Use an Appraisal Management Company (“AMC”) or manage the appraisal process in-house? That is the simple questions that lenders across the country are asking themselves. A large shift in the industry is towards utilizing the AMC model. So for the lenders who have yet to take part in that shift, the question remains… What are the risks and benefits of managing your own panel? Some will say it is the control of having the process in-house, however, coupled with that control are the inherent compliance risks.
We all know that we work in a highly regulated industry. We all know that compliance is essential and at the forefront of our industry. It is a full-time job just to stay abreast of all the new regulations. Even when we see the regulations, it is a whole separate process to interpret them. When it comes to interpretation, unfortunately we all know too well that the law is filled with “grey area”.
I thought it would be a good idea to take a look at some of the pertinent rules that would play a role in a lender managing their own panel. This article is not meant to be legal counsel, nor is it intended to be an exhaustive list of regulations that need to be adhered to when managing your own panel. I am merely outlining certain information that you should be aware of. Ultimately the responsibility lies on you to either utilize an AMC who you have properly vetted out, or to retain counsel to assist and advise you in implementing a compliant process for you in-house.
First and foremost, we must be aware of the Appraiser Independence Requirements (“AIR”). Among other things, AIR prohibits certain parties from having any influence in the selection of an appraiser.
The legislation draws a clear distinction in the rules between production/origination staff and panel management staff. There must be an absolute divide between the production staff and the staff managing the panel. An employee’s title alone, does not take them out of any involvement in the production/origination. Is your panel management team secluded from your origination team? Are they on a different floor? Different office? Different building all together? People have interpreted this ruling in different ways; however, it is completely possible that you may need to establish an entirely distinct and separate office location solely dedicated to panel management. This can be extremely tricky, as even simple communication may be enough to be construed as a compliance issue. What type of proof can you provide an Auditor to evidence that there is a complete and clear separation?
Another important issue is Mandatory Reporting. I have spoken to lenders who seem to be under the impression that the Dodd-Frank Mandatory Reporting requirements only apply to AMC’s. That is not the case at all. Mandatory Reporting does in fact apply to lenders as well as AMC’s. If an Auditor approached you and asked for your system of reporting as well as the number of reports in the previous 12 months, what would be your response? Who did you report to? Do you have a compliant response? You must have a process in place to comply with the Dodd-Frank Mandatory Reporting Requirements, when it comes to the appraisers on your panel.
What about vetting? Another process that must be implemented when managing your own panel is a compliant process on vetting, adding, and even removing appraisers from your panel. What exclusionary lists are you scrubbing the appraisers against? Are you checking for disciplinary action? State or Federal level? What documents are you asking for and reviewing when adding appraisers to your panel? Resume? Past reports? License/Certification? E&O? Driver’s License? Are you conducting interviews with each appraiser? Conducting background checks? Are you checking if they are FHA/HUD approved? These are just a few of the factors that go into researching and adding appraiser to your panel. Of course, the most important question to ask yourself is, where do you store all this information/documentation and do you have easy access to it upon request from an Auditor?
Lastly, consider post-delivery of the report, are you going to allow for a reconsideration procedure? If you determine that you want to offer a process such as this, who on your staff is going to handle it? How are you going to insure there is no pressure in this process? The reconsideration process is one of the most difficult areas of our industry. You are attempting to walk that line of giving the appraiser additional information to consider, without crossing over into the realm of pressuring or forcing the appraiser to utilize the additional information. How do you handle that? What precautions and training have you put in place?
I am sure that some of you reading this already have processes in place and have no concerns. To you, I say congratulations and good job. However, I know for a fact that there are a number of you currently reading this that are way behind. Generally speaking, people, even more specifically our industry is very reactive. Looking at past trends and history, we wait till the waves hit, and then we react by creating a plan or process. It is no longer safe to operate in this manner (it never really was). If you want to sustain longevity in this industry you need to shift with the times and become more proactive than ever.
In all, deciding to manage your own panel is a big decision that can result in all kinds of implications. In this article, I have posed a number of hypothetical questions. These questions are not intended to be the groundwork for your processes; they are simply intended to get the ball rolling in terms of assisting you in being proactive and insulating your company from the serious liability that you may currently be vulnerable to on a daily basis. The bottom line is, if you are going to carry the burden of panel management in-house, you absolutely cannot afford to do it in a noncompliant manner.
John P. Hamameh, Esq.
Chief Compliance Attorney
John P. Hamameh, Esq is the Chief Compliance Attorney at Class Appraisal. His priority is to help guide our clients through the ever changing industry regulations and ensure that every report is compliant with federal guidelines. John’s attention to detail, ability to interpret legislation and experience in the real estate industry, makes him a valuable asset to Class Appraisal and our clients.