Banks using third-party AMCs need to conduct "due diligence" to confirm that an AMC is properly registered.
The Office of the Comptroller of the Currency has issued a bulletin reminding national banks, federal savings associations, and federal branches and agencies of foreign banking organizations about the new registration requirement for appraisal management companies (AMCs) that took effect on Aug. 10, 2019. Because AMCs must now register with the applicable state or states in which they do business and are subject to state supervision, the OCC’s Sept. 16, 2019, bulletin (2019-43) provides banks with guidance on confirming AMC registration as part of their "sound third-party risk management." Further, the bulletin presents considerations for banks that engage AMCs and suggests alternatives the banks can use "when no registered AMCs are available."
As observed by the OCC, many banks typically outsource the process of engaging appraisers for real estate transactions to AMCs, which serve as the intermediaries between banks and appraisers. In 2015, the OCC, in conjunction with the Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration, Consumer Financial Protection Bureau, and Federal Housing Finance Agency adopted a regulation (12 CFR Part 34) to implement provisions of the Dodd–Frank Act governing minimum requirements for AMCs (see Banking and Finance Law Daily, April 22, 2015).
Among other things, the jointly adopted regulation implements the requirement for states to report to the Federal Financial Institutions Examination Council’s Appraisal Subcommittee for the Subcommittee’s administering of the AMC National Registry. The registry includes: (i) AMCs that are registered with (and subject to) supervision by a state that certifies and licenses appraisers; or (ii) AMCs that are federally regulated—typically as operating subsidiaries of a federally regulated financial institution. Moreover, the AMC National Registry provides the public with a searchable database on AMCs.
Notably, if an AMC is not registered as required, federal law bars the AMC from "providing appraisal management services to financial institutions for consumer credit transactions secured by a consumer’s principal dwelling that are federally related transactions (covered FRT)."
Bulletin highlights. The September 2019 OCC bulletin underscores that bank management "should conduct sufficient due diligence to confirm that the bank’s third-party AMCs are registered as required." Along these lines, to confirm that an AMC is properly registered, a supervised financial institution can:
- check the FFIEC Appraisal Subcommittee’s national AMC registry;
- check a state’s AMC registry, particularly when the AMC is not found on the national registry; and/or
- request proof of registration directly from the pertinent AMC, especially when a state does not offer the electronic capability to verify an AMC’s registration.
In addition, the OCC recommends that bank management "work with AMCs to properly identify transactions that meet the definition of a covered FRT." To determine whether the transaction is a covered FRT or not, a supervised financial institution should "either notify the AMC that the transaction is a covered FRT or provide sufficient information to enable the AMC to identify the transaction as a covered FRT." Still, if a bank relies on an AMC’s determination of FRT coverage, the bank’s management "should conduct sufficient due diligence as part of sound third-party risk management to confirm that the AMC appropriately identifies covered FRTs as such."
Further, the bulletin notes that if a transaction is deemed to be a "covered FRT in a state that is not registering AMCs," supervised banks may want to use one of the following: (i) an individual appraiser; (ii) a staff appraiser employed by the bank; (iii) a smaller AMC that has a "panel with fewer than 15 appraisers in any state and fewer than 25 appraisers nationally in a given year"; or (iv) a federally regulated AMC.
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