Ethics and appraisals

• Lending professionals may not attempt to influence appraisers for value needed to close a transaction

• Financial institutions reform, recovery, and enforcement act of 1989 (FIRREA) established the uniform standards for professional appraisal practice (USPAP)

USPAP requirements

• Appraisers must perform their duties impartially, objectively, and independently from influence

• Must refrain from accepting assignments or compensation that is contingent on a specified outcome

• Protect the confidential nature of the appraiser-client relationship

  • The lender is the appraisers client

• Keep assignment records for 5 years

• Adhere to the appraiser independence rule

  • Added to TILA under Dodd-Frank

• Report any appraiser misconduct

validation independence rule

• Applies to covered persons and covered transactions

• Covered persons include anyone who participates in covered transactions

• Covered transactions are broadly defined as credit secured by a primary residence

  • Includes open- and closed-end transaction

  • Transactions for purchase, non-purchase, and reverse mortgages

• Valuations are estimates of the value of a consumers principal dwelling, written or electronic, other than the one produced by an automated model or system

Valuation management functions

• These involved in selecting, contracting, and/or employing someone to prepare a valuation

  • Appraisal management companies (AMCs)

• Persons who oversee and/or administer orders for valuations, process or prepare violations, submit valuation to creditors, and/or receive fees for violation

  • Appraisers, appraiser assistants, and their staff

• Those who review and/or verify the work of valuation prepares

  • Lenders, processors, and underwriters

Appraisal Prohibition

• Coercion and/or coercive conduct

  • Influencing a person preparing a valuation for a minimum or maximum value

  • Withhold or threatening to withhold pay unless the desired value is stated

  • Suggesting current or future use of services may be discontinued if the desired value is not met

  • conditioning compensation on the loan closing

• Misrepresentation

  • Valuation prepares cannot withhold information that may significantly affect the value assigned to the dwelling

• Extension of credit when knowing a violation has occurred

  • If the lender and/or LO are aware that a violation has occurred, they may not consummate the loan

  • no use of material misstatements

• Conflicts of interest

  • Valuation preparers may not have a direct or indirect in the transaction, financial or otherwise

FRB compliance rules

• Compensation cannot be based on outcome

• Creditors must not require anyone who performs and/or reviews valuations abstain from decisioning the loan file.

Appraisals; Allowable communication

• Lenders and LOs may ask appraisers to consider additional information, including comparibles, or request further explanation about how they reached a value

• Ask for correction of errors

• Obtain multiple valuations if 1 is found to be unreliable

• Withhold compensation for breach of contract