Appraiser Independence - What is it?

Home Valuation Code of Conduct

HR 4173, Dodd-Frank Wall Street Reform and Consumer Protection Act
Fannie Mae and Freddie Mac Appraiser Independence Regulations (AIR’s)
Home Valuation Code of Conduct (HVCC)
(And possibly, many more new names and acronyms to come.)

Do all these new regulations have you down? Too many new acronyms and your brain is already filled to the top? Need to comply but have no idea how to do it? No need to panic.

All the new names and new regulations are based entirely upon the verbiage in the original Home Valuation Code of Conduct, otherwise known as HVCC. The verbiage in HR 4173 (Dodd-Frank) and Fannie-Freddie Appraiser Independence Regulations (AIR) makes no significant changes to the core principles of HVCC. Basically, HVCC was renamed to Appraiser Independence Regulations (AIR) and became effective April, 1 2011.

So now you can relax. Mike Brubaker has been on top of this issue since it was announced back in March 2008. The final version of HVCC, released in late December 2008, varies somewhat from the original version, but the basic goals and requirements are still the same.

The primary reason for these new regulations is to help reinforce the independence of the appraiser. In plain language, the regulations (HR 4173 and AIR) require a firewall between the loan production staff of the lender and the appraiser.

(Note: These regulations only apply to appraisals being performed for a lender where the intended use is related to mortgage financing purposes. All other appraisal users are exempt.)

This can be achieved internally through the lender creation of an appraisal selection department that is separate from the Mortgage production staff. See later comments for a definition of Mortgage production staff. This department is responsible for the selection of qualified appraisers and insuring the appraiser selection process complies with the regulations. This is not an onerous process and is likely the best solution for most lenders.

HR 4173 specifically identifies Mortgage Brokers as being ineligible to select the appraiser. The most likely candidate tasked with appraiser selection would be the wholesaler. The wholesaler has a choice of creating an approved appraiser list (similar to what we were doing twenty years ago) or utilizing the services of an Appraisal Management Company (AMC). (See our tab on AMC’s for more info)

With respect to Fannie Mae and the selection of the appraiser, the AIR’s (Appraiser Independence Regulations) say:

  • An “appraiser” must be, at a minimum, licensed or certified by the State in which the property to be appraised is located.
  • No employee, director, officer, or agent of the Seller, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the Seller, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through thru coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery or in any other manner including but not limited to:
    • Withholding, or threatening to withhold, timely payment or partial payment for an appraisal report;
    • Withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;
    • Expressly or impliedly promising future business, promotions, or increased compensation for an appraiser.
    • Conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;
    • Requesting that an appraiser provide an estimated, predetermined or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser’s completion of an appraisal report;
    • Providing to an appraiser an anticipated, estimated, encouraged or desired value for a subject property or a proposed or target amount to be loaned to the Borrower, except that a copy of the sales contract for the purchase transactions may be provided;
    • Providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits;
    • Removing an appraiser from a list of qualified appraisers, or adding an appraiser to an exclusionary list of disapproved appraisers in connection with the influencing or attempting to influence an appraisal as described in Paragraph B above (this prohibition does not preclude the management of appraiser lists for bona fide administrative or quality-control reasons based on written policy); and
    • Any other act or practice that impairs or attempts to impair an appraiser’s independence, objectivity, or impartiality or violates law or regulation, including but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the Uniform Standards of Professional Appraisal Practice (USPAP).

The goal of the appraiser independence regulations is to insure that no person applies any pressure on the appraiser to report a value other than the fair market value opinion developed and reported by the appraiser.

The regulations say the lender shall be responsible for selecting, retaining and compensating the appraiser. Mortgage Brokers, borrowers and Realtors are specifically excluded from the list of individuals who may select, retain and compensate an appraiser.

The appraisal independence regulations go on to say;

  • Certain parties are prohibited from:
    • (a) Selecting, retaining, recommending, or influencing the selection of any appraiser for a specific assignment or for inclusion on a list or panel of appraisers approved or forbidden to perform appraisals for the Seller; and
    • (b) Having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment.

These parties are:

  • All members of the Seller’s Mortgage production staff;
  • Who is compensated on a commission basis upon on the successful completion of a Mortgage; and
  • Any person whose immediate supervisor is not independent of the mortgage production staff and process.

An employee of the lender tasked with selecting appraisers must be appropriately trained and qualified in the area of real estate and appraisals and must be wholly independent of the loan production staff and process.

And finally, the AIR’s say;

Sellers must adopt written policies and procedures implementing these Appraiser Independence Regulations, including, but not limited to, adequate training and disciplinary rules on appraiser independence, including the principles (detailed in Section I). Additionally, Sellers must insure that any third parties, such as appraisal management companies or Correspondent lenders, used in conjunction with the sale and delivery of a Mortgage to Fannie Mae are also in compliance with these Appraiser Independence Requirements.

The above comments are the basic tenants of the Appraiser Independence Requirements. To read the Code in its entirety please click here or go to:

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/air.pdf

To read the frequently asked questions, click here or go to:

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/airfaqs.pdf

At Brubaker and Associates, our appraisal ordering process furnishes the systems that provide the firewall separating loan production staff from appraisers as required by the AIR’s. The system allows our lender clients to order appraisals and track their progress through our web site. In addition, our customers can set their own “notification” levels to satisfy their own needs. Our system will notify them of status changes in the appraisal process. Imagine all this. Local, knowledgeable, appraisers providing you with the highest quality customer service and the best quality appraisals, all while complying with Appraiser Independence Regulations. Appraiser Independence, it’s not so bad after all. Feel free to contact us to see how we can help you provide top quality service and appraisals for your customers. They deserve the best.

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