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14.7 Appraisal Activities

<< Title XIV Overview

14.7 Appraisal Activities

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14.7.     Appraisal Activities. Title XIV also establishes new appraisal requirements for certain mortgage loans deemed to be higher-risk by the Act.

                        14.7.1.     Property Appraisal Requirements and Independence Standards. 

                                    14.7.1.1.           Property Appraisal Requirements. Creditors providing higher-risk mortgages must obtain an appraisal before they extend mortgage credit. [§1471] The Act specifies appraisal requirements, including a physical property visit and a second appraisal in some circumstances. Creditors must provide the borrower with a free copy of the appraisal, and creditors cannot charge the borrower for the cost of the appraisal.  Willful failure by a creditor to obtain an appraisal as required will result in liability for the creditor to the consumer of $2,000.

Regulations for these appraisal requirements will be jointly issued by the Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency, and the Bureau. The agencies may exempt a class of loans from the appraisal requirements.

                                    14.7.1.2.           Appraisal Independence Requirements. Those with an interest in the underlying transaction of the appraisal may not bribe, coerce, extort, or otherwise inappropriately influence the appraiser. [§1472] Appraisers may not have a financial interest in the transaction involved in the appraisal. Those with an interest in the transaction may not mischaracterize the appraised value of the property.

                                                14.7.1.2.1.         Mandatory Reporting. Various entities, such as a mortgage lender or broker, involved in a real estate transaction involving an appraisal must report to the appropriate state licensing agency any violations by an appraiser of the Uniform Standards of Professional Appraisal Practice.

The Fed shall within 90 days of enactment of the Act provide interim final regulations defining violations of appraisal independence.

            Apart from the Fed's interim regulation, the Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency and the Bureau will have the authority to issue rules and interpretive guidance regarding appraisal independence.

14.7.2.    Appraisal Subcommittee of the FFIEC. The Financial Reform, Recovery, and Enforcement Act of 1989 (FIRREA) is amended to provide the Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) with a consumer protection mandate. [§1473] The Subcommittee will audit state appraiser regulatory activities.

                                    14.7.2.1.           Annual Report. The Subcommittee must send an annual report to Congress detailing its activities and disapproved actions and warnings taken in that year. The Subcommittee may also prescribe regulation in limited areas.

                                    14.7.2.2.           Regulations. The Subcommittee may issue limited regulations involving appraisal standards. [§1473(d)] 

                        14.7.3     Supervision of Third Party Providers of Appraisal Management Services. The Fed, the OCC, the FDIC, the NCUA, the Federal Housing Finance Agency, and the Bureau shall jointly establish minimum requirements for states to apply for the registration of appraisal management companies. Mandated requirements include compliance with the Uniform Standards of Professional Appraisal Practice. States may impose additional requirements in addition to the federally mandated standards. States may not register any appraisal management company owned by any person who has had an appraiser license or certificate refused, denied, cancelled, or revoked.

                                    14.7.3.1. Supervision of State Oversight by the Appraisal Subcommittee. The Board of Governors, the OCC, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection will also issue regulations for reporting the activities of appraisal management companies to the Appraisal Subcommittee. The Appraisal Subcommittee will have the responsibility to monitor each state appraiser certifying and licensing agency to ensure that those agencies have policies and practices consistent with federal law that they process complaints on a reasonable basis, among other requirements.

                                                14.7.3.1.1.         Reporting Requirement. State agencies dealing with the registration of appraisal management companies are required to transmit reports on the issuance of licenses and certifications, as well as sanctions, to the Appraisal Subcommittee.

                                                14.7.3.1.1.         Registration Requirement.  Three years after the regulations are published, an appraisal management company may not perform services in a federally related transaction without being registered in that state or subject to oversight by a Federal financial institutions regulatory agency. The Appraisal Subcommittee may extend the three year period by an additional 12 months.

                        14.7.4.  National Appraisal Complaint Hotline. The Appraisal Subcommittee must also establish a national hotline to receive complaints of non-compliance with appraisal standards 6 months after the date of enactment, if such a hotline does not exist at that time. [§1473(p)]

                        14.7.5.  Quality Controls for Automated Valuation Models. Automated valuation standards must adhere to quality control standards designed to protect against the manipulation of data, avoid conflicts of interests, require random sample testing, and any other requirement determined by the agencies drafting the standards. [§1473(q)] These standards will be regulated by the Board of Governors, the OCC, the FDIC, the National Credit Union Administration Board, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection.

14.7.6.    Broker Price Opinions. Broker price opinions may not be used as the primary basis in determining the value of a piece of property in regards to a mortgage loan secured by that property. [§1473(r)]

                        14.7.7.    Comptroller General Study on Appraisal Process. The Comptroller General is required to study the effectiveness and impact of appraisal methods and other aspects of the appraisal process due no later than 12 months after the date of enactment of the Act. A preliminary report to the House Financial Services Committee and Senate Banking Committee is due 90 days after enactment. [§1476]