Appraiser Independence Requirements
An “appraiser” must be, at a minimum, licensed or certified by the State in which the property to be appraised is located. B. No employee, director, officer, or agent of the Seller, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the Seller, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to:
(1) Withholding or threatening to withhold timely payment or partial payment for an appraisal report;
(2) Withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser;
(3) Expressly or impliedly promising future business, promotions, or increased compensation for an appraiser;
(4) Conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser;
(5) Requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser’s completion of an appraisal report;
(6) Providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the Borrower, except that a copy of the sales contract for purchase transactions may be provided;
(7) Providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits;
(8) Removing an appraiser from a list of qualified appraisers, or adding an appraiser to an exclusionary list of disapproved appraisers, in connection with the influencing or attempting to influence an appraisal as described in Paragraph B above (this prohibition does not preclude the management of appraiser lists for bona fide administrative or quality-control reasons based on written policy); and
(9) Any other act or practice that impairs or attempts to impair an appraiser’s independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the Uniform Standards of Professional Appraisal Practice (USPAP).
Fannie Mae has been working with the Federal Housing Finance Agency, Freddie Mac, and key industry participants to develop Appraiser Independence Requirements to replace the Home Valuation Code of Conduct (HVCC). The Appraiser Independence Requirements maintain the spirit and intent of the HVCC and continue to provide important protections for mortgage investors, home buyers, and the housing market.
The revised requirements pose no significant changes to core principles of the HVCC and incorporate language to clarify questions that arose in the implementation of the HVCC. Fannie Mae has also removed certain provisions from the updated requirements as they already exist elsewhere in the Selling Guide, such as the need for lender quality control testing for appraisals.
Fannie Mae is committed to supporting strong appraiser independence requirements and will continue to review the appraiser independence requirements to address market developments and regulatory actions taken pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which may include rules relating to conflicts of interests and fee disclosure by appraisal management companies. Fannie Mae may issue additional guidance in the future with respect to these issues and other aspects of the requirements.
DODD-FRANK Subtitle F, Appraisal Activities, Section 1471
Below are the specific regulations pertaining to the appraisal activity that Collateral Management regulates.
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.
18.104.22.168. 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.
22.214.171.124.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.
126.96.36.199.1. 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.
188.8.131.52. 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.
184.108.40.206. 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 any person who has had an appraiser license or certificate refused, denied, cancelled, or revoked.
220.127.116.11. 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.
18.104.22.168.1. 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.
22.214.171.124.1. 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]