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Which bank employees are considered "independent" for an appraisal review?

My bank is trying to confirm which bank employees would be considered “independent” with respect to performing an appraisal review, as Regulation Z and other appraisal guidance require. Is a loan processor or underwriter considered to be independent and therefore allowed to perform the appraisal review?

It depends. For example, whether a person may perform the appraisal review will depend on a number of factors, such as whether the loan processor or underwriter reports “to a person who is part of the creditor’s loan production function” (§1026.42(d)(2)) or whether they are “directly supervised or managed by a loan officer or other person in the creditor’s loan production function, or by a person who is directly supervised or managed by a loan officer” (Comment 1 to §1026.42(d)(2)(ii)).

“Loan production function” is explained in Comment 1 to §1026.42(d)(5)(i) as including ”retail sales staff, loan officers, and any other employee of the creditor with responsibility for taking a loan application, offering or negotiating loan terms or whose compensation is based on loan processing volume.” That comment further explains that a person is not considered part of the loan production function “solely because part of the person's compensation includes a general bonus not tied to specific transactions or a specific percentage of transactions closing, or a profit sharing plan that benefits all employees.”

In addition, people who are “solely responsible for credit administration or risk management” are not considered part of the loan production function. Credit administration and risk management includes, for example, loan underwriting, loan closing functions (e.g., loan documentation), disbursing funds, collecting mortgage payments and otherwise servicing the loan (e.g., escrow management and payment of taxes)… monitoring loan performance, and foreclosure processing.”

Thus, loan processors and underwriters who do not report to anyone in the loan production function, as described above, (e.g., credit administration and risk management) could be considered independent with respect to performing an appraisal.

In addition, see the 2010 Interagency Appraisal and Evaluation Guidelines, specifically Sections V—Independence of the Appraisal and Evaluation Program, XV—Reviewing Appraisals and Evaluations and XVII—Program Compliance. Appendix D, which includes a definition of “loan production staff.” There may also be other provisions addressing this issue, such as investor guidelines. (March 2019)

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