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26 | TH E M R EP O RT FEATURE A fundamental re- quirement of loan origination and mortgage lending is that the ap - praisal process must be absolutely independent from anyone who is responsible for generating loan volume or who stands to finan - cially benefit from the funding of a loan. Also, the appraisal must not be influenced by anyone responsible for ordering, reviewing, or accepting apprais - als and evaluations. While appraisal independence has always been integral to the mortgage lending process, today's emphasis on this principle derives from and is now governed by a complex cascade of legislation and standards brought forth since the financial crisis of the last decade. Most importantly, our orga - nizational structures, systems, and documentation must ensure appraisal independence, further supported by the way in which lending institutions and their stra - tegic partners conduct themselves in a practical, real-world sense. Core Requirements & Staffing T oday's Appraisal Indepen- dence Requirements (AIR) derive from federal legislation and regulatory guidelines, the licensing of appraisers, and the licensing and supervision of ap- praisal management companies by individual states, govern- ment-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac, and legislatively mandated independent agencies like the Consumer Financial Protection Bureau (CFPB). As indicated, the thrust of these regulatory bodies is to prohibit third-parties and lenders from influencing or attempting to influ - ence the development, result, or review of an appraisal report. There must be absolute indepen- dence between loan production and the collateral valuation process. Loan production includes anyone who is responsible for generating loan volume or who stands to finan- cially benefit from the funding of a loan, including superiors and subordinates. With respect to personnel, the collateral valuation process means anyone responsible for ordering, reviewing, and/or ac- cepting appraisals and evaluations. A key element in following these guidelines is the lender's organizational structure. With a compliant organizational struc- ture, the chief loan officer sits "between" relevant parties. The valuation review staff should serve under the direction of the board or loan committee and not hold the same relation to the chief loan officer as do residential or commercial loan officers. These distinctions must not simply be positions on a chart, but represent real-world prac - tices within the organization. Assessment of reviewer indepen- dence should include an examina- tion of the loan approval process that identifies reporting lines, document flows, and decision points between the valuation re- viewer and supervisor. The issue of independence should be top of mind within the organization and regularly reviewed and discussed by executive management and credit review staff. Smaller lenders may not be able to achieve absolute lines of independence due to a limited staff size. In these cases, lenders must still be able to demonstrate prudent safeguards by isolating collateral review from influence or interference with mortgage production. Compliance with appraisal in - dependence must be substantiated by careful documentation, which includes full records of all com- munications during the appraisal process. Rules of Engagement T he No. 1 priority in choosing an appraiser for an assign- ment is the prospective quality of that appraiser's work product. Other considerations or factors include making sure of current licensure, necessary experience for the given property, geo - graphic competency, and current Errors and Omissions (E&O) insurance. Licensure should be verified with state and federal websites and regularly moni - tored. Appraisal management companies will generally have strict overview of licensing status of their appraiser panels, and this is one of the advantages of work - ing with an AMC that has true national coverage. Each appraisal engagement should have a formal written engagement letter that outlines the requirements of the assign - ment, including such items as the required level of appraiser creden- tials (licensed, certified residential, certified general), required number of competitive listings, or investor- specific requirements. The appraiser should be instructed to provide detailed commentary if the appraisal value differs from the predominant value of comparables by a certain Ensuring Independence Lenders can benefit from using AMCs, which offer compliant, autonomous, and unbiased appraisals across the country. By Michael Dresden