By TED CARTER
Mississippi legislation that two years ago set new rules for appraisal management companies should largely free appraisal companies in the state from taking on newly enacted compliance standards.
Six federal financial regulatory agencies have implemented minimum requirements for state registration and supervision of appraisal management companies (AMCs), an entity that provides appraisal management services to lenders or underwriters or other principals in the secondary mortgage markets.
The appraisal management services include contracting with licensed and certified appraisers to perform appraisal assignments.
Mississippi has registered about 105 AMCs since the state’s Appraisal Management Company Registration Act went into effect on July 1, 2013. With the new federal registration rule set to take effect, the appraisal management companies with 15 or more appraisers must register each appraiser and pay a fee for each registration, said Robert Praytor, administrator of the Mississippi Real Estate Commission.
The new mandates for AMCs are part of fallout from the housing bubble. Questions arose about the effectiveness of the regulation of residential real estate appraisers before and during the financial crisis.
In the meantime, real estate prices rose rapidly in some areas, then fell rapidly. When the real estate bubble burst, questions arose about the accuracy of the appraisals that supported the mortgage loans during the housing bubble.
The crisis brought quick-fix attempts. Congress later nixed those in favor of the more comprehensive regulations included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The reform act increased federal requirements for real estate appraisers and transferred some federal oversight powers from banking regulators to the new Consumer Financial Protection Bureau (CFPB).
Traditionally, the states handled regulation of real estate appraisers, with a federal agency, the Appraisal Subcommittee (ASC), overseeing the state boards that licensed and certified appraisers.
Further, the Housing and Economic Recovery Act of 2008 included a provision designed to increase the independence of appraisers. The act put off limits any attempt to influence an appraisal. It applied to mortgage lenders, mortgage brokers, mortgage bankers, real estate brokers and appraisal management companies.
In practice, federal regulation applies to most of the mortgage market because it includes any loans from federally chartered or insured banks, thrifts, and credit unions. It includes any loans that are part of a Federal Housing Administration (FHA) or Department of Housing or Urban Development (HUD) program, the Congressional Research Service said in a 2012 report titled “Regulation of Real Estate Appraisers.
The federal rules also govern any loans originated with the intent to be eligible for sale to the housing government sponsored enterprises such as Fanny May and Freddie Mac.
With the new rules issued by regulators last week, appraisal companies in states that decline to adopt their own registration and certification regulations within the next three years will be ineligible for federal work.
The final rule came from the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corp., the Consumer Financial Protection Bureau, the Federal Housing Finance Agency, and the National Credit Union Administration.
The rule implements Dodd-Frank amendments to Title XI of the Financial Institution Reform, Recovery, and Enforcement Act of 1989.
Under the rule, states may elect to register and supervise AMCs – a step Mississippi took in mid 2013. The AMC minimum requirements in the final rule apply to states that elect to register and supervise AMCs, as AMCs are defined in the rule.
The final rule does not compel a state to establish an AMC registration and supervision program, and the state is not penalized for not establishing a regulatory structure for AMCs. However, in states that have not established a regulatory structure after 36 months from the effective date of this final rule, any non-federally regulated AMC is barred by section 1124 of Title XI from providing appraisal management services for federally related transactions.
A state may adopt a regulatory structure for AMCs after this 36-month period, which would lift the federal-work restriction.
Under the final rule, participating states must apply certain minimum requirements in the registration and supervision of appraisal management companies. An AMC that is a subsidiary of a bank and is regulated by a federal financial institution regulatory agency (a federally regulated AMC) must meet the same minimum requirements as state-regulated AMCs except for the requirement to register with a state.
The rule mandates that participating states require that AMCs:
• Register in the state and be subject to its supervision;
• Use only state-certified or licensed appraisers for federally related transactions, such as real estate-related financial transactions overseen by a federal financial institution regulatory agency that require appraiser services;
• Require that appraisals comply with the Uniform Standards of Professional Appraisal Practice;
• Ensure selection of a competent and independent appraiser; and
• Establish and comply with processes and controls designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act.
In Mississippi, standards are enforced by the Mississippi Appraisal Board. Under the new rule, Mississippi’s board and others like it around the country have authority to:
• Approve or deny initial AMC registration applications and applications for renewals;
• Examine the AMC and require the AMC to submit relevant information to the state;
• Verify that the appraisers on the AMC’s appraiser network or panel hold valid state certifications or licenses;
• Conduct investigations of AMCs to assess potential violations of appraisal-related laws;
• Discipline an AMC that violates appraisal-related laws; and
• Report an AMC’s violation of appraisal-related laws, as well as disciplinary and enforcement actions, and other pertinent information about an AMC’s operations to the Appraisal Subcommittee of the Federal Financial Institutions Examination Council.
The final rule will become effective 60 days after publication in the Federal Register. Publication is expected shortly, regulators said.