Is it acceptable to charge the borrower a $10 fee so we can recoup our appraisal management fee which is outsourced? If so, do we list this seperately in the TIL as $10 to ABC Appraisal Management or simply add it to the appraisal fee.

How do you pay the appraisal fee? To the management company, or to the appraiser? If separately, I'd disclose that way.

Good point.

We will be paying the appraiser seperately once up and running. We pay a flat fee monthly to the AMC up to a certain number of appraisal referrals. Once our limit is reached, we pay a per-referral fee. So, we may lose a bit of money on this but we are covering most of the fee.

Thank you

"We pay a flat fee monthly to the AMC up to a certain number of appraisal referrals."

I would think that this arrangement might be scrutinized as a potential Section 8 violation. If you pay them the same fee whether there are 1 or 10 requests that month, how are these fees actually earned for the actual service performed on any specific RESPA covered transaction?

I wonder if eventually, once you have a track record, if you could use the "average charge" method and update semi-annually?

That still would not address a Section 8 issue.

I'm not convinced the term "referral" the poster is using is the same as in the context of RESPA. I believe they are paying a base fee for up to a certain number of appraisal requests and then per/request over that for managing this service.

I agree that this is not a referral fee, but Section 8 is much broader than referral fees. The question becomes whether the fee is earned or not. If the charge is the same whether they order one or ten appraisals in a specific month, how is the amount earned at a rate of X for one but x/10 for ten justified??

I am using the word referral loosely. Maybe we can use the word "Request."

We get AMC services for $500 per month for up to 50 appraisals. After that, we pay an additional $12 for each appraisal we request. If we charge $10 for every loan I dont see how we can ever be accused of overcharging the borrower. Our cost is always going to be higher than what we collect. Right?

I see your point, Randy. It should be one amount per request to cover their admin, review, whatever all they do...not one amount regardless of number...gotcha!

Doesn't matter what you charge the customer.

If you only do 10 loans you are still paying $500. That's $50 each. If you do 50 loans then that's $10 each. What did the AMC do to earn the additional $40 you paid them on the 10 appraisals only done in the one month?

I agree with Randy, you have potential Section 8 issues.

I just reviewed section 8 and I see the issue.

"(b) No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed." 12 USC 2607(a) and (b).

I think this is a case where the rule is going to hurt the customer. They are undoubtedly going to charge us more if we go to a per request payment scenario.

Any suggestions on my options?

Thanks

While I see potential issue regarding services performed should we have a month where we have just a few appraisals, I'm not totaling following how we could be accused of a Section 8 violation as even on a bad month, the AMC is still providing services.

The bank is not charging anyone more than $10 no matter what. They are receiving a "service" in return for this fee. To handle this arrangement, the AMC must provide staffing, maintenance, system upgrades, report development, etc. needed to provide those services. I think the purpose of RESPA was to avoid charges to the customer that were NOT actually being performed. Here, the customer is getting a good deal for services performed and we are eating any possible deficiency should we have a bad month and a low number of loans.

Please tell me what I am missing here. How could this be a bad deal for the customer or a violation? If you are right, then this Reg should be changed as it infringes on our right to contract. Jeez I need a new career!!

You still have a catch 22, DF, because you have to show either 1) the actual charge or 2) the average charge.

Without a concrete amount per appraisal...they can't prove they earned it as Randy elaborated above.

You can get away with that all day long on commercial loans, but I can't see how you can do anything but actual or average on this...and the AMC needs to charge accordingly, I'm afraid.

Thought this was interesting and wanted to pass it along:

In Boulware v. Crossland Mortgage Corp. in the Fourth Circuit and Echevarria v. Chicago Title & Trust Co. in the Seventh Circuit, the court ruled that Section 8(b) pemits the “mark-up” of settlement services under certain circumstances, which includes the practice of charging a consumer more for a third party’s settlement services than is actually paid to the third party.
o Therefore, for property located in the Fourth and Seventh Circuits, which includes Illinois, Indiana, Maryland, North Carolina, South Carolina, Virginia, West Virginia, and Wisconsin, NCUA examiners will not cite a violation of Section 8(b) of RESPA under the following situation:
o The consumer is charged more for a settlement service provided by a third party than is actually paid to that third party, and
o The third party is not involved in the mark-up.

Before it was amended , Regulation X read: No person shall give and no person shall accept any portion, split, or percentage of any change made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.  24 C.F.R. § 3500.14(b) (1992).

Regulation X now reads:
(c) No split of charges except for actual services performed.   No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.   A charge by a person for which no or nominal services are performed or for which duplicative fees are charged is an unearned fee and violates this section.   The source of the payment does not determine whether or not a service is compensable.   Nor may the prohibitions of this part be avoided by creating an arrangement wherein the purchaser of services splits the fee.

You sometimes see a "mark-up" in things that the lender may also review, such as a credit report or an appraisal. I believe that is now considered acceptable because you are performing a service that earns a fee.

I believe where the problem lies, at least to me, with the AMC minimum bill is that they have no set service fee. How can you say it's worth $100 for 10 loans or $50 for 20? That's like pricing your loans based on your monthly volume, it's just not done that way. But, then, you can argue that as well..if you charge 1% as your origination fee but do the same amount of work for a $50k loan vs a $500k loan...how is that justified...I've always shook my head on that one.

And in these days, it's usually way more than 1%, but that's another argument.

To finalize, the opening section of RESPA reads: "No split of charges except for actual services performed.

The way the AMC company is billing is not a split, so it appears to fall outside of this section.

However, I would seriously consider tracking for average charge if you continue in this manner.

my 2 cents. right, wrong or indifferent.

Of course that case was in 2002. When that is compared to the mortgage environment today, you might as well be talking about a tyrannosaurus. Plus, you most likely would not want to try and take your regulator to court.

Also, if you are in the Second Circuit, you might want to review COHEN v. JP MORGAN CHASE CO JP from 2007 in which they went against three other Circuit Courts and found that RESPA prohibits unearned fees whether reflected in divided or undivided charges.

Interesting case. Makes you wonder tho how one would assume there was no earned fee. I'm guessing it's because it was post-closing review fee, therefore not providing a service to obtain the loan...is that the gist, Randy?

I haven't actually read the case in a while, but if I remember its basicaly that it doesn't matter what the fee is for, if it is unearned, its a violation.

I wonder how they could prove that tho. Post-closing reviews are not uncommon and involves overhead...how can they say it was unearned. Oh well...a mystery of court case outcomes, I guess.

Update;

After I brought this up to Mgmt., they decided not to seek any "reimbursement" form the borrower for this cost. They felt that one more fee was just adding to the list of too many nickel and dime fees. We barely got to the Section 8 concerns.

Thanks for all the input and the heads up on Section 8!

It doesn't matter, it would still have to be disclosed as a cost of the credit on the HUD-1 and the bank would have to be crediting the fee back to the customer on the HUD-1, if absorbing the cost.