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How lenders can prepare for increasing regulatory pressures

As compliance becomes an increased focal point for mortgage lenders and investors, staying ahead of state and federal regulations can be the difference between a flourishing business and one mired in fines.

Mortgage

Proposed rule makes AMCs use only “competent” appraisers

AMCs would face state-level rejection

Six housing related agencies issued a proposal that would implement minimum requirements for state registration and supervision of appraisal management companies.

Together the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau, Federal Housing Finance Agency and National Credit Union Administration are trying to set regulations around AMCs, which serve as an intermediary between appraisers and lenders and provides appraisal management services.

Notably the proposed rule will make AMCs more accountable. AMCs will need to register in any state they do business in and "ensure selection of a competent and independent appraiser," according to the regulatory drafts. This may place a regulatory burden on the AMCs if the local appraisers they use improperly value homes for the purposes of mortgage lending.

AMCs found to operating afoul of the rules would not have their state-level licenses renewed.

However, Bill Garber, director of government and external relations with the Appraisal Institute, said that the rule would have a negligible impact on the market.

“Whether a bank chooses to utilize an AMC or handling the appraisal function internally, does not have bearing on the market itself. From a regulatory standpoint, it is further illustration that every corner of the real estate industry will have a light shown on it,” Garber explained.

But, he noted that there is still a need for the rule.

“Up until recent years, AMCs operated in the dark. To date, 37 states have enacted registration requirements for AMC, and this proposal, if finalized, will bring the remaining 13 on board,” he added.

The new rule does not require a state to establish an AMC registration and supervision program. Additionally, there is no penalty imposed on a state that does not establish a regulatory structure for AMCs. Therefore, only the AMC can be held accountable for its own misdeeds.

The proposed rule also notes that AMCs are barred by section 1124 from providing appraisal management services for federally related transactions in a state that has not established such a regulatory structure.

Features of the new proposal require that participating states have AMCs register in the state and be subject to its supervision, use only state-certified or licensed appraisers for federally related transactions and require that appraisers comply with the Uniform standard of Professional Appraisal Practice.

If put into effect, participating states would have 36 months after the effective date to implement the minimum requirements.

Garber said he does not see a reason for the proposal not to pass. 

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