How appraiser independence turns creditors into cops

Deep inside every bit of Dodd-Frank there seems to be an embedded piece of ironic contradiction. For example, the Dodd-Frank Act amended the Truth in Lending Act to ensure arms-length transactions in the appraisal process. Now, as a result of recent Federal Reserve revisions to Regulation Z which implements the TILA, the Office of Thrift Supervision revised its examination procedures. The OTS often comes up in the list of bad guys; regulators asleep at the wheel while the big mortgage finance firms motored the economy off a very large cliff. Keeping that in mind, it is somewhat surprising that the OTS revisions to TILA now include a directive to creditors to file reports with appropriate state licensing authorities when it suspects an appraisal coercion or conflict of interest. Come again? Not only is the OTS putting the power of enforcement into the hands of the separate states, which may be a great idea, but it also requires creditors to snitch on bad appraisers. And it’s ironic that this self-policing attitude would rear its head in one space that proved incapable of self-policing. Furthermore, it prohibits a creditor from extending credit, if it knows, before consummation, of coercion or a conflict of interest. So, if a creditor suspects a conflict, it can not lend and must report the incident to ensure the violators are brought to justice. Sorry, but that sounds like the job of a regulator. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.