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Lenders must adhere to constantly changing federal- and state-based regulations in addition to the Consumer Financial Protection Bureau’s (CFPB) rules and Dodd-Frank Act. Depending on how lenders choose to manage their appraisal process even more burden can exist from a monitoring and compliance standpoint. There are several ways to do this which include handling the process manually, using an Appraisal Management Company (AMC), an agent of the lender, or using an appraisal management technology platform. Because of the complexity, human resources and cost, many lenders elect to engage with AMCs who own and manage the bulk of what’s become a compliance-intensive and highly involved appraisal management process.
AMCs are also faced with significant challenges to keep up with rules and regulations. Currently, 38 U.S. states have already enacted AMC legislation, and with the remaining pending and the federal minimum standards being delivered on Feb. 18, 2014, it is clear that more change is on the horizon. This means in the very near future there will be 50 separate state regulations and 50 chances to miss a unique provision and be held at the mercy of the regulators. It is imperative that AMCs servicing lenders stay on top of changes in every state to ensure compliance and avoid penalties. Manually attempting to monitor and interpret every state regulation to ensure compliance is an onerous proposition with serious ramifications if something is overlooked. For example, some states require AMCs to disclose their fees, or review a certain percentage of the appraisals, while others require their license number be on the appraisal assignment form. With so many particulars, it is easy to see how a rule could be missed and create exposure for their lender clients.
Ultimately, compliance violations fall back on the lender, so it’s important for lenders to be proactive in their due diligence process and ask the right questions.
►Did my AMC provide their state license number and registration?
►How is my AMC monitoring legislation?
►Are they bonded?
It is critical that both lenders and AMCs keep abreast of changes in state regulations to be compliant. So, how can lenders and AMCs successfully accomplish this without additional staff? Technology is the best answer. Having a comprehensive and searchable AMC regulation database that contains all the current legislation and automatically notifies users of updates provides an elegant and cost effective solution. Empowered with such tools lenders are able to ask the right questions no matter where they lend and ensure compliance. Most AMCs do use varying degrees of technology to manage the intricacies of the appraisal process and the rules for states they are licensed in. Not all valuation management platforms are created equal, especially regarding compliance. Enterprise level valuation management platforms enforce state regulations as part of the platform and often include searchable AMC regulation databases to educate staff and facilitate compliance. To best serve clients, AMCs should use an all-in-one, centralized platform that is proven to effectively automate functions from order to delivery and provide essential reporting needs to satisfy compliance audits. Lenders should only engage with AMCs that utilize technology to automate the entire valuation management process from soup-to-nuts. Online tools exist to match lenders with AMCs that utilize enterprise level technology to support compliance.
There are standalone solutions and services available for monitoring these state-by-state changes to laws and regulations for the AMC. These database solutions are a powerful combination of dedicated researches and lawyers engaged to monitor, interpret and summarize these regulations to make them actionable and facilitate compliance. These standalone solutions are ideal for lenders that want to monitor regulation and vet their AMCs as part of their due diligence process. Gone are the days when lenders had the luxury to ignore the potential risk of their third-party vendors.
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 February 2014 print edition of National Mortgage Professional Magazine.