraisal cost/CIC? mdog76
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I don't think what you're saying cuts it either.....neither the applicant nor the loan officer gets to decide that an appraisal/evaluation came in too low, therefore, let's get another one.
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#2190739 - 08/27/18 08:19 PM Re: LE and appraisal cost/CIC? mdog76
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I don't believe AVMs are covered by Appraisal Independence Requirements. Or am I missing something?

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#2190743 - 08/27/18 08:36 PM Re: LE and appraisal cost/CIC? mdog76
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So, you are saying that you only use the AVM if it gives you the value that you want? What good is it then?
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#2190744 - 08/27/18 08:39 PM Re: LE and appraisal cost/CIC? mdog76
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There's an entire section on AVMs in the Interagency Guidelines that talks about how to validate the results, steps to consider if going the AVM route, etc. I don't see anything in there that would exempt them from any part of the rules.
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#2190785 - 08/28/18 12:56 PM Re: LE and appraisal cost/CIC? mdog76
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So, you are saying that you only use the AVM if it gives you the value that you want? What good is it then?

It's cheaper for the consumer and acceptable for safety and soundness for lower dollar loans.

There's nothing I can find that would suggest this policy runs afoul of any regulations. An appraisal is always more accurate than an AVM. Not allowing a consumer to use an appraisal when an AVM is used, seems foolish. AVMs can and do miss things that an appraiser wouldn't.

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#2190787 - 08/28/18 01:06 PM Re: LE and appraisal cost/CIC? mdog76
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In order to even begin to use an AVM, you have to validate it. If you have validated your AVM, then the value that you get is usually the value that you get. Are saying is that your AVM is unreliable and has not been validated? If there were certain characteristics to this property that would suggest the validated AVM will not produce a reliable outcome - well that is one thing. Those characteristics should be fully documented and your policy for the use of the AVM should specify what those instances might be. Saying that the value that the AVM produced is too low and having it not based on specific facts - well that points to a AVM validation problem. If these factors were know when you first ordered the AVM, then any subsequent evaluation or appraisal costs would not be a changed circumstance as it is not based on new or changed information.
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#2190794 - 08/28/18 01:22 PM Re: LE and appraisal cost/CIC? mdog76
Dan Persfull Offline
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Inherent_Risk….from what I have read in this thread your user name is appropriate for this situation. If your evaluation procedures are as you outline then you most definitely have an inherent risk of being cited for violations of the appraisal rules. It is also a good implication that you do not have a changed circumstance and if you have been treating them as such then you have an inherent risk for 1026.19(e) violations.

From 1026.19(e):

iii. Assume a creditor requires an appraisal. The creditor receives the appraisal report, which indicates that the value of the home is significantly lower than expected. However, the creditor has reason to doubt the validity of the appraisal report. A reason for revision has not been established because the creditor reasonably believes that the appraisal report is incorrect. The creditor then chooses to send a different appraiser for a second opinion, but the second appraiser returns a similar report. At this point, the creditor has received information sufficient to establish that a reason for revision has, in fact, occurred, and must provide corrected disclosures within three business days of receiving the second appraisal report. In this example, in order to comply with §§ 1026.19(e)(3)(iv) and 1026.25, the creditor must maintain records documenting the creditor’s doubts regarding the validity of the appraisal to demonstrate that the reason for revision did not occur upon receipt of the first appraisal report.

So, you have either validated your AVMs or you haven't.
Last edited by Dan Persfull; 08/28/18 01:31 PM.
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#2190885 - 08/28/18 05:48 PM Re: LE and appraisal cost/CIC? mdog76
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Which rule is it violating? I think conflating appraisal and AVM is a mistake when looking at both TRID and the appraisal rules. That citation is also about the timing of the CiC, not whether it is valid. The timing of this CiC would obviously be the timing of the first valuation.

I just don't see going from AVM to appraisal as value shopping, and I can't find anything in the regs that disagrees. It's getting a more accurate valuation. A perfectly good, fully validated AVM is still not as good as an appraisal. The guidelines make it pretty clear that an appraisal is better than an AVM, which is why you can't use an AVM for a non-exempt transaction. The interagency guidelines also specifically say you can't value shop between AVMs. I don't know why they would specify that if the value shopping provisions at large would already prohibit it.

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#2190887 - 08/28/18 05:51 PM Re: LE and appraisal cost/CIC? mdog76
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I will add my small 2 cents worth in.

We do in-house evals. If our evaluator flat out says there is no way he's going to get the value needed, he suggests we obtain a full appraisal which has more leeway on comps used and other detailed criteria not to be had in the in-house [cheap] eval.

I agree that an evaluation [limited info] and a certified appraisal are two very different beasts.
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#2190890 - 08/28/18 06:04 PM Re: LE and appraisal cost/CIC? mdog76
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RR- do you then treat it as a CC and charge the borrower for a full appraisal, even though nothing that you knew from the get go changed - except for the fact that your in-house evaluator said they can't help you?
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#2190987 - 08/29/18 01:52 PM Re: LE and appraisal cost/CIC? mdog76
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Randy, we know ahead of time. Our in house is great about knowing his limits smirk

That was actually my point [doing our homework], but I guess you'd have to read between the lines. I do agree that there is a vast difference often between the two methods of evaluating a property...however, I'd say some of the above opinions are not well thought out and don't hold water. I have never done a CC on the one-off that we went from one to the other. We do our homework first. That may not be as easy when using a 3rd party evaluation provider...Probably if I were in that situation and it wasn't cut and dried a no-brainer on value, I'd opt for the higher quote and be done with it. Sometimes you truly get what you pay for.
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#2191154 - 08/29/18 09:42 PM Re: LE and appraisal cost/CIC? mdog76
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I'm with Randy on this one regarding the CC. you don't have one if you quote the cost of an AVM and then decide to do an appraisal.
I seem to recall a past post that suggested that you put the full appraisal cost on every LE and then, if you can go with the AVM, you lower the price on the CD.

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#2191174 - 08/30/18 01:35 PM Re: LE and appraisal cost/CIC? mdog76
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Yeah, that's what I was saying in mine last post. If you don't know, go high and move on.

The bigger issue we've had with doing that, however, is that in our case we would not only be quoting high to end up low, but moving from origination charges to you can't shop.

I'm not terribly comfortable with that, so we do our homework prior to ordering instead smirk
Last edited by RR Joker; 08/30/18 01:35 PM.
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#2191176 - 08/30/18 01:37 PM Re: LE and appraisal cost/CIC? mdog76
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Here's the situation I'm imagining. A customer comes in and says my house is worth $150,000, and I want a $100,000 loan. You give them an LE based on that information with an AVM quoted. Then you run an AVM, and it says the house is worth $95,000. Customer is adamant that their house is worth way more than that. Are you saying that's not a change in circumstance or just that the change didn't "cause" the addition of an appraisal. I still think that this could be a CC for the appraisal, but it kind of lives in a space between the new information (1026.19(e)(3)(iv)(A)) and customer requested changes (1026.19(e)(3)(iv)(C)) that may only exist in my mind.

We always quote (and require) appraisals on TRID loans, and that's definitely a much safer and sounder policy for lots of reasons. My initial concern was more about value shopping from AVM to appraisal (which I do see in non-TRID loans).

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#2191190 - 08/30/18 02:07 PM Re: LE and appraisal cost/CIC? mdog76
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I'm saying that a borrower saying their home is worth way more than your validated AVM is not a valid changed circumstance.
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#2191192 - 08/30/18 02:09 PM Re: LE and appraisal cost/CIC? mdog76
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Don't mean that to sound flippant or anything....just throwing it out there. Maybe others have a different opinion.
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#2191216 - 08/30/18 03:03 PM Re: LE and appraisal cost/CIC? mdog76
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Then you also have the following. Is a charge for an evaluation service actually a fee for an appraisal service and are they interchangeable.

37(f)(5) Item descriptions and ordering.

1. Clear and conspicuous standard. Section 1026.37(f)(5) requires creditors to label the loan costs disclosed pursuant § 1026.37(f) using terminology that describes each item. A creditor complies with this requirement if it uses terminology that is clear and conspicuous, consistent with § 1026.17(a)(1), and describes the service or administrative function that the charge pays for in a manner that is reasonably understood by consumers within the space provided in form H-24 of appendix H to this part.
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#2191270 - 08/30/18 06:05 PM Re: LE and appraisal cost/CIC? mdog76
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This ^^^ is the prime reason we do our homework before issuing the LE. Particularly in our case where it even changes categories.
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