The Minimum Requirements for Appraisal Management Companies was finally approved for publication in the Federal Register on April 21, 2015 by the Federal Deposit Insurance Corporation (FDIC), the last of the agencies to do so. The document outlines the minimum requirements for state registration and supervision of appraisal management companies (AMCs).
Trying to figure out how to regulate the AMCs is definitely a group effort. The Agencies (the FDIC, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the National Credit Union Administration, the Consumer Financial Protection Bureau and the Federal Housing Finance Agency) have now all approved this final regulation, which is expected to be published in the Federal Register soon. This is likely to happen sometime next month.
This whole process has taken a good deal of time to figure out, and many questions remain as to how some specific issues will be resolved. The regulators really have to consider a wide scope of real-world possibilities when trying to write these rules. Unlike individual appraisers, who are usually licensed in a few states at most, some AMCs do work in many, if not all, states. Also, different types of AMCs exist. Some AMCs are affiliated with federally insured lenders (think LandSafe, RedSky, etc.); some AMCs are privately owned; some are hybrid AMC and appraisal companies; and traditional appraisal companies.
So will a large AMC have to pay each state a fee for every appraiser they have on their panel with the potential to perform work? That could push AMCs toward maintaining a minimal panel, which isn’t what anyone wants to see. Fortunately, there is still time to figure out some of these details. That task has been given to the Appraisal Subcommittee.
Currently, 38 states have licensing or registration requirements in place. It is now likely that all states and jurisdictions will implement some form of licensing or registration. States will have 36 months from 60 days after the Final Rule is published in the Federal Register to set up AMC registration and supervision systems that meet the minimum standards set by the rule. A state is not required to establish an AMC registration and supervision program. However, after the effective date, no private company meeting the definition of an AMC can provide appraisal management services in connection with a consumer real estate loan secured by a consumer’s principal dwelling in a state that has elected not to participate. So if any state fails to implement a licensing program that meets the minimum requirements some time in the next three years, any AMCs not affiliated with a federally regulated lender will not be able to do business in that state. States can also set up their program after the 36-month deadline; private AMCs just can’t operate in that state until they implement the program after the deadline. Federally regulated AMCs will have to comply with the rules outlined below within 12 months of the effective date of the Final Rule. They will not have to register with each state since they already have to answer directly to the federal regulators. That is why they could operate in a state that failed to implement a registration program.
The final rule spells out the definition of an AMC. A first distinction is made based on the size of an appraiser panel. Keep in mind the count is based on the number of appraisers listed on the roster who are potentially available to perform appraisals and not on the number of appraisers actually engaged to perform appraisals. Here is the wording from the rule:
(c)(1) Appraisal management company (AMC) means a person that:
(i) Provides appraisal management services to creditors or to secondary mortgage market participants, including affiliates;
(ii) Provides such services in connection with valuing a consumer’s principal dwelling as security for a consumer credit transaction or incorporating such transactions into securitizations; and
(iii) Within a given 12-month period, as defined in § 34.212(d), oversees an appraiser panel of more than 15 State-certified or State-licensed appraisers in a State or 25 or more State-certified or State-licensed appraisers in two or more States, as described in § 34.212;
By the way, appraisal firms that hire appraisers as employees and perform appraisals do not fall under the definition of an AMC.
Once a company meets the size criteria, it must meet the definition of performing “appraisal management services.” So under this part of the definition, an appraisal firm with 15 or more appraisers in a state would be considered an AMC if they are performing services as described below:
(d) Appraisal management services means one or more of the following:
(1) Recruiting, selecting, and retaining appraisers;
(2) Contracting with State-certified or State-licensed appraisers to perform appraisal assignments;
(3) Managing the process of having an appraisal performed, including providing administrative services such as receiving appraisal orders and appraisal reports, submitting completed appraisal reports to creditors and secondary market participants, collecting fees from creditors and secondary market participants for services provided, and paying appraisers for services performed; and
(4) Reviewing and verifying the work of appraisers.
What are the rules that the AMCs will be required to follow? The requirements as described below are pretty basic. I would think most AMCs have been following these guidelines from the beginning. These include various requirements including the important requirement to pay appraisers customary and reasonable fees.
Specifically, pursuant to section 1124(a), participating States must require that AMCs: (1) register with, and be subject to supervision by, the State appraiser certifying and licensing agency in the State or States in which the company operates; (2) verify that only State-certified or State-licensed appraisers are used for Federally related transactions;(3) require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP); and (4) require that appraisals are conducted in accordance with the statutory valuation independence standards pursuant to the Truth in Lending Act (TILA) (15 U.S.C. 1639e) and its implementing regulations. An AMC that is a subsidiary owned and controlled by an insured depository institution and regulated by a Federal financial institutions regulatory agency is subject to all of the minimum requirements, except the requirement to register with a State.
What does all this mean to you as an appraiser being hired by various AMCs? The short answer is probably not a lot. Overall, this should be a positive action for appraisers, but not a huge game-changer. The only danger to you may be if you work for private AMCs in a state that fails to set up a program and those AMCs are no longer able to assign work. Only 12 states need to implement a program and they have three years to do it, so this will most likely be a non-issue.
If you own or are employed by a non-federally regulated AMC, it would probably be a good idea to review the rules. Keep in mind that these are the basic federal requirements. Each state may impose stricter and more detailed rules and regulations. If you want to see all 138 pages of the rules, here is a link: Minimum Requirements for Appraisal Management Companies.