Saturday, December 16, 2017

Appraisal Management Companies in Regulatory Crosshairs

Posted by Tom April 9, 2014 2:59pm

Photo Credit: Gualberto107

The alphabet soup of regulatory agencies (OCC, FRB, FDIC, CFPB, FHFA and NCUA) have issued a set of rule proposals that would apply basic standards for state registration and supervision of appraisal management companies (AMCs). This new criteria would only be applicable to states that decide to create an appraiser certifying and licensing agency to register and supervise AMCs. While the proposed rule doesn’t require such an agency, and there’s no penalty in place for not doing so, we all know that the bureaucracy never met a new revenue stream that it didn’t like. As an “incentive” to the states to be persuaded to create such a supervising structure,  Appraisal Management Companies would be essentially prohibited by the Dodd Frank Act ( 1124 of FIRREA) from providing services for federally related transactions  (Freddie and Fannie, anyone?) in a state that hasn’t set up such a department. So its fair to say it’s a sure thing coming to a state near you.

Once the ruling goes into effect after commentary and amendment, the states that take up the regulatory banner would oblige that an Appraisal Management Company:

  • Register in the state and be subject to its supervision
  • Use only state-certified or licensed appraisers for federally related transactions, such as real estate-related financial transactions overseen by a federal financial institution regulatory agency that require appraiser services
  • Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice
  • Ensure selection of a competent and independent appraiser
  • Establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act
  • The proposal would provide a three-year period following the effective date of a final rule for states to implement the requirements. The 60-day comment period on the proposal will begin with its publication in the Federal Register, which is expected soon

<taken directly from the joint release>

States that elect to set up the new agency/registration process would have 36 months to put their house in order.  Any Appraisal Management Company  that is a subsidiary of a bank or related financial institution and  is regulated by  one of the agencies are going to have to adhere to the same requirements as any other  company, although (for now) they are not required to register….look for that  to change down the road.

On a related note, the FDIC and OCC are looking to eliminate any remaining appraisal regulations that were in use by the now defunct Office of Thrift Supervision (OTS), as they are now unnecessary.

Tom’s Comment:

When the joint appraisal guidance came out several years ago, many smaller (and some larger) community banks were hamstrung by the requirements, especially the independence and review criteria. The  AMCs  came about  to fill a much needed void, and in some respects, have performed the service for many admirably. However, since their fingers are now in the collective regulatory pie, it only stands to reason that they play on the same field as the banks who don’t elect to employ their services. The requirements appear reasonable, and most companies already use these practices. However- these companies will have to expect being examined by state and possibly federal regulatory agencies down the road, and  had better be prepared for that eventuality.  

The Federal Register notice link can be found here:

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