We received a lot of responses to our article last month, where we talked about why lenders can’t request a specific appraiser (per Appraiser Independence Requirements [AIR]). Due to questions we received about that article, we’d like to dive a little deeper into the issue of appraiser independence. It can get complicated and confusing.
Similar to AIR, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 placed regulations on the financial industry, including mortgage lending. Here’s a key paragraph:
Consistent with TILA Section 129E(b)(1), § 226.42(c)(1) provides that no person shall attempt to or cause the value assigned to the consumer’s principal dwelling to be based on a factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery or intimidation of, compensation or instruction to, or collusion with a person that prepares a valuation or a person that performs valuation management functions.
This has been interpreted as prohibiting loan originators, mortgage brokers, bank branch managers, and anyone whose job includes originating loans from even choosing an appraisal management company, much less an individual appraiser.
In other words, those involved in loan sales cannot select the AMC that will assign the valuation to one of their appraisers.
That said, a lender’s loan processors, underwriting, and other operations (non-origination) staff can choose the AMC. However, as we discussed last month, they cannot select the individual appraiser.
Where we have seen some lender questions on this front has been in the area of whether lenders can present loan officers or branch managers (e.g., loan production staff) with a list of AMCs that they can choose from when placing an order. Whether retail or wholesale, both Dodd-Frank and AIR appear to prohibit this practice. Every lender would be well advised to take the process of “selecting the AMC” completely out of the hands of any loan originator, whether they are retail or wholesale.
For the matching FAQ on AIR Compliance, please see this link for additional answers to common questions. The GSEs tend to share these appraisal guidelines, and they mirror Dodd-Frank’s prohibitions.
We hope this helps keep your team compliant.
For resources on maintaining appraiser continuity during COVID-19, please click here.
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