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Federal agencies issue final rule on standards for appraisal management companies By Marc Patterson and Richard J. Andreano, Jr. on May 6th, 2015 Posted in CFPB General, CFPB Rulemaking, Federal Agencies 9/14/2015 1:40:09 PM

The CFPB along with five other federal agencies have issued a final rule that establishes minimum state registration and substantive requirements for appraisal management companies (AMCs), as required by Section 1473 of the Dodd-Frank Act. AMCs that are a subsidiary of an insured depository institution and are federally regulated (federally regulated AMCs) are subject to the substantive requirements of the rule, but are not subject to state registration or supervision requirements. The final rule also requires states to report to the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examinations Council (FFIEC) information required by the ASC to administer the new national registry of the AMCs (AMC National Registry), which includes both state-registered AMCs and federally regulated AMCs. The other federal agencies issuing the rule are the federal banking agencies, the Federal Housing Finance Agency, and the National Credit Union Administration (NCUA).

As we previously reported, for purposes of the rule an AMC is an entity that provides appraisal management services in connection with consumer credit transactions secured by a consumer’s principal dwelling or securitizations of those transactions to creditors or to secondary mortgage participants. In particular, an AMC is a company that meets the statutory panel size threshold, which means a company that oversees an appraiser panel of more than 15 state-certified or licensed appraisers in a single state, or 25 or more state-certified or licensed appraisers in two or more states. An appraiser panel is defined as a network of licensed or certified appraisers approved by an AMC to perform appraisals as independent contractors (i.e., non-W2 employees) for the AMC. For the purposes of calculating the number of appraisers on an AMC’s appraiser panel, the count is based on the number of appraisers listed on the AMC’s roster who are potentially available to perform appraisals rather than the number of appraisers actually engaged to perform appraisals.

The minimum registration and substantive requirements established by the final rule apply to states that have elected to establish an appraiser certifying and licensing agency with authority to register and supervise AMCs that meet the standards. The rule does not preclude a state from establishing additional requirements for state-registered AMCs.

The final rule does not require that a state establish an AMC regulatory regime, but there is a significant negative consequence if a state elects not to adopt such a regime. If a state has not adopted a regulatory structure after 36 months from the effective date of this final rule, any non-federally regulated AMC would be prohibited from providing appraisal management services for federally-related mortgage transactions (i.e., credit transactions involving a federally regulated depository institution) in the state. Furthermore, the federal agencies and the ASC will not serve as a “back-up” regulator to register and supervise AMCs in non-participating states. Consequently, the only AMCs that would be able to provide appraisal management services for federally-related transactions in such states would be non-federally regulated AMCs that are below the statutory panel size and federally regulated AMCs. (For a state that does not meet the 36 month timeframe, there is a process for the ASC to delay the restriction on non-federally regulated AMCs for one year if the state has made substantial progress toward implementation of a compliant regulatory system.)

Even if the restriction on non-federally regulated AMCs is triggered in a state, the state may later lift the restriction by adopting a regulatory structure for AMCs at any point after the three year implementation period has passed.

Among the minimum requirements to be applied by states, the final rule requires participating states to ensure that AMCs: (1) register with or obtain a license from the state and be subject to regulatory supervision; (2) contract with or employ only state-certified or licensed appraisers for federally related transactions; (3) select appraisers who are independent of the transaction and who have the requisite education, expertise, and experience necessary to competently complete appraisal assignments for the particular market and property type; (4) require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP); and (5) establish policies and procedures to ensure compliance with the appraisal independence standards established under Truth in Lending Act.

An AMC that is a federally regulated AMC must comply with same minimum requirements as state-registered AMCs, but is not required to register with a state. A federally regulated AMC must also register with the AMC National Registry and report directly to the participating state or states in which it operates the information required by the ASC for the AMC National Registry.

Consistent with the proposed rule, the final rule does not require any additional federal registration fees to be paid in connection with registration on the AMC National Registry. According to the preamble, the final rule governs how to calculate the number of appraisers on a panel only for the purposes of determining whether an entity is an AMC subject to the AMC minimum requirements, not for the purpose of determining the annual AMC National Registry fee. Pursuant to the Dodd-Frank Act, it is the ASC, and not the federal agencies, that is responsible for establishing any potential AMC National Registry fee.

In addition, the CFPB believes that the rule does not impose requirements on AMCs (other than federally regulated AMCs), but merely encourages states to adopt the minimum registration and substantive requirements for AMCs. According to the CFPB in the preamble, “the final rule is not prescriptive as to how or when the states must exercise the authority or mechanisms. Exercise of such authority and mechanisms is determined at the discretion of the states, subject to monitoring by the ASC for effectiveness in the judgment or discretion of the ASC.” Thus, it appears that the CFPB’s position is that any fees that are charged to AMCs are attributable to states exercising their implementation authority and/or ASC oversight expectations rather than to the final rule itself.

Note that the AMC minimum standards do not affect the responsibilities of banks, federal savings associations, state savings associations, bank holding companies, and credit unions for compliance with applicable regulations and guidance concerning appraisals. An institution that engages a third party, such as an AMC, to administer any part of the institution’s appraisal program remains responsible for compliance with applicable laws concerning appraisers and appraisals.

As of November 2014, 38 states have passed an AMC licensing and registration law. Thus, with the issuance of the final rule, the federal agencies are stepping up the pressure on the remaining states to adopt a regulatory structure for AMCs.

The final rule will become effective 60 days after publication in the Federal Register. Federally regulated AMCs must comply with the substantive requirements of the rule no later than 12 months from the effective date of the final rule. Participating states will specify the compliance deadline for state-regulated AMCs. Publication of the final rule is expected shortly.

The Importance of Using Competent Appraisal Management Services 9/1/2015 10:09:32 AM

Property lenders, brokers, and buyers in the real estate business cannot manage without the services of qualified appraisal management services in their areas. Appraisers consider a number of factors, such as the condition and age of a property, market conditions as well as local infrastructure or changes in zoning rules to determine the value of a property. You need to make certain that you obtain accurate appraisals on all real estate properties that you have a stake in so that you manage your risks. In the current economic situation, it is imperative that you protect yourself from the risk of loss.

As a rule, you should only work with appraisal management companies that are reliable and competent. In addition to that, a professional appraisal company should offer you its services at a reasonable cost; a cost that is justified by the value that you receive. Appraisers typically oversee the entire process, all the way from the initial bid for the property. They also handle the technical appraisal reviews and will provide you with the final results when the process comes to an end.

It is advisable to work with a company that has been in business for a long time; such a company is most likely to offer the best quality of appraisal services. Reputable companies work hard to build a good name in the market; therefore, they will do their level best to offer you the best service in order to maintain a good relationship with the market. You can check with the Better Business Bureau and find out if previous clients have made any complaints about the appraisal company. As a note, you should also verify that the appraisers you are considering have been issued with a license from the state the property in question is located in.

A professional appraisal company will typically hire a competent team of well trained appraisers. This will ensure that they provide appraisal services that are not just accurate, but are also legal and above board. Naturally, cost is a major consideration to make when choosing the most suitable appraisal service. You can search the Internet for appraisal companies in your area and, thereafter, read through their websites to determine if they offer the services that you require and the cost at which they offer those services. The question is not how cheap the appraisal services are; the question is whether the quality of service that they provide justifies the cost. If it does, then you should make the investment.

Another good source of information on appraisal services is referrals from individuals who have received these services in the past. You can obtain recommendations from former business associates, colleagues or even friends and family who have used appraisers to obtain the correct valuations of their properties. It is always a good idea to get an independent third party to perform property appraisal, as opposed to using someone volunteered by the other party in the transaction. Moreover you want to pay more only if it means obtaining trustworthy results.