The establishment of Appraisal Management Companies (AMCs) was federally authorized in 2010 by the Dodd-Frank Act. The minimum requirements for operating an AMC entity became effective in 2015 as issued by the Appraisal Subcommittee (ASC) of the Federal Institutions Examination Council, which is charged with regulating AMCs nationally. [80 Federal Register 32657-32689]
AMC rules set up a scheme requiring each state to adopt codes and regulations for the creation and control of AMCs, which in California is the Bureau of Real Estate Appraisers (BREA).
The federal rules gave each state authority to:
- approve or deny initial AMC registration applications and applications for renewals;
- examine AMCs and require AMCs to submit relevant information;
- verify 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, disciplinary and enforcement actions, and other pertinent information about an AMC’s operations to the ASC.
The oversight by a state requires AMCs to:
- register in the state and be subject to state supervision;
- use only state-certified or -licensed appraisers for consumer mortgage originations overseen by a federal financial institution regulatory agency that require appraiser services;
- require that appraisals comply with the Uniform Standards of Professional Appraisal Practice (USPAP);
- ensure selection of a competent and independent appraiser; and
- establish and comply with processes and controls reasonably designed to ensure that appraisals comply with the appraisal independence standards established under the Truth in Lending Act (TILA).
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Before an AMC may conduct business within California by hiring appraisers related to consumer mortgage originations, the AMC must first register with the BREA by:
- paying application fees of $5,000 plus $80 per Controlling Person;
- submitting an AMC application form;
- submitting a Controlling Person application form;
- submitting a request for Live Scan service; and
- submitting the AMC’s:
- Operating Agreement;
- Articles of Organization; and
- Statement of Information. [Calif. Business and Professional Code §11345]
The AMC must repeat this registration process every two years. [Bus & Prof C §11345.1]
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The AMC’s job
In California, the BREA ensures each AMC is responsible for:
- selecting appraisers for each transaction who are independent of the transaction and possess the required license, education and experience necessary;
- directing the appraiser to perform the appraisal in accordance with the USPAP;
- engaging appraisers with terms of payment; and
- maintaining records of each appraisal performed, including the:
- date of the request;
- name of the person who requested the appraisal;
- name of the client for whom the request was made;
- appraiser(s) assigned to perform the appraisal;
- date of delivery of the appraisal to the client;
- client contract;
- engagement letter; and
- appraisal report. [Bus & Prof C §11345.3]
Prohibited mortgage originations and required reporting
An appraisal report a mortgage lender is aware is prepared in violation of appraisal independence may not be used to justify originating a mortgage, unless the lender confirms the appraiser’s evaluation properly represents the value of the property. [12 CFR §1026.42(e)]
Additionally, a lender aware of any appraiser materially violating the USPAP or other federal or state rules controlling appraiser ethics must report the appraiser to the state agency regulating appraisers as soon as possible — on discovery of the violation. A material violation is any event or situation which significantly affects the appraiser’s evaluation of the borrower’s principal dwelling. [12 CFR §1026.42(g)]
Examples of material violations include:
- mischaracterizing the value of a principal dwelling;
- performing the appraisal in a grossly negligent manner; or
- accepting an appraisal assignment on the condition of assigning the property a particular value. [Official Interpretation of §1026.42(g)(1)-2]
Examples of nonmaterial violations which do not constitute a material violation and do not require reporting include:
- an appraiser’s disclosure of confidential information; or
- an appraiser’s failure to carry errors and omissions insurance. [Official Interpretation of §1026.42(g)(1)-3]
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