Appraisal management firms, or AMCs, create a third-party layer between lenders and appraisers. They generally provide management services to lenders for a fee. The passage of H.R. 4173, known as the Dodd-Frank Financial Reform Bill of 2010, contains provisions about the function and regulation of AMCs. As of 2011, final rules and regulations surrounding the implementation of the legislation are not complete.
The use of AMCs gained steam as a result of the Truth in Lending Act, signed into law in 1968. The legislation intended to protect consumers from deceptive practices in lending services. The act was amended in 2008 to prohibit fraudulent practices in the appraisal industry that were widely blamed for contributing to the housing crisis. The act prohibits lenders and real estate brokers from exerting financial pressure--such as bribes or intimidation--on appraisers to report a pre-determined value merely to facilitate a loan closing. The act affirms the independence of appraisers to pursue an objective evaluation of a home’s market value in compliance with the appraisal standards set by the Appraisal Foundation.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 defines an AMC as “an external third party” that manages a network of appraisers. If the organization manages 15 or more licensed appraisers within a state or 25 or more nationally, states must register and regulate their activities. The act exempts AMCs that are owned and administered by federally regulated banks. Under this exemption, large AMCs, such as Countrywide’s LandSafe AMC, will not fall subject to state regulation.
AMCs remove the administrative processes of appraisal management from the lender’s control. For a fee, the AMC recruits appraisers, contracts with them to perform appraisals, manages the appraisal process, pays the appraisers and reviews their work. The regulations prevent mortgage brokers or real estate agents from selecting or paying an appraiser if the appraiser’s report will be used for lending purposes.
The Dodd-Frank definition does not necessarily define all appraisal management activities, according to the Title/Appraisal Vendor Management Association, or TAVMA. Some financial institutions have in-house divisions that perform appraisal management activities. Even some appraisal firms can blur the definitive lines between the appraisal process and the appraisal management process. Some large appraisal firms act on behalf of a lending institution as a third party, assigning appraisals to a team of independent appraisers. TAVMA distinguishes between appraisal firms and AMCs by suggesting that an AMC typically will provide additional services to lenders, such as flood reports, titling and closing services.