Teaching Your Clients Well

At a recent industry show in Las Vegas (Valuation 2007), one speaker suggested that appraisers facing pressure may try “educating” their lender-clients about the rules, just in case they don’t know. You may be surprised by what is set in stone.

One document that can be used for this purpose is the Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement 1 on Independent Appraisal and Evaluation Functions (March 22, 2005).

The Q&A was issued jointly by the following regulators: Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation Office of Thrift Supervision, National Credit Union Administration. (You’ll find a copy posted at www.workingre.com.)

Here are some highlights to run past a recalcitrant lender:

* Question: Who should be considered the loan production staff for purposes of achieving appraiser independence? Could loan production staff select an appraiser?
Answer: The loan production staff consists of those responsible for generating loan volume or approving loans, as well as their subordinates. This would include any employee whose compensation is based on loan volume. Employees responsible for the credit administration function or credit risk management are not considered loan production staff. Loan production staff should not select appraisers…

* Question: What information should the regulated institution provide to the appraiser upon engagement?
Answer: The regulated institution should provide the property’s address, its description, and any other relevant information. The regulated institution may also provide a copy of the sales contract for purchase transactions. However, the information provided by the regulated institution should not unduly influence the appraiser or in any way suggest the property’s value.

* Question: May an appraisal be readdressed to a regulated institution from the borrower or another institution?
Answer: A regulated institution cannot accept an appraisal that has been readdressed or altered by the appraiser with the intent to conceal that the original client was the borrower. Readdressing appraisals to conceal the original client, whether the client is a borrower or another financial services institution, is misleading and violates the agencies’ regulations and USPAP.

You’ll find the document “Interagency Q&A (March 22, 2005)” here.