Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173)

Yesterday, October 18, 2010, the Board of Governors of the Federal Reserve released Interim Final Rules for the appraisal independence provisions of the Dodd-Frank Bill.  The Bill contained over 60 pages of appraisal regulation reform provisions and was enacted on July 21, 2010 with an effective date 90 days thereafter.  Some of the appraisal reform provisions include:

• Appraisers must be paid a “reasonable and customary fee” which can be determined by independent private sector surveys, government agency fee schedules or academic studies, but which shall not include appraiser fees paid by appraisal management companies.
• The Home Valuation Code of Conduct (HVCC) is sunsetted in favor of new similar independence standards that bar compensating, instructing, inducing, bribing or intimidating for the purpose of causing the appraised value to be based on any factor other than the independent judgment of the appraiser.
• Penalties for non-compliance are very punitive.  Up to $10,000 can be assessed per day for a first offense and to $20,000 per day for subsequent violations.  Both the lender and their appraisal management company agent are liable for such penalties.

The Dodd-Frank Bill called for the Federal Reserve to publish Interim Final Rules within 90 days of the Bills enactment.  The Interim Final Rule contains 130 pages and includes the following additions and clarifications:

1. Reasonable and Customary Fees: To allow time for any necessary changes, including determining what are reasonable and customary fees, the dead-line for compliance with reasonable and customary fee payments is April 1, 2011.
2. Covered Transactions: The Interim Final Rule applies to appraisals for any consumer credit transaction secured by the consumer’s principal dwelling.  This includes closed-end loans and home-equity lines of credit (HELOCs).
3. Independent Appraisal Process: The Interim Final Rule further codifies the requirement for lenders to have the valuation management functions independent of the lending, investment and collection functions. Valuation management functions are defined as: 1) recruiting, selecting, or retaining an appraiser; 2) contracting with a person to prepare a valuation; 3) managing or overseeing the process of preparing a valuation, 4) reviewing or verifying the work of a person that prepares a valuations.
4. Appraiser and AMC Definitions: “Appraiser” is defined as: 1) a state-licensed or state-certified appraiser (individual appraiser), or 2) an organization that employs appraisers to perform appraisals (appraisal company).  Appraiser defines the level at which a reasonable and customary fee must be paid.  An appraisal management company (AMC) is defined as an entity that is authorized to do the following actions on behalf of the lender: 1) recruit, select, and retain appraisers; 2) contract with appraisers to perform appraisals; 3) manage the process of having an appraisal performed, 4) review and verify the work of the appraiser. The Dodd-Frank Bill had potentially included in its definition of an AMC, appraisal companies that had 15 or more appraisers within a state or 25 or more nationally.  The Interim Final Rule removes the arbitrary number of appraisers, and focuses more on the functions of the entities. 

To learn more on how IRR-Residential can help your organization be “Dodd-Frank” compliant, contact our client development department at busdev@irr-residential.com or 913-261-1890.