Minimum Requirements for Appraisal Management Companies
Author: Michael Fortman
Six federal financial regulatory agencies have issued a joint final rule on minimum requirements for state registration and supervision for appraisal management companies (AMC). The rule was developed to address real estate appraisal issues that came to light during the 2008 financial crisis.
An AMC provides appraisal management services to underwriters, lenders or other principals in the secondary mortgage markets. These rules only apply in participating states to any AMC meeting the statutory panel size threshold, i.e., having more than 15 state-certified or licensed appraisers per state or 25 or more appraisers in two or more states.
Participating states would require an AMC to complete all of the following:
- Register and be supervised by the state licensing and certifying agency in the state(s) the AMC does business
- Verify only registered and licensed appraisers are used for federally related transactions (generally credit transactions involving a federally regulated depository institution)
- Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP)
- Require appraisals be conducted in accordance with the Truth in Lending Act (TILA) standards
The final rule also requires the states to report to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council the information required to administer the new AMC National Registry.
The new rule doesn’t require states to register and supervise AMCs, and no penalty is imposed on a state that doesn’t establish a regulatory structure for AMCs. The final rule will go into effect 60 days from its publication in the Federal Register. States choosing to participate in the program will have three years from the date of the final rule to establish their program. States can establish an AMC program even after the three-year deadline has expired.
Nonparticipating states will be prohibited from providing appraisal management services for federally related transactions. AMC programs already have been adopted by 38 states. An AMC that is a subsidiary of an insured depository institution and is regulated by a federal financial institution regulatory agency (a federally regulated AMC) must meet the same minimum requirements as state-regulated AMCs except for the requirement to register with a state.
Financial institution responsibilities are not affected by the new AMC rule. The financial institution still must comply with applicable appraisal laws when engaging a third party such as an AMC to perform appraisal services.
The final rule implements amendments to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 made by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
For more information on how these changes could affect your organization, contact your BKD advisor.