The question whether to create special legislation for appraisal management companies across the country – and what it should be – is on the minds of both state legislators and appraisal licensing bodies these days.
Currently, 38 states have opted for appraisal management company (AMC) regulations. Many others are in the process of discussing the possibility of enacting AMC laws.
The regulation trend is largely due to decisions made on the federal level. Most notably, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, created as a part of the answer to the subprime mortgage crisis of 2007 and 2008, makes it obligatory for states to keep a close look at AMCs.
Let’s take a peek at the state of appraisal management company regulations in different states, the relevant requirements, and the advantages and disadvantages that regulation brings.
Appraisal management company regulations across the U.S.
While the Dodd-Frank Act provided requirements for states to regulate AMCs, the so-called Final Rule on AMCs stipulates that states can choose whether or not to create a regulatory structure for such companies. In practice, this means that each state can decide if it wants to enforce appraisal management company registration.
Additionally, the Final Rule also bans AMCs from Federally Related transactions (FRTs) in a state that has chosen not to regulate such companies.
As mentioned already, 38 states have already created AMC rules, which often entail AMC licensing. Appraisal licensing boards are in charge of controlling AMCs and issuing their registrations.
As a part of the AMC regulations, some states have also introduced an appraisal management bond requirement. The surety bond is a necessary registration prerequisite for AMCs in Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Idaho, Louisiana, Mississippi, Utah and other places across the country. The bond protects the interests of the state and its citizens from any fraudulent activities on the side of AMCs.
Pros and Cons of Regulation
The reason for regulating AMCs is straightforward – to guarantee that high standards will be up-kept by AMCs and that their relations with both individual appraisers and lenders will be impeccable.
Legislation has also aimed to tackle problems with AMCs claiming substantial shares of appraisal fees, as well as appraisers who have had their licenses revoked creating AMCs and evading the law.
But the question whether to create an AMC regulatory program is seen differently by some industry experts. The fact that AMCs cannot participate in FRTs if their state has not opted to regulate them pushes companies to demand for AMC regulation so that they are not left out of FRTs. This is seen as the wrong reason for introducing AMC legislation.
Additionally, state regulations are seen as redundant, since the main issues with AMCs are said to be addressed in federal regulations, such as appraiser fees and independence.
This article was written by Todd Bryant, President and Founder of Bryant Surety Bonds. It does not reflect the views of Global DMS.