On October 18, 2010, the Federal Reserve Board (FRB) announced an interim final rule that is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Act). This interim final rule includes several provisions that are meant to protect the integrity of the appraisal process when a consumer's home is securing the loan.
The Act mandates that the Home Valuation Code of Conduct (HVCC) shall have no effect, once the Board issues this interim final rule. [See: TILA Section 129E(j), 15 U.S.C. 1639e(j)] The HVCC provides that, among other things, only a creditor or its agent may select, engage, and compensate an appraiser and that a creditor must ensure that its loan production staff do not influence the appraisal process or outcome.
The FRB's interim final rule intends to ensure that real estate appraisers are "free to use their independent professional judgment in assigning home values without influence or pressure from those with interests in the transactions."
In addition, the interim final rule seeks to ensure that appraisers receive customary and reasonable payments for their services.
Public comments are due 60 days after publishing the interim final rule in the Federal Register, which is expected soon.
Compliance: April 1, 2011.
HIGHLIGHTS
The Rule includes several provisions that protect the integrity of the appraisal process when a consumer's home is securing the loan.
Interim Final Rule
- Prohibits coercion and other similar actions designed to cause appraisers to base the appraised value of properties on factors other than their independent judgment.
- Prohibits appraisers and appraisal management companies hired by lenders from having financial or other interests in the properties or the credit transactions.
- Prohibits creditors from extending credit based on appraisals if they know beforehand of violations involving appraiser coercion or conflicts of interest, unless the creditors determine that the values of the properties are not materially misstated.
- Requires that creditors or settlement service providers that have information about appraiser misconduct file reports with the appropriate state licensing authorities.
- Requires the payment of reasonable and customary compensation to appraisers who are not employees of the creditors or of the appraisal management companies hired by the creditors.
Visit Library for Issuance
FRB: Appraiser Independence, Interim Final Rule,
12 CFR Part 226, Regulation Z, Truth in Lending
October 18, 2010
LENDERS COMPLIANCE GROUP is the first full-service, mortgage risk management firm in the country, specializing exclusively in mortgage compliance and offering a full suite of hands-on and automated services in residential mortgage banking.
