For the six government agencies (FDIC, Federal Reserve, OCC, CFPB, FHFA, NCUA) who banded together to issue the recent proposed set of rules for Appraisal Management Companies (AMCs) it’s report card time! (To see the full press release from the FDIC click here)
For the purpose of this report card we will use a standard grading system of A-F and explain our grading and point out additional, important questions the proposed rules raise that are as yet unanswered.
1) Register in the state and be subject to its supervision.
- This is a great start. We agree there needs to be more regulation and supervision. However, if the AMC is subject to the State registration and supervision, what agency and which people will be in charge of approving registration and handling supervision of the AMCs? How will the entire process work? We need more explanation, but overall this is a good start.
2) 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.
- Sounds good, but the last time we checked Appraisers already have to carry and maintain licenses. If they don’t, AMCs can’t use them even now since the lender would reject the appraisal. This rule is just repeating what is already in effect. So while it sounds important to the person with little or no knowledge about the appraisal profession, it changes nothing and is largely smoke and mirrors.
3) Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP).
- This is already in place as well and has been so for years. Do these agencies really think this is doing us or the real estate industry any good? Come on. We expect much, much more for our tax dollars!
4) Ensure selection of a competent and independent appraiser.
- Is there really any other reason for AMCs to even exist? Are there any lenders that would publicly admit they don’t want a competent and independent appraiser…even if they don’t? It’s almost embarrassing these agencies even wrote this down.
5) 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.
- Here we go again. See Nos. 2, 3, and 4, above. Is it really necessary to issue new rules saying you need to comply with existing rules that everyone already knows? It would be nice if this rule had some teeth and required AMCs to certify compliance with this rule on the part of their own AMC staff and the staff of the lender that ordered the appraisal.
The proposed rule also would require that the certifying and licensing agency of a participating state have certain authority, including the authority to:
6) Approve or deny initial AMC registration applications and applications for renewals;
- Doesn’t No. 1 already cover this? This could be good news if the agency responsible for approving or denying the AMC’s registration or renewal included input from appraisers in the evaluation process. We would like every appraiser on an AMC panel to have the ability to weigh in on AMC registration and/or renewal. Give appraisers a voice in which AMCs get approved in a state.
7) Examine the AMC and require the AMC to submit relevant information to the state;
- It’s great to hear AMCs will have an agency to report to. We hope this leads to better treatment of appraisers and ensures appraisers are paid in a timely manner for work completed. The state should mandate AMCs pay the appraiser for work performed within 21 days of completion or face penalties including late fees and fines which could go to a fund to cover appraisers if an AMC goes under owing a lot of money for completed appraisals. How about forcing AMCs to post a bond with the state to protect appraisers?
8) Verify that the appraisers on the AMC's appraiser network or panel hold valid state certifications or licenses;
- Seems pretty obvious, though there certainly are appraisers who have submitted forged licenses to AMCs and worked without being discovered for some period of time. Maybe it will be nice having the state double check that AMCs only use appraisers whose license status they have independently verified to ensure everyone is on a level playing field.
9) Conduct investigations of AMCs to assess potential violations of appraisal-related laws;
- Now we’re talking. It’s about time appraisers have a forum for filing complaints against AMCs that actually result in an agency investigation and penalties. The current system is simply too confusing and ineffective. These complaints should also be reported to the Appraisal Subcommittee and MIDEX so appraisers and lenders alike can avoid working with suspect AMCs.
10) Discipline an AMC that violates appraisal-related laws;
- This is simple. If you do the crime, you need to do the time. Let’s hope the punishment is strong enough to discourage AMCs from crossing the line. Maybe it should be a system of fines, license suspensions, or license revocations just like appraiser face.
11) Report an AMC's violation of appraisal-related laws, as well as disciplinary and enforcement actions, and other pertinent information about an AMC's operations to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.
- This only works if the reported information is made available to appraisers and lenders so they can avoid doing business with bad AMCs. Maybe there could even be an AMC do not use list?
OVERALL GRADE: C+
While the initial reaction to this proposal may be positive by both appraisers and the real estate community as a whole, it lacks any real details as presented. It is a step in the right direction and it is nice to know the federal government finally sees that there is an issue with AMC regulation. However, there is still much to do and many questions remain unanswered.
For example, there is nothing in the proposed rules that addresses the use and abuse of do not use lists. Currently, AMCs take these lists from lenders at face value and simply drop appraisers from the AMC panel when the appraiser’s name appears on even just one of these blacklists…and let’s be truthful, they are blacklists no matter what lenders call them. This must be addressed now more than ever before since Fannie Mae is now using an Appraiser Quality Monitoring (AQM) system to create what may be the granddaddy of all blacklists. Most appraisers view being blacklisted by Fannie Mae as the effective end of their appraisal career. We need an innocent until proven guilty system, the same one that our forefathers built this nation upon, not the other way around. An appraiser placed on one of these lists must have the ability to challenge their status by appealing to a neutral third party, not just to the lists’ creators. Maybe the same agency elected to oversee AMCs could serve this purpose.
All of this will clearly cost money. The proposal as written does not say who pays for this and we hope funding will come from the registration fees and fines collected by the given state in which an AMC operates. This would naturally result in an increase in AMC operating costs which in the past was funded by the AMC taking more of the appraisal fee and giving less to the appraiser. This means this proposal must also be modified to finally address usual, customary, and reasonable fees (UCRs) on a uniform basis as well as mandating disclosures to borrowers and lenders about what part of the appraisal fee the AMC gets and what the appraiser gets for each appraisal ordered.
We are reaching out to all of the agencies involved to get as many questions answered as possible, but they seem to have trouble returning phone calls so we want to hear what you think.
What are your thoughts on the proposed rules for AMCs? Let us know by leaving a comment below.