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Louisiana Appraisal Board: Anti-Competitive?
By Isaac Peck, Editor
On Wednesday, May 31st, the Federal Trade Commission (FTC) filed a complaint against the Louisiana Real Estate Appraisers Board (LREAB), alleging that the Board is in violation of antitrust laws by attempting to restrain “price competition for appraisal services in Louisiana.”
Working RE has previously reported on LREAB’s actions to enforce a mandate that customary and reasonable (C&R) fees must be paid to appraisers, first in an enforcement order with Coester VMS (See First Enforcement of C&R Fee Provision: Louisiana Makes History), and again in a case involving iMortgage in late 2015 (See AMC Fined Over C&R Fees).
The FTC specifically cites LREAB’s enforcement actions against Coester and iMortgage in its complaint and argues that such actions unreasonably restrain competition and harm consumers by raising “prices paid by AMCs for appraisal services in Louisiana above competitive levels.”
Many appraisers and insiders at appraisal management companies (AMCs) aptly predicted this showdown between the FTC and appraisal boards. In 2015, when Coester VMS was facing a license denial in Virginia, Coester sued the Virginia Appraiser Board and argued that the Board’s licensing process was a “sham” and the Board was and engaged in anti-competitive behavior, making the argument that appraisers are competitors to AMCs and therefore they should not be in a position to regulate their competitors.
Even before Coester’s lawsuit in Virginia or LREABs actions on C&R fees, as AMCs have increasingly found themselves the subject of appraisal board investigations, sanctions, or fines, a growing chorus of AMCs have been quietly advancing the argument that independent appraisal boards, by their very nature and composition, are engaging in anti-competitive, anti-fair trade, and unconstitutional behavior as it relates to regulating AMCs.
The FTC complaint levels two main charges against LREAB. First, the FTC alleges that LREAB’s C&R fee provisions exceed the scope of Dodd-Frank’s federal mandate because it requires that appraisal fees be “equal or exceed the median fees identified in survey reports commissioned and published by the board.”
In plain English, the FTC is accusing LREAB of price fixing.
The FTC writes that under the regulations established by LREAB, AMCs must compensate appraisers at a rate determined by one of three methods:
(1) an AMC may use a survey of fees recently paid by lenders in the relevant geographic area;
(2) an AMC may use a fee schedule established by the Board; or
(3) an AMC may identify recently paid fees and adjust this base rate using six specified factors.
The FTC argues that by requiring one of these three methods, the Board “prevents AMCs and appraisers from arriving at appraisal fees through bona fide negotiation and through the operation of the free market.” This is a curious charge, since the LREAB C&R fee provisions in many ways mirror Dodd-Frank’s C&R fee mandate, with the caveat that LREAB commissioned its own fee survey in 2013 and uses it as a standard for Option #2.
Furthermore, the FTC argues that LREAB’s enforcement of its C&R fee laws has been detrimental to price competition, and that the effect of such enforcement actions has been to force AMCs to pay fees outlined by the fee survey commissioned by the Board and conducted by the Southeastern Louisiana University Business Research Center (SLU Center). The FTC’s complaint suggests that instead of encouraging compliance through other means, LREAB improperly enforced the payment of fees at or above the fees outlined in the SLU Center survey.
Second, the FTC’s complaint also takes issue with the fact that LREAB is “controlled by licensed real estate appraisers” and has primarily appraisers on its board. “Through the promulgation of its regulation and through its investigative and enforcement actions, the Board—controlled at all relevant times by active market participants—has harmed competition through its regulation of fees paid by AMCs for appraisal services,” writes the FTC.
The FTC suggests that actions taken by LREAB with respect to fees are anti-competitive because “appraiser members are licensed by the Board and have private interests in the Board’s acts and practices.”
Lastly, the FTC writes that “Dodd-Frank includes a provision known as an “antitrust savings clause.” Dodd Frank provides that ‘[n]othing in this Act … shall be construed to modify, impair, or supersede the operation of any of the antitrust laws.’ In other words, Congress specifically directed that Dodd-Frank was not intended to displace generally applicable antitrust principles, including the prohibition on unreasonable agreements in restraint of trade.”
While the FTC is contending that LREAB is going beyond Dodd-Frank, this statement suggests that even if LREAB demonstrated it was following Dodd-Frank to the letter of the law, the FTC’s position suggests that this particular portion of Dodd-Frank (C&R Fees) is unenforceable as implemented by LREAB because it violates antitrust laws.
In its formal response to the FTC’s complaint, Bruce Unangst, Executive Director of LREAB, argues that the FTC’s claims are “legally faulty and factually incorrect” and reports that LREAB intends to “vigorously contest these charges and defend the interests of Louisiana consumers while ensuring our state complies with federal appraisal independence regulations.”
LREAB also pushes back strongly against the notion that it is engaged in “price fixing” or mandating that only the fees in the SLU Center fee survey are accepted as C&R. LREAB’s formal statement indicates: “A fee study is just one way to show that appraisal fees meet a federal regulatory ‘presumption of compliance’ with the customary and reasonable standard. LREAB regulations expressly allow use of other approaches to demonstrate compliance as well.”
Unangst argues that the FTC is “seeking to punish a Louisiana state agency for following federal regulatory mandates. Specifically, Dodd-Frank regulations…It is the federal government that put these requirements on state appraisal agencies, and our Board followed these federal regulations after an open, public and transparent rulemaking process. To now suggest that LREAB’s good faith efforts to comply with federal law is some sort of shadowy price-fixing conspiracy is ludicrous. Congress and six financial regulatory agencies in Washington have directed Louisiana to do exactly what the FTC is now alleging is an antitrust violation,” says Unangst.
Stephen Cannon, Chairman of Constantine Cannon LLP, LREAB’s counsel, writes that the FTC’s actions is an overreach and “in direct contradiction to the federal government’s focused and consistent efforts since the 1980s to ensure the integrity of the residential mortgage market. With this misguided attempt at antitrust enforcement, the Commission has placed both federal and state efforts to protect consumers from unsound mortgages in serious jeopardy. I have no doubt a judge will agree that the Board’s actions to protect Louisiana consumers were appropriate and justified,” says Cannon.
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Expressing his exasperation about what some might see as a direct contradiction between different federal agency mandates, Unangst tells Working RE: “Only in Washington can one federal entity (Congress) mandate by law and through subsequent federal rules that each state board must regulate customary & reasonable fees, and a second federal agency (FTC) allege that we are violating the law by doing so, and a third federal entity (Appraisal Subcommittee) be directed to punish states who do not have enforcement in place by August of next year! Go figure,” Unangst says.
Former iMortgage Executives Weigh In
In an emailed statement, Dean Kelker, former Chief Risk Officer of iMortgage Services, and Gerry Simon, former General Counsel of iMortgage Services, both of whom attended to Louisiana Board hearing in the iMortgage case, shared their thoughts on the FTC complain.
Both Kelker and Simon make clear that their comments do not reflect the opinions or positions of any of their past or current employers. Kelker and Simon stressed that the case is not over, and that if LREAB decides to litigate this case, it will go to trial in front of an Administrative Law Judge, and even that decision may be appealed by the losing party.
When asked whether iMortgage or REVAA is the party that originally referred this issue to the FTC, Kelker and Simon vehemently deny it. “iMortgage Services played absolutely no role in the initiation of the FTC’s investigation in this matter. As a member of the REVAA board, I can unequivocally state that REVAA had no part in initiating this investigation either. The issue caught the attention of the FTC through their own, internal monitoring processes. I was contacted by the FTC and was required to provide information to them relevant to our case. This was done through our local counsel in Louisiana,” Kelker and Simon state.
After the LREAB hearing on the charges against iMortgage, iMortgage paid the fine in timely fashion, according to Kelker and Simon. “LREAB also required iMortgage to submit a pricing plan that was satisfactory to the board. iMortgage initially provided a market driven pricing proposal to the board, which was rejected. We then provided a second plan based purely upon the appraisal fee survey commissioned by LREAB, which was promptly approved,” report Kelker and Simon.
Echoing what is perhaps a view shared by other AMCs, Kelker and Simon indicate that “Historically, government price controls that establish floors and ceilings have proven to be ineffective. They typically create artificial shortages and ultimately, adversely impact consumers by creating reduced choices and increased costs. AMC’s may be more effectively regulated by each state’s department of banking. This would serve to avoid any potential inherent conflicts. We have no objection to objective AMC oversight,” say Kelker and Simon.
When asked if this latest move by the FTC is good for appraisers, they responded: “The FTC action will likely be viewed negatively by most appraisers. Their pricing will be driven by market competition. Consumers will benefit from the market driven model.”
When iMortgage was fined by LREAB back in 2015, one of the appraisals found in violation of Louisiana’s C&R fee provision was a 1004 FHA appraisal with Market Conditions addendum where the appraiser was paid $250 (iMortgage received $465).
Update: Stay tuned for an in-depth update on this story next Wednesday, June 7th.
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About the Author
Isaac Peck is the Editor of Working RE magazine and the Director of Marketing at OREP.org, a leading provider of E&O insurance for real estate appraisers, inspectors and other real estate professionals in 50 states. He received his Master’s Degree in Accounting at San Diego State University. He can be contacted at Isaac@orep.org or (888) 347-5273.
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