Minimum Requirements for AMCs

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Minimum Requirements for AMCs

Proposed Federal Regulation of Appraisal Management Companies (Minimum Requirements for AMCs)

I hear a lot from appraisers concerning their interactions with various appraisal management companies (AMCs). Many keep wondering why appraisers are licensed and strictly regulated while it seems that AMCs for the most part have been left to do whatever they want. That was the case for a while; today the majority of states have already imposed regulations on AMCs. Currently, as part of the Dodd-Frank Act, a group of agencies are working together to set federal guidelines for AMCs. They are looking for feedback on these proposals and they seriously consider all the feedback they receive. Below is a summary of the proposed minimum requirements written by Neil Olson, FNC’s General Counsel, outlining what’s being planned for the new regulations. Read through this outline and then take a look at the proposed regulations by following the link below. If you want the agencies to hear your thoughts on AMC regulation, now is your chance to be heard.

On March 24, 2014, the federal financial institution regulators along with the FHFA and CFPB issued a proposed regulation entitled Minimum Requirements for Appraisal Management Companies.

These proposed regulations arise from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act, section 1473), which called for the establishing of minimum requirements for appraisal management companies.

The proposed regulations follow the statute very closely. As a result the minimum requirements in the proposed regulation are nearly identical to those in the Dodd-Frank Act itself.

You may find a copy of the minimum requirements proposed regulations here

This is a proposed regulation, not a final regulation.

Simply put, this regulation is not in effect yet. Additionally, the language in this proposed regulation may change before it is finally adopted.  There is a 60-day comment period that ends on June 9, 2014. The current estimate is that these rules will not be final until near the end of 2014.

The real deadline

As of now, 14 states do not have AMC statutes and regulations. The real deadline for the actual implementation of any AMC regulation by the states is 36 months after these regulations are adopted as final. Today, AMCs are free to operate in any of the 14 states without being regulated.

A state is not required to enact any AMC statute or regulation, but if it does not do so by the deadline, then an AMC may not operate in that state. (The exception would be “federally regulated AMCs”, those which are “owned and controlled by an insured depository institution” and are federally regulated. They are not required to be registered in a state.)

What is an AMC?

This is the proposed definition of an AMC (which is nearly identical to the definition in the Dodd-Frank Act). To make sense of the definition, it needs to be read in combination with the definition of “appraisal management services,” which is also shown below.

What is important about the definition are these points:

  • Under these regulations, an AMC provides services to “creditors” or “secondary mortgage market participants” and only for mortgages on single family (probably 1-4 unit) owner-occupied dwellings. For example, this does not include commercial transactions. It is also limited to those whose panels are of a specific size.
  • These are the federal minimum requirements. A state may cover more types of property or have different standards.
  • These provisions are not the same, but similar to what the states have enacted today, although many states have broader definitions.
  • The regulators have said that the definition of an AMC does not cover “appraisal companies” (also known sometimes as appraisal firms) which are companies that perform appraisal services for clients (you might say, perform appraisals in their own name). Some states have taken a broader view and do regulate appraisal firms.
    1. (c)(1) Appraisal management company (AMC) means a person or entity that:
      1. Provides appraisal management services to creditors or to secondary mortgage market participants, including affiliates;
      2. Provides such services in connection with valuing a consumer’s principal dwelling as security for a consumer credit transaction or incorporating such transactions into securitizations; and
      3. Within a given year, oversees an appraiser panel of more than 15 state-certified or state-licensed appraisers in a state or 25 or more state-certified or state-licensed appraisers in two or more states, as described in § 34.212 of this subpart;
    2. (2) An AMC does not include a department or division of an entity that provides appraisal management services only to that entity.
  • The definition of “appraisal management services” is fairly typical and also follows the Dodd-Frank definition. These are the typical services involved in acting on behalf of a lender in procuring appraisal services.
    • (d) Appraisal management services means one or more of the following:
      1. Recruiting, selecting, and retaining appraisers;
      2. Contracting with state-certified or state-licensed appraisers to perform appraisal assignments;
      3. Managing the process of having an appraisal performed, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and secondary market participants, collecting fees from creditors and secondary market participants for services provided, and paying appraisers for services performed; and
      4. Reviewing and verifying the work of appraisers.
What are the general requirements with respect to AMCs?

The proposed regulations follow the Dodd-Frank Act provisions fairly closely. There are no surprises in what you will see in the regulations. With respect to AMCs that are not affiliated with federally regulated institutions, here are the basic duties and responsibilities. Federally regulated AMCs need to comply with these same provisions under the AMC regulations, but do not need to register with the states, since they are governed by federal oversight instead.

(b) Impose requirements on AMCs that are not owned and controlled by an insured depository institution, an insured credit union, and not regulated by a federal financial institution’s regulatory agency to:

(1)   Register with and be subject to supervision by the state appraiser certifying and licensing agency;

(2)   Use only state-certified or state-licensed appraisers for federally related transactions in conformity with any federally related transaction regulations;

(3)   Establish and comply with processes and controls reasonably designed to ensure that the AMC, in engaging an appraiser, selects an appraiser who is independent of the transaction and who has the requisite education, expertise, and experience necessary to competently complete the appraisal assignment for the particular market and property type;

(4)   Direct the appraiser to perform the assignment in accordance with USPAP; and

(5)   Establish and comply with processes and controls reasonably designed to ensure that the AMC conducts its appraisal management services in accordance with the requirements of section 129E(a)-(i) of the Truth in Lending Act, 15 U.S.C. 1639e(a)-(i), and regulations thereunder.

Item (5) may seem unusual, but the provisions of section 129E(a)-(i) of the Truth in Lending Act and Regulation Z are also very familiar since they were not only included in the Dodd-Frank Act, but were the subject of the Interim Final Regulations issued by the Federal Reserve on those very points.

You can find those provisions here:

As a quick rundown, the topics include

  • 129E(a) – (c) Appraisal independence

    ‘‘(a) IN GENERAL.—It shall be unlawful, in extending creditor in providing any services for a consumer credit transaction secured by the principal dwelling of the consumer, to engage in any act or practice that violates appraisal independence as described in or pursuant to regulations prescribed under this section.

  • 129E(d) – No conflicts of interest
  • 129E(e) – Mandatory reporting
  • 129E(f) – No extension of credit (if you know there has been a violation of appraisal independence)
  • 129E(g) – Issuance of rules and regulations [this became the Interim Final Regulations]
  • 129E(h) – Appraisal report portability
  • 129E(i) – Customary and reasonable fees

From this discussion you can see that the new AMC regulations don’t seem to contain any big surprises. They basically conform to the Dodd-Frank definitions. If you are interested in making a comment, all the information you need to do so is spelled out in the beginning of the Minimum Requirements for Appraisal Management Companies document (see PDF document below). If you scroll down in the document, you’ll find many questions seeking comments. Remember, the deadline for comments is June 9, 2014.

Steve Costello

By Steve Costello, a Relationship Manager at FNC working directly with the appraisal community since 1986. When not in the office, Steve can be found riding off-road motorcycles and doing home improvement projects. Steve can be reached on LinkedIn or Twitter. ~ Source AppraisalPort

 

Image credit flickr - Alan Levine
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