Final Rule Released on Minimum AMC Requirements. They do not include a rule on C & R fees
April 22, 2015
Final Rule Released on Minimum AMC Requirements
The Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the Consumer Financial Protection Bureau the Federal Reserve and the Office of the Comptroller of the Currency released on April 21 its final rule on minimum requirements for state registration and supervision of appraisal management companies, as required by the Dodd-Frank Act.
There was one reference made to customary and reasonable fees made. This was it:
These commenter’s requested that the final rule clarify the extent to which States are expected to investigate and enforce TILA section 129E and its implementing regulations, which includes the requirements to pay appraisers customary and reasonable fees. These commenter’s also expressed concern that States might interpret these rules differently, potentially in ways that may conflict with Federal interpretations.
Lets just ignore the problem. The following are some excerpts from the rule that I thought were interesting. It is worth reading. I threw in a few quotes from the Appraisal Institute.
States will have 3 years from the release of the rule to set up AMC registration and supervision systems. Some commenter’s actually complained that 3 years is not enough time.
Highlights of the rule include:
Under the final rule, these Federally regulated AMCs do not need to register with a State, but are subject to the same minimum requirements as State-regulated AMCs.
What if we do not have state regulation
Only some of the worst AMC’s would be allowed to operate, those that are big bank owned. You know they are going to cut fees even more.
Section 1124 does not compel a State to establish an AMC registration and supervision program, nor is a penalty imposed on a State that does not establish a regulatory structure for AMCs within 36 months of issuance of this final rule.15 However, in a State that has not adopted the AMC minimum requirements established by this rule, AMCs are barred by section 1124 from providing appraisal management services for Federally related transactions, unless they are owned and controlled by a Federally regulated depository institution.16 Thus, appraisal management services may still be provided for Federally related transactions in non-participating States by individual appraisers, by AMCs that are below the minimum statutory panel size threshold, and as noted previously, by Federally regulated AMCs.
In participating States, the minimum requirements apply to any AMC that provides appraisal management services, as defined in the final rule, and meets the statutory panel size threshold, which is that the AMC oversees an appraiser panel of more than 15 State-certified or State-licensed appraisers in a State or 25 or more appraisers in two or more States in a calendar year or 12-month period under State law. States may establish requirements for AMC registration and supervision that are in addition to these minimum requirements..
The implementation of the AMC minimum requirements does not affect the responsibility of banks, Federal savings associations, State savings associations, bank holding companies, and credit unions to ensure that appraisals for their institutions comply with applicable laws and regulations and are consistent with supervisory guidance. If these regulated financial institutions use an AMC to engage appraisers on their behalf, the AMC must be acting as an agent for these institutions.
If after the 36-month period following issuance of the final rule (or any extended period permitted by the ASC), a State has not yet adopted an AMC registration and supervision program, many options exist for creditors to obtain appraisals for Federally related transactions. Creditors that do not wish to hire in-house appraisers can engage third-party appraisers directly.101 Smaller AMCs (those that have fewer than 15 appraisers in the State on their panel or fewer than 25 appraisers in two or more States) as well as Federally regulated AMCs can still perform services in Federally related transactions. AMCs that exceed the statutory size threshold may also continue to service transactions that are not Federally related and, if the State does later participate, can also then provide services in Federally related transactions.
in non-participating States, non-Federally regulated AMCs will be at a competitive disadvantage, because these AMCs will be barred by statute from providing appraisal management services for Federally related transactions.
an AMC shall not be registered by a State or included on the AMC National Registry if the company, in whole or in part, directly or indirectly, is owned by any person who has had an appraiser license or certificate refused, denied, cancelled, surrendered in lieu of revocation, or revoked in any State.103 Section 1124(d) provides further that each person who owns more than 10 percent of an AMC must be of good moral character, as determined by the State appraiser certifying and licensing agency, and must submit to a background investigation carried out by the State appraiser certifying and licensing agency.
Section 1124(c) provides that AMCs that are owned and controlled subsidiaries of an insured depository institution or an insured credit union and regulated by a Federal financial institutions regulatory agency, are not required to register with a State.109 These Federally regulated AMCs are, however, subject to the same minimum requirements as AMCs that are not regulated by a Federal financial institutions regulatory agency.
The OCC believes the final rule will not have a significant economic impact on a substantial number of small entities for several reasons. First, the final rule imposes requirements primarily on States, not on national banks or Federal savings associations. Second, to the extent that the final rule imposes burden on national banks or Federal savings associations that own and control an AMC, there are only two such AMCs, and these are owned by large national banks. For these reasons, the OCC believes that the final rule will not have an impact on a substantial number of OCC-supervised small entities. Therefore, the OCC certifies that the final rule would not have a significant economic impact on a substantial number of small entities.
In the Board’s regulatory flexibility analysis for this Rule, the Board determined that approximately 32 entities would be subject to direct regulation and supervision by Federal financial institutions regulatory agencies. These entities would be subject to direct regulation and supervision under the Rule because the entities are appraisal management companies owned and controlled by insured depository institutions and regulated by a Federal financial institutions regulatory agency (Federally regulated AMC). The number of these 32 entities that actually would be subject to regulation under the AMC Rule is currently unknown because some of the entities may have a network or panel of contract appraisers that is too small to satisfy a threshold requirement of the AMC Rule and therefore would be exempt from regulation and supervision under the AMC Rule.
Data currently available to the Board indicate that approximately five State member banks operate a Federally regulated AMC. Data available to the Board are not sufficient to estimate how many of the approximately five entities subject to Board regulation and supervision would be classified as “small entities.”
Geographic Competency and independence
Establish and comply with processes and controls reasonably designed to ensure that the AMC, in engaging an appraiser, selects an appraiser who is independent of the transaction and who has the requisite education, expertise, and experience necessary to competently complete the appraisal assignment for the particular market and property type”; and
Independent Contractor Definition: The rule revises the standard used to determine if an appraiser is an independent contractor based on whether or not the appraiser is treated as an independent contractor by the AMC for federal income tax purposes.
AMC/Appraisal Firm Distinction:The rule distinguishes between AMCs and appraisal firms based on their respective use of fee appraisers and employees. Each employee appraiser must pay a registration fee to the state or states where they practice. An AMC will only be subject to a registration fee once state registration and supervision regulations become effective pursuant to Dodd-Frank. The rule also provides coverage for “hybrid” firms, meaning entities that both hire appraisers as employees to perform appraisals and engage independent contractors to perform appraisals.
AMC Panel Threshold Size:The rule clarifies that when the number of appraisers is counted for the purpose of determining the size of an AMC’s panel threshold, that the count be based on the number of appraisers listed on the roster who potentially are available to perform appraisals and not on the number of appraisers actually engaged to perform appraisals.
Trainee Appraisers Not Barred:The rule clarifies that AMCs may engage appraisers who use trainee appraisers to assist on assignments.
DATES:
Effective date. This final rule will become effective on [INSERT 60 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER].
Compliance date: Federally regulated AMCs must comply with the minimum requirements for providing appraisal management services under 12 CFR 34.215(a) no later than 12 months from the effective date of this final rule. The participating State or States in which a State-regulated AMC operates will establish the compliance deadline for State-regulated AMCs.
To estimate the impact of the final rule on small AMCs, the Bureau conducted a survey. The Bureau called nine AMCs, selected randomly from a list of approximately 500 AMCs provided by industry trade associations. The AMCs were asked for certain basic data including the number of States in which they operate, their revenue (including the revenue from any non-appraisal business), and the number of appraisals that they performed in 2012.130 The Bureau estimated the revenue to be the number of appraisals performed in 2012 multiplied by $350 – the average appraisal cost assumed in the Agencies’ analysis under section 1022 of the Dodd-Frank Act in the 2013 Interagency Appraisals Rule. This revenue estimate is likely to be underestimated, given that several AMCs out of nine reported additional revenue that was not due to the residential appraisal business. Out of the nine AMCs, six had revenues of less than $7,500,000 in 2012, and thus would be within the scope of the RFA analysis based upon SBA guidelines.131 The Bureau computed the cost of registration and renewal fees in States that do not already have them, allocated these costs to individual AMCs based upon the number of States in which the AMC operated,132 and computed the ratio of these allocated costs to the AMCs’ revenues.
The Bureau acknowledges that requiring AMCs to send letters to the appraisers that the AMC decides to remove from its panel might add burden in States that do not already have registration requirements (which typically include notice provisions). The Bureau does not possess any evidence on the number of appraisers to whom an AMC would have to send these letters. According to the Bureau of Labor and Statistics’ August 2014 preliminary numbers, 1.9 percent of the labor force in the real estate and rental and leasing industry was either laid off or discharged in the most recent month. Thus, the Bureau estimates that an AMC will dismiss approximately a quarter of appraisers from its panel in any given year. The Bureau assumes that each AMC will have several standardized letters explaining the reason for dismissal: for example, changing economic conditions or the appraiser’s violation of USPAP or work performance issues. Each AMC might incur a minimal one-time cost to draft these letters, with some industry associations potentially providing templates. After this minimal one-time cost is incurred, the ongoing cost would include a minimal adjustment of the letter based on the appraiser’s particular circumstances and the actual printing and mailing cost. These letters also could be sent in batches, periodically, such as on an annual basis. Thus, for the purposes of this analysis, the Bureau implicitly accounts for these costs in the sensitivity analyses below (which use a State fee of $5,150 and include a $300 administrative expense).
View a copy of the final rule for Minimum Requirements for Appraisal Management Companies.
View a copy of the Appraisal Institute’s comment letterto the federal agencies on their proposed rule addressing “Minimum Requirements for Appraisal Management Companies.” (log-in required).
Wisconsin Appraiser 