Dodd-Frank Reform Act Includes Stricter Rules for Appraisals
By: Heather Hill Cernoch
The Dodd-Frank Financial Reform Act includes new appraisal management rules as well as stricter laws and firmer penalties for lenders. The bill’s appraiser
independence standards will give lenders new options on managing appraisers, and lenders are scrambling to evaluate options to decide what will benefit their businesses.
“With an October deadline looming for the issuance of new appraiser independence rules under the Dodd-Frank bill, lenders must quickly choose how to execute the directives in the bill,” said Jennifer Creech, president of InHouse Inc., a California-based provider of appraisal solutions to banks, lenders, and other mortgage originators.
“They will need to evaluate their tolerance for risk, their need for in-house control, and their budgets,” Creech added. “Whatever lenders do, though, they cannot delay.
The new law is stricter than the Home Value Code of Conduct (HVCC), and violations are unlawful and subject to stiff penalties of up to $20,000 per person per day.”
According to Creech, the bill has provided lenders with three ways to manage their appraisal process. They can complete outsourcing with one or multiple appraisal management companies (AMCs), choose self-management of appraiser panels from ordering to delivery of appraisals, or pick a hybrid model. Hybrids consist of a combination of self-management and AMC outsourcing where a lender manages its own appraiser panel in key markets and outsources out-of-market business and appraisal overflows to AMCs.
“The hybrid model can offer an optimal balance for a lender because it requires a smaller internal appraisal management department than when fully self-managing the process,” Creech said. “It shares and spreads the compliance risk for core and out-of-market areas and also satisfies the concerns of loan officers, mortgage brokers, and real estate agents about exclusive AMC use while staying compliant.”
However, the hybrid model is not without its concerns. It still requires lenders to deal with the costs, risks, and compliance associated with staffing an internal appraisal department.
“All lenders will face higher appraisal costs due to the new ‘reasonable and customary’ fees paid to appraisers mandated by the new law no matter which appraisal management option they choose,” Creech said.
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