A new regulation is slated to be implemented on appraisal management companies (AMCs) would be subject if, in a given year, it 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.
The 2010 Dodd-Frank Act required bank regulators to establish minimum standards for state-led regulation of AMCs hired by lenders to manage the appraisal process. As a result, most states have already passed or proposed model legislation regarding AMC registration and regulation. On March 24, 2014, the Consumer Financial Protection Bureau (CFPB) along with five other federal agencies issued a joint Proposed Rule regarding AMCs as required by Section 1473 of the Dodd-Frank Act.
Those five federal agencies include:
1. Office of the Comptroller of the Currency (OCC)
2. Board of Governors of the Federal Reserve System
3. Federal Deposit Insurance Corporation (FDIC)
4. Federal Housing Finance Agency (FHFA)
5. National Credit Union Administration (NCUA)
Under the Proposed Rule states would need to require that an AMC:
►Register with or obtain a license from the state and be subject to regulatory supervision
►Contract with or employ only state-certified or licensed appraisers for federally-related transactions
►Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP)
►Establish policies and procedures to ensure compliance with the appraisal independence standards established under the Truth-in-Lending Act (TILA)
Additionally, the state regulator for the AMCs would need to have the power to:
►Approve or deny AMC registration applications
►Examine AMC books and records
►Verify that AMC appraisers hold valid state certifications or licenses
►Conduct investigations, discipline AMCs for non-compliance with related laws, and report violations to the Appraisal Subcommittee (ASC).
The potential consequences of this legislation are significant. States already impose fees for AMC registration, and with additional requirements, the cost to AMCs could rise considerably. Some states charge as high as $5,000 annually for AMC registration, plus bonding fees. The annual expense for national AMCs could escalate to hundreds of thousands of dollars. Furthermore, the ASC retains the ability to impose additional registration fees at a later date. Many smaller AMCs will struggle with this barrier to entry, reducing competition and forcing the consumer to pay more for appraisal reports.
Moreover, the Proposed Rule does not require states to adopt a regulatory structure for AMC registration and supervision, and it should. There is no penalty imposed on a state that doesn’t establish a regulatory structure for AMCs. Consequently, if a state doesn’t adopt it, the AMC is barred by Section 1124 from providing services for federally-related transactions in that state. This Proposed Rule could literally close the doors of many AMCs nationally over the next 36 months. Additionally, an AMC that is a subsidiary of a financial institution and regulated by a federal financial institution regulatory agency is not required to register with a state. The intent is clearly designed to reduce redundancy, but ultimately, creates an unfair competitive advantage for lender-owned AMCs, resulting in higher cost for consumers.
I strongly encourage you to voice your opinion on this matter. To comment, log on to www.regulations.gov and search for “Docket ID OCC-2014-0002.”
More information can be found online at: www.fhfa.gov/webfiles/26123/FinalAMCrulewithoutsignatures.pdf.
Vladimir Bien-Aime’ is president and chief executive officer of Global DMS. Since co-founding Global DMS in 1999, Bien-Aime’ has grown the company to capture a leading share of the appraisal management segment, with a client base of over 20,000 unique users and a 100 percent retention rate among lender clients. He may be reached by phone at (877) 866-2747 or visit www.globaldms.com.
This article originally appeared in the April 2104 issue of National Mortgage Professional Magazine.