Six federal agencies including the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau are currently collecting public comments on a proposed rule that sets minimum requirements for registering and supervising appraisal management companies (AMCs) for those states that establish programs for overseeing AMCs.
The rule would require all AMCs that operate in states that have supervisory programs to register in those states and to allow those states to have authority over their licensing. It would also require that lenders in those states use only state-certified or licensed appraisers for federally related transactions.
In addition, the state agencies would have the authority to approve or deny AMC registration applications and renewals. The state agencies would also have the authority to request documentation related to appraisals and to verify that the appraisers working on behalf of an AMC are state certified or licensed.
The state agencies would also have the authority to conduct investigations in AMC activities and to ‘discipline’ AMCs that violate appraisal-related laws. What's more, the state agencies would be required to report such violations – as well as any disciplinary actions – to the appraisal subcommittee of the Federal Financial Institutions Examination Council.Â
Although states would not be required under the rule to establish an AMC registration and supervision program – and there is no penalty for opting to forgo such a measure – it is expected that most states will want to establish such programs, once the new rule is in place. To date, 37 states have enacted registration requirements for AMCs.
In general, most appraisal management companies and valuations technology providers are in support of the proposed rule, as it will result in more accurate, more uniform appraisals, which will be a benefit to both consumers and lenders.
However, some question whether the proposed rule is necessary, and point out that it merely adds another layer of complexity to existing regulations related to the oversight of AMCs.
Still, most agree that the proposed rule will not result in any major changes in the way AMCs operate. Jim Wells, executive vice president for AMC Links, points out that it is ‘essentially a partial extension of rules and regulations that currently exist with most individual states.’
‘Individual state regulation of AMCs began in 2009 and most state laws reflect at a minimum the standards as prescribed by the Appraisal Institute's Appraisal Management Company Registration and Regulation Model Act published in November 2012,’ Wells says. ‘Since AMCs have already been operating for years under pervasive regulation, the proposed rule on minimum requirements should have no impact on the current policies and procedures of compliance conscious AMC's such as AMC Links.’
Wells adds that AMC Links was the first AMC in the nation to register under a state AMC registration and regulation act. ‘Utah was the first state with such regulation and AMC Links was registered as the first statutory appraisal management company in August 2009,’ he says.
Brad Froelich, chief appraiser for AMC USRES, says that while the proposed rule ‘has provided a precedent for AMC vendor selection, appraisal independence, AMC review/reporting and investigations of AMCs operations as they relate to appraisal-related laws,’ he agrees it won't have much of an impact on AMCs' oprerations.
‘The proposal at present does not indicate any new requirements not currently in place with existing state AMC regulations,’ he says.
However, Froelich says the section of the rule related to ‘customary and reasonable fees’ – and how the states will define those – is of some concern for AMCs.
‘The federal agencies and the CFPB stopped short of targeting specific floor fees based on product type, leaving states to determine how best to tackle 'customary and reasonable' fees,’ he says. ‘It is expected that this will be a major focal point at the state level, as appraisal organizations will lobby hard for fee surveys and state imposed compliance.’
Bill Rayburn, co-founder and CEO of appraisal technology and services provider FNC, says the new rule ‘standardizes – to a large degree – appraisal regulation across the U.S.’
‘Although it is administered at the state level, what it really does is put some standards in place across the country,’ Rayburn says, adding that the proposal has some similarities to the regulations that were born out of the Financial Institutions Reform, Recovery, and Enforcement Act. ‘You'll remember that those applied to federally related transactions – and the states then implemented the laws that licensed and certified appraisers – they just had to get it approved by the Appraisal Subcommittee of the Federal Financial Institutions Examination Council. So I think this is going to work in a very similar fashion.’
Rayburn says while the proposed regulation isn't a huge game-changer, ‘It's a big deal in that if an AMC is going to do an appraisal on a federally related transaction, then they are going to have to be registered in that state.’
Kevin Marshall, president of valuations solutions and services provider Clear Capital, says he is ‘encouraged to see steps towards a more uniform standard for AMC regulation in all states.’
‘While some details still require clarification, our perspective is that the sooner the industry can agree on the ground rules, the sooner that we all (lenders, AMCs and appraisers) can ensure our efforts are focused on supporting home buyers,’ Marshall says. ‘After all, we are all here to support the borrower in obtaining a healthy, high quality loan as they buy a home for their family. There has been so much volatility in the lending and valuation worlds, that the focus on the borrower got lost a bit.’
Of course, there remains a question as to how much these new rules will raise costs for AMCs – and what the impact will be on pricing for consumers. Some speculate that the new rule could raise licensing and registration fees so much that it will put some smaller AMCs out of business – or at least dissuade them from operating in certain states.
‘Complying with new regs will be challenging for smaller AMCs,’ says Phil Huff, CEO of Platinum Data Solutions. ‘It's an absolute must that they employ technology to assist their reviewers. The good news isÂ that the same technology in use by the larger AMCs is available to smaller ones, without large upfront capital investment.’
Rayburn agrees that larger AMCs will likely have an advanatge in that they have ‘more infrastructure in place for handling things like this.’ Plus most large firms are already registered in those states that have programs in place, he says.
Still, the new rules will provide ‘several consumer benefits,’ Rayburn says.
‘The appraiser had already been under the umbrella of state regulation,’ he explains ‘This just brings the AMCs under that same umbrella as appraiser independents. As a result, they will have to only select appraisers who are competent and qualified – and that's a good thing for consumers and a good thing for the industry.’