More Mortgage Regulation This Time Appraisal Mgmt Companies

A few years back regulators crushed the appraiser that had spent years developing working relationships with mortgage brokers when they implemented the Appraisal Management Company in which all mortgage originators must order their appraisals.

Instead of putting the Too Big Too Fail Banks and their crooked appraisers, more of a few bad apples can spoil the bunch. It was deemed that mortgage originators could no loner select the best appraiser for their mortgage client. But must instead order it through an appraisal management company that in many cases subs the appraisal out to the lowest bidder. As you can imagine the lowest bidder is typically not the most quailified appraiser to do the mortgage appraisal.

Beleive me you could write a novel longer than “War & Peace’ of absouletly terrible appraisals done for borrowers seeking a mortgage. Well I guess enough people have complained so now Appraisal Management Companies will have to come under some regualtion themselves.

As you can imagine it has casued quite an uproar in the industry. Too be honest I feel more regulation for regulations sake will just drive up cost to consumers seeking a mortgage.

Rob Chrisman has a great piece in his newsletter about it:

There has been a lot of appraisal news in recent weeks, the most important perhaps being that six government agencies issued a proposed rule that would implement minimum requirements for state registration and supervision of appraisal management companies (AMCs). Just so we’re clear, an AMC is an entity that serves as an intermediary between appraisers and lenders and provides appraisal management services. In accordance with section 1124 of Title XI of the Financial Institution Reform, Recovery, and Enforcement Act of 1989, as added by section 1473 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the minimum requirements in the proposed rule would apply to states that elect to establish an appraiser certifying and licensing agency with the authority to register and supervise AMCs.

The proposed rule would not compel a state to establish an AMC registration and supervision program, and there is no penalty imposed on a state that does not establish a regulatory structure for AMCs. However, an AMC is barred by Section 1124 from providing appraisal management services for federally related transactions in a state that has not established such a regulatory structure. Under the proposed rule, participating states would require that an AMC 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, and so on – over a dozen more requirements.

The proposed rule would provide participating states 36 months after its effective date to implement the minimum requirements. It certainly has some heavy-weight backers: the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA), and the National Credit Union Administration (NCUA). The public will have 60 days to review and comment on the proposal. Publication of the proposal in the Federal Register is expected shortly, but for more visit AMCChanges.

Mike Ousley with Direct Valuation Solutions writes, “In the original Dodd-Frank Act there were provisions that generally followed the new proposed rule for participating states to register AMCs, however, it was generally perceived that the states had 36 months to establish a supervision program that would comply with Dodd-Frank.  What’s interesting about this proposed rule is the following: ‘The proposed rule would not compel a state to establish an AMC registration and supervision program, and there is no penalty imposed on a state that does not establish a regulatory structure for AMCs. However, an AMC is barred by section 1124 from providing appraisal management services for federally related transactions in a state that has not established such a regulatory structure.’ One could theorize that certain state appraisal regulatory agencies, many that are run by independent appraisers upset that AMCs even exist, would push to have their state opt out of AMC regulation and supervision, thus barring AMCs from all federally related transactions within their state. Lenders active in those states that had relied upon AMCs to manage the appraisal assignment and management process would then be forced to either establish an affiliate AMC and deal with the CFPB rules on affiliate charges as related to qualified mortgages and the 3% points and fees calculation, or contract directly with appraisers within those states by utilizing a platform such as Direct Valuation Solutions to assign, track and deliver appraisals for federally related transactions. The AMCs that fought the original registration and supervision by states may now be forced to actually embrace and push for more state level oversight of their activities in order to not get left out entirely.”

Mike Simmons with Axis Appraisal Management wrote, “Kudos for noting one of the standout provisions that allows states, without penalty, to opt out of establishing an AMC registration and supervision program. What’s noteworthy is that while those states that elect that path won’t be penalized, their citizenry will. Since AMC’s will be proscribed under Section 1124 from providing management services, borrowers will either be limited in their choices of loans and lenders, or face increase costs from having a shorter list of lenders invest in building and managing their own panels in what will be a small number of states. Since there are 38 states that currently have AMC laws, perhaps this an elliptical way for the rule to encourage 100% participation? Given the fact that states benefit financially from the fees levied on AMC’s for maintaining such oversight, and that they can and often do impose higher standards versus the new federal rule, we’d be surprised at less than full participation. For those of us who truly embody service in this era of increased regulation, the contribution we add to lenders, appraisers, consumers and their communities is both significant and valuable.”

And Brian Coester of Coester Valuation Management volunteered, “This is a proposed rule and needs to go through some major commentary and feedback. There needs to be national standards for AMCs that are consistent, and in the national markets and overall mortgage market’s best interests. There are so many regulations that are for AMCs, appraisers, and ultimately for the borrower that AMCs should be able to act as an AMC in federal transactions and in states that don’t have laws and regulations. It would cause too many disruptions to the already fragile market right now for people to have to go through another major process switch and many large lenders wouldn’t be able to move on this in time. I really do think that regulators need to make the rules consistent across the board for anyone who’s managing a group of appraisers in a state for a loan to a consumer regardless if it’s an AMC or a lender managing the process in house.”

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