The Hazards of Farming Out Appraisals

By Michael Dresden, President, Dart Appraisal

Originally published in Mortgage Banking Magazine, December 2015

Today all parties responsible for any residential mortgage lending and servicing assignment must produce a verifiable and accountable work product while exercising superior responsiveness, timeliness and coordination. As compliance and due-diligence concerns continue to escalate in the mortgage industry, lenders are increasingly scrutinizing the oversight of an important professional partner--their chosen appraisal management company (AMC).  

However, through our conversations with lenders we discovered that, unbeknownst to many of them, some AMCs are farming out their appraisals to fourth-party vendors as opposed to working through a dedicated, directly controlled panel of appraisers.

To be clear, when it comes to AMC relationships, a lender's exposure extends across the entire spectrum of its AMC partner's business practices, including panel management; appraiser recruitment, assignment and compensation; quality-control standards and more.

With the variation in appraisal requirements for each state, it is imperative that AMCs are licensed and compliant with all state laws. Though they may claim to be "nationwide," not all AMCs are licensed in every state. Thus, taking on assignments in any unlicensed state requires outsourcing--with all of its attendant risks.

As the Consumer Financial Protection Bureau (CFPB) has made abundantly and repeatedly clear, as in its April 2012 CFPB Bulletin 2012-03, "supervised banks and non-banks are expected to oversee their business relationships with service providers in a manner that ensures compliance with Federal consumer protection law," which means that these entities must have an effective process for managing the risks of service provider relationships.

This article addresses the current regulatory environment as well as issues that lenders should be aware of with regard to AMC outsourcing of an appraisal assignment to a fourth party.

Read the full article here.