2015 brought significant changes to the compliance world. Ask anyone in this profession what the most significant compliance event of 2015 was, and the answer will categorically be “TRID!” That’s right; 2015 was the year we all made the big switch and starting lending according to the, then new, TRID rules of Regulation Z. However, somewhere in those TRID shadows, another significant event took place that has only now come to fruition: the required registration of appraisal management companies.
An appraisal management company (AMC) is an organization that maintains a network of qualified appraisers. A lender can send appraisal orders directly to the AMC, which in turn engages an appropriate appraiser and manages the workflow. This allows the lender to preserve independence in the appraisal process as well as have access to a large network of qualified appraisers.
Due to increased usage of AMC’s, Section 1473 of the Dodd-Frank Act added section 1124 to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). This new section required the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (ASC) to establish minimum requirements to be imposed by State agencies on AMC’s doing business in the State, if they are taking orders for federally related transactions. A federally related transaction (FRT) is any consumer credit transaction that is secured by the consumer’s principal dwelling and requires an appraisal under the federal regulations.
One such requirement is that AMC’s which oversee a panel of 15 or more appraisers in a single state, or 25 or more appraisers in two or more states in a 12-month period, must register with the state the AMC operates in. The Final Rule,which included this requirement, was published in June of 2015, with an overall effective date of August 2015. However, since many states at that time did not have a formal registration process in place, a 36-month period was granted during which the states could develop their registration models. A State could also request a 12-month extension.
States were not required to implement a registration program for AMC’s if they chose not to. However, AMC’s are barred from providing appraisal management services in connection with FRT’s in any state that does not have a registration program established. Any state that did not request an extension was required to have a registration program in place for any AMC’s operating within that State by August 10, 2018. Any state that did request, and was granted, a 12-month extension was required to have their state registration programs in place as of August 10, 2019.
So, how does this affect lenders? Federal law now prohibits AMC’s from providing appraisal management services in connection with FRT’s if the AMC is not registered as required by state and federal law. Again, this applies to any consumer credit transaction that is secured by the consumer’s principal dwelling that requires an appraisal under the federal regulations.
As part of any thorough vendor management program focused on safety and soundness, an institution must ensure their third-party vendors operate in a manner that is complaint with applicable laws and regulations. Therefore, management must have a process in place to verify appropriate registration for any AMC’s engaged by the institution when the underlying transaction is an FRT.
There are a couple of different ways an institution can confirm an AMC’s registration. First, the ASC established a national AMC registry, which can be accessed here. Please be aware that not all states are yet populating the national registry, since it is not required at this time. If you find the state you are seeking to verify registration in is not populating, then you can also validate the AMC registration directly on the appropriate state registry. The ASC site also contains a link to a listing of all the state agencies, which can be found here. Lastly, if a lender cannot verify the AMC registration on the national or state registry, the lender can request evidence of registration directly from the AMC.
Some additional considerations to keep in mind are as follows:
- The regulation defines “state” to include the District of Columbia, Puerto Rico, the U. S. Virgin Islands, Guam, American Samoa, the Northern Mariana Islands, the Trust Territory of the Pacific Islands, and Indian tribes, as defined by the Secretary. While all 50 US States currently have registration programs in place, other territories such as the U.S. Virgin Islands, have elected not to establish registration programs for AMC’s. In these territories, a lender will not be able to use an AMC, and must instead engage an appraiser directly.
- Federally regulated AMC’s are not subject to this registration requirement. Federally regulated AMC’s are those owned by an insured depository institution and regulated by the FRB, OCC or FDIC.
- This registration requirement only applies to Federally Related Transactions, which are consumer credit transactions secured by the consumer’s principal dwelling that require an appraisal.
As always, the Temenos Advisory Services team is here to help you navigate the ever-changing world of compliance. Please, feel free to reach out with any compliance questions you may have.