Between the Dodd-Frank Act, the new Uniform Mortgage Data Program and the Federal Reserve's amendment of the truth-in-lending law, lenders are overwhelmed.
While striving to remain compliant, lenders may be forgetting to ask their appraisal management companies five crucial questions.
Are you a registered Appraisal Management Company in the state the subject property is located?
The Dodd-Frank Act requires AMCs to register in each state where they provide appraisal vendor services. It is the lenders' responsibility to ensure that they are using a licensed/registered appraisal management company. Violations of the Dodd-Frank Act are subject to penalties of up to $20,000 per day. You want to make sure that your AMC is compliant with the state before it assists you with federal compliance.
There are several ways to verify an AMC's registration. You can request a copy of its current state registration certificate, perform a licensee search on the state's real estate division website, or directly call the division to inquire.
What is the maximum distance that you will contract an appraiser from the subject property?
Lenders need to have the area's best-qualified appraiser to fulfill the appraisal assignments. Out-of-area appraisers not only lack experience in the subject market area and conditions, but may also lack accessibility to the local Multiple Listing Service database. It's vital to have a skilled appraiser who knows the local market. This helps ensure you receive a thorough, professional appraisal that reflects the true market value. Submitting a poorly constructed appraisal report can be harmful and possibly result in the loss of your loan transaction.
How do you monitor your appraisers' licensing and disciplinary actions?
One function of an AMC is to monitor the appraiser's training, report quality, complaint history and areas of expertise. AMCs should keep detailed records of appraiser's licensing, errors and omissions insurance and certifications.
Rigorous monitoring of disciplinary actions from the state and board should also be implemented. You do not want an appraiser whose work is subpar and cannot stand up under close analysis.
What is your company's quality-control procedure?
An exceptional AMC will attentively monitor the appraisal process and provide quality control on every file. As a lender, there is nothing worse than an appraisal report that has a profuse number of conditions. This can potentially delay the completion of the loan, or result in a complete loss. You need an AMC that maintains an ample quality control process.
What type of fees are the AMC paying the contracted appraisers?
Although the Dodd-Frank Act addresses appraiser independence, stating that appraisers be compensated at a "reasonable and customary" rate, those fees have yet to be determined. Until those fees are determined and made public, you will want to ensure that the appraisers are being compensated in a fair manner. AMCs that charge $425 for a conventional appraisal and pay the appraisers only $200 are obviously shopping around to contract the lowest-bidding appraiser.
This typically results in substandard appraisal reports. In every appraisal report the appraiser should be clearly stating the fee amount the appraiser received and the amount the AMC charged for the appraisal order.
Always ensure that the appraisers are compensated fairly. The old saying "You get what you pay for" stands true.
Amelia R. Hyden is the president and chief executive of Appraisal Management Company of Southern Nevada.We want to hear from you, too. Join the conversation by posting a comment using the form below.
