TheMReport — News and strategies for the evolving mortgage marketplace.
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28 | TH E M R EP O RT FEATURE percentage—typically, 5 percent. For new home or condominium construction, the written engagement letter will usually call for one comparable sale from a com- peting builder or project. Overall, appraiser selection will be based on quality of expected work prod- uct, experience, the given property type and scope of work, required certification, geographic competency, and availability. Certain situations, like vacant land or high-value homes, will likely employ ap- praisers with specialized knowledge and experience. Independence is compromised when the borrower recommends an appraiser; the loan production staff selects the appraiser; or the mortgage broker has a role in selecting, retaining, or compensat - ing the appraiser. Post-delivery Requests T his is an area that can be problematic unless, guided by systems and com- mon sense, appraisers respect the principle of independence. Certainly, correction requests are acceptable when they are objective, factual items that are in error in the appraisal report. Examples include such items as GLA measurements, informa - tion about remodeling or other property updates, failure to list amenities, or site-specific data like property elevations. Also, "subjective" infor- mation may be subject to challenge due to inadequate ad- justments or comparables. For example, an appraisal report might be questioned if the comparable properties all adjust in one direction. It's better to see a mix of properties with sales that adjust both up and down to help ensure that the data isn't biased. Similarly, appraisal independence doesn't mean that the lender's appraisal review department can't ask for a recon - sideration of value. When doing so, the lender should provide, with explanation, up to three recent sales located in the subject market. In general, any commentary between the lender and the appraisal function must avoid insulting or derogatory language; specific "target" values for the property as a whole or any requested areas of adjustment; and any language that violates the Fair Lending Act. Similarly, Dodd-Frank and other regulations do not preclude a real estate agent from communicating with ap- praisers during the appraisal process. Examples might include the real estate agent letting the appraiser know about a recent sale in the market, updating in - formation about property improvements, or correcting what is believed to be an error in the appraisal report. AMC Vetting and Selection T oday, appraisal management companies are important strategic partners of lenders with respect to overall regulatory compliance, includ - ing appraisal independence. Best practices in AMC vetting and selection include the following: The AMC team and scope of coverage. How long has the AMC been handling appraisal management and what are typical annual volumes? Does the AMC have a strong management team in place to supervise production and compliance? Is the AMC licensed in all states that require AMC licensure or must they contract out to larger AMCs to fill voids in certain states? Working with appraisers. Will the AMC's active panel of appraisers handle most assignments? Is the appraiser supported in following professional stan - dards? Does the AMC pay appraisers in a timely and fair manner, which includes reviewing customary and reasonable fees for any given state? IT and systems integration. Does the AMC have state-of-the-art information technology, including necessary data se- curity and backup and disaster response systems and protocols? What is the Progression of Appraiser- and AMC- Related Regulation. March 2008 Home Valuation Code of Conduct Imposed new standards and scrutiny over all parties involved in the appraisal process. July 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173) Set guidelines for supervision of third-party providers of appraisal management services; appraisal management company minimal requirements, including the sub-group of appraisal management companies that are subsidiar- ies of federally regulated financial institutions; and state appraiser certifying and licensing agency authority. De- fined an appraisal management company. (SEC. 1473.) March 2014 Interim AMC Rule Consumer Financial Protection Bureau and other federal agencies proposed minimum requirements for states electing to establish an appraiser certifying and licensing agency with the authority to register and supervise AMCs. April 2015 Final AMC Rule Six government agencies, led by the Board of Governors of the Federal Reserve System, issued Final Rule on minimum requirements for appraisal management com- panies. The agencies also established a federal register of appraisal management companies, which complements individual state licensing and regulation. Any AMCs owned by federally regulated banks must register with the AMC National Registry, meet minimum state requirements and report directly to any state in which it operates. August 2015 Home Mortgage Disclosure Act The Consumer Financial Protection Bureau (CFPB) cre- ated Regulation C, an amendment to the Home Mort- gage Disclosure Act (pursuant to Dodd-Frank), which requires many financial institutions to maintain, report, and publicly disclose information about mortgages. October 2015 TRID Rules The CFPB implemented its TILA-RESPA Integrated Disclosure (TRID) rules, which mandates the use of new Loan Estimate and Closing Disclosure forms. "Ultimately, lenders are responsible for the work product and overall performance of any retained professionals."