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Appraiser Independence Rules Effective 4/1/11

October 28, 2010:  The FRB published the first rule for mortgage lenders under Dodd Frank to specify the requirements for the Appraiser Independence rules.  It is an ‘interim final rule’.  They accepted comments until December 27, 2010 but followed with a statement that mandatory compliance is April 1, 2011. Scope per Final Rule:
  • Applies to creditors, appraisal management companies, appraisers, mortgage brokers, realtors, title insurers and other firms that provide settlement services.
  • Applies to appraisals for any consumer credit transaction secured by the consumer’s principal dwelling. Applies to any person who performs any valuation services.
WHO and WHAT will be impacted?
  • Appraisal management companies will be regulated just as appraisers as individuals are monitored.
  • HELOCs and other portfolio loans now need to follow appraiser independence practices that prohibit individuals involved in loan production from touching the appraisal process.
  • In house appraisal staff compensation and arrangement must be evaluated for compliance.
  • Small institutions of $250 m or less will have some exceptions for the requirement to completely separate appraisal and loan production staff
  • The law requires appraisers to be paid reasonable and customary fees. The definition of reasonable and customary is dependent on market factors and is not clearly defined. There are two presumptions of compliance:
  1. If the fee is reasonably related to recent rates paid for appraisals in a relevant geographical market and in setting the fee the creditor has accounted for property type and scope of work and not engaged in any anticompetitive action
  2. If the fee is established by relying on rates establish by 3rd party information such as the VA fee schedule or fee survey, not including fees paid by an AMC.
Lenders who have been subject to the Home Valuation Code of Conduct for all applications will have minimal changes. Primarily the requirements have the biggest impact on banks and credit unions who have not been subject to HVCC and now must implement new procedures for all mortgage production. In house appraisal departments and AMC’s must be diligent in determining how they will be in compliance with the compensation arrangements.