Earlier this week six federal financial regulatory agencies issued a final rule that implemented the minimum requirements for state registrations and supervision of appraisal management companies. The rules outline certain minimum requirements each state must meet which include a variety of registry requirements and oversight controls.
The agencies indicated a state may elect to register and supervise AMC’s but is not required to. However, if they do not adopt a regulatory structure after the 36-month period, any non-federally regulated AMCs would be barred from providing appraisal management services for federally related transactions.
With this multi-agency rule finally being released, it paints a much clearer picture as to what the future of the appraisal management industry will look like.
Four things you need to know:
1. The rule clearly sets the parameter as to what defines an Appraisal Management Company versus just a traditional appraisal shop.
An appraisal management company is defined as any company that oversees an appraiser panel of more than 15 state-certified or licensed appraisers in a state, or 25 in two or more states. This does allow for appraisal companies that have W2 employee appraisers to be exempt from the state licensing requirement.
2. It establishes the requirement for a national AMC registry.
This registry would be a part of the appraisal subcommittee and states would report back any disciplinary actions as well as license activity of AMCs to this national registry. AMCs would also be required to report to the states it operates in, in conjunction with the appraisal subcommittees' policies around the AMC national registry fee.
3. Each state has the option to establish minimum AMC requirements.
These minimum requirements would have a review and regulatory mechanism in place to properly review AMCs' business practices, enforce disciplinary actions and conduct periodic reviews. States have 36 months after the effective date of this rule to establish the state registration and supervision program. If states elect not to, AMCs can't provide appraisal management services for federally related transactions.
4. The rule provides an exemption for federally regulated companies that own an appraisal management company.
These companies would not have to be licensed in each state, however, they would still have to meet the minimum requirements of each state’s regulations and report to the start as a part of the appraisal subcommittees' national registry.
The final rule is being issued jointly by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and the National Credit Union Administration.
The parameters set around the definition of an appraisal management company are broad but fair. I think that most companies that would meet the definition of an appraisal management company truly are appraisal management companies and wouldn’t have an issue in obtaining required licenses.
The establishment of the national registry for appraisal management companies is something that needs to done and is a step in the right direction for a more consistent oversight. Currently, all of the licensing is handled at the state level and not easily accessible without going to each individual state's website.
From my standpoint, even though the joint federal ruling has an optional AMC regulation, the stipulation that it would be barred from operating in the state under federally regulated transactions makes it a must have. Any state that is doing business with lenders that utilize appraisal management companies would put the entire state at risk of not being able to get loans done. You could say that lenders would switch to bringing the process back in-house, however, considering 38 states and a few more on the way already have AMC regulations, it would be safe to say the rest will soon follow suit or risk a major business process issue.
The exemption for federally regulated companies is something that no one has taken advantage of currently, however, I wouldn’t put it above companies within the next two to three years.
Overall, the ruling is somewhat neutral, with very little surprises regarding oversight and minimum requirements. It’s going to be interesting to see how states handle the adoption of the federal registry as they’ve been extremely busy with state AMC regulations. I do believe that some states are going to change their regulations to be more in line with the federal oversight as it could impose enforcement issues if the laws are in conflict.