Regulation of appraisal management companies, providing an exemption from emergency rule procedures, granting rule-making authority, and providing a criminal penalty. (FE)

Federal law; Dodd-Frank Act; federal regulations “Appraisal management company” is defined under the act as “in connection with valuing properties collateralizing mortgage loans or mortgages incorporated into a securitization, any external third party authorized either by a creditor of a consumer credit transaction secured by a consumer's principal dwelling or by an underwriter of or other principal in the secondary mortgage markets, that oversees a network or panel of more than 15 certified or licensed appraisers in a State or 25 or more nationally within a given year a) to recruit, select, and retain appraisers; b) to contract with licensed and certified appraisers to perform appraisal assignments;

c) to manage the process of having an appraisal performed ... ; or d) to review and verify the work of appraisers.” Under the act, a number of federal agencies are required, by rule, to jointly establish minimum requirements to be applied by a state in the registration of AMCs. The minimum requirements include that an AMC must a) register with and be subject to supervision by a state appraiser certifying and licensing agency in each state in which the AMC operates; b) verify that only licensed or certified appraisers are used for federally related transactions; c) require that appraisals coordinated by an AMC comply with the Uniform Standards of Professional Appraisal Practice; and d) require that appraisals are conducted independently and free from inappropriate influence and coercion pursuant to standards established under the Truth in Lending Act. Under the act, an AMC that is owned and controlled by a financial institution and regulated by a federal financial institution regulatory agency is not required to be registered with the state, but is otherwise required to comply with the requirements described above.

Also under the act, an AMC may not be registered by a state if the AMC 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. In addition, each person that 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. Finally, under the act, a national registry must be maintained of AMCs that either are registered with and subject to supervision of a state appraiser certifying and licensing agency or are operating subsidiaries of a federally regulated financial institution. A state with an appraiser certifying and licensing agency must collect an annual registry fee from an AMC that has registered with a state or that operates as a subsidiary of a federally related financial institution.

The act prohibits an AMC from performing services related to a federally related transaction in a state after the date that is 36 months after the date on which the federal regulations described above are finalized unless the AMC is registered with the state or subject to oversight by a federal financial institutions regulatory agency, subject to an additional 12-month extension that may be granted if certain conditions are met. The final federal regulations became effective on August 10, 2015, meaning that an AMC cannot perform services related to a federally related transaction in a state after August 10, 2018, unless the AMC is registered with the state.

The bill The bill implements the provisions in the Act described above and establishes provisions for the licensure of AMCs, described in further detail as follows:

1. The bill prohibits the performance of appraisal management services for compensation, or the use of the title “appraisal management company” or “licensed appraisal management company” by any person unless the person is licensed by DSPS. The bill requires DSPS to grant and issue a license to an AMC if the AMC a) submits certain information; b) pays a fee; and c) meets any other applicable requirements. Certain persons, including persons who own more than 10 percent of the AMC, must submit to background investigations prior to the AMC's licensure, and the applicant must be determined by DSPS to have good moral character in order for the AMC to be licensed. As provided in the act, federally regulated AMCs are not required to be licensed, but must comply with other provisions in the bill.

2. The bill creates prohibitions on AMCs and establishes ownership limitations for AMCs.

3. The bill requires applicants for an AMC license to designate a controlling individual to be the primary contact for all communications between DSPS and the AMC. Such a controlling individual must meet certain criteria in order to be so designated.

4. The bill requires AMCs that perform appraisal management services in federally related transactions to pay the annual registry fee to DSPS, pursuant to the act as described above. The bill requires DSPS to transmit the fees to the Federal Financial Institutions Examination Council.

5. The bill establishes requirements that an AMC must satisfy before assigning appraisal services to an AMC, adding appraisers to an appraiser panel, or assigning appraisal reviews. The bill also requires AMCs to regularly review the work of appraisers performing appraisal services for the AMC to ensure they comply with the Uniform Standards of Professional Appraisal Practice.

6. The bill requires AMCs to compensate appraisers at a rate that is reasonable and customary, and establishes other requirements with respect to the payment and statement of fees by AMCs.

7. The bill establishes record-keeping requirements for AMCs and allows DSPS to audit those records.

8. The bill establishes requirements and prohibitions to ensure appraiser independence, consistent with federal law. The bill also establishes limitations on the removal of appraisers from AMC appraiser panels and allows DSPS to order reinstatement of an appraiser to an appraiser panel in certain cases.

9. The bill provides for discipline of AMCs by DSPS and the board, and requires DSPS to report violations of applicable laws to the federal Appraisal Subcommittee of the Federal Financial Institutions Examination Council.

10. The bill makes a violation of provisions established in the bill subject to a fine of not more than $10,000.

The bill also modifies provisions in current law pertaining to the regulation of appraisers to also reference AMCs. Finally, the bill removes from the Real Estate Appraisers Board one public member and replaces it with a controlling individual of an AMC.

The bill provides that the provisions in the bill do not apply if federal law is amended or repealed so as to allow AMCs that are not federally regulated AMCs to perform services related to a federally related transaction without being required to register with and be subject to supervision by a state appraiser certifying and licensing agency as required under the act.