InsightsSelecting an AMC Committed to Compliance: Why and How

Part 3 of 3 in the series: Selecting an AMC for Today’s Market

We’ve recently discussed the benefits of working with an appraisal management company (AMC) – focusing on how AMCs provide access to technology for a better consumer experience and the value of their risk management processes, administrative oversight and specialized expertise. We also shared our tips for selecting an AMC, reminding you to consider their expertise, transparency, financial strength and stability, capacity and customer service. In this article, we hone in on another factor you should consider during the selection process: your AMC’s commitment to compliance.

The largest risk in the real estate lending industry is the collateral securing the loan. Having thorough appraisal and evaluation programs in place is the best insurance to mitigate that risk. Simply using an AMC does not automatically guarantee compliance with all appraisal regulations. Selecting an AMC with an affirmed commitment to compliance, and the financial strength and stability to adhere to that commitment, is the lender’s best course of action.

Although AMCs have been a part of the real estate landscape for more than 50 years, it wasn’t until the 2007-2008 financial crisis that stricter federal regulations came into play. This additional layer of requirements dictates that unbiased, complete and compliant appraisals are produced with multiple quality controls embedded within the process.

Today, real estate lenders must carefully monitor third-party service providers, like AMCs, to ensure compliance with all mandates of The Federal Financial Institutions Examination Council (FFIEC) and the government agencies of which it is comprised. The FFIEC is a group of government agencies that regulates, supervises and enforces federal financial laws on lenders. This group includes the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Federal Reserve Board (FRB or the Fed) and the Consumer Financial Protection Bureau (CFPB). These agencies hold lenders responsible for performing due diligence to control any risk associated with third-party relationships to protect the bank’s safety and soundness.

Laura Raposo, VP of Valuations Compliance Counsel, Valuations Compliance at ServiceLink, has been in the industry for more than 15 years and has seen increased demand for compliance by lenders as a result of heightened expectations and scrutiny from the agencies within the FFIEC. “The bar set by regulators for lender compliance with third-party oversight requirements is continually raised and the requirements are increasingly more complex,” says Raposo. “Lenders need a reputable AMC with a robust, well-established compliance program to protect them from regulatory penalties."

How can lenders identify AMCs that are committed to compliance(1)?

  • Defined processes: Your AMC should maintain a system of controls, verification and testing to ensure that appraisals and evaluations provide credible market values.
  • Independence: It’s important that your AMC has adequate internal controls to ensure that the person completing the appraisal or evaluation is not unduly influenced by persons with an interest in the transaction.
  • Careful appraiser selection: Ensure that your AMC has practices in place to select persons qualified and competent to complete appraisals and evaluations.
  • Quality control: Quality control is essential. Your AMC should have established procedures to test the quality of the appraisal and evaluation review process.
  • Strength and stability: The best AMCs allocate resources, including experienced team members, specifically to compliance. These AMCs have the financial strength to maintain an unwavering focus on compliance, even amid market volatility.
  • Commitment to excellence: If errors arise, your AMC should correct them promptly. They should use their review process to continuously fine tune their appraisal panel. If deficiencies are discovered, they need to address them internally and – if applicable – report them to external parties.

“One of the strongest benefits ServiceLink brings to the table is a large compliance team dedicated to valuations, which is supported by additional legal, risk, and audit teams within ServiceLink,” says Raposo. “We have a very robust compliance team within valuations that serves as a first line of defense. This team tracks all requirements, implements process changes and controls in response to regulatory changes, trains staff, oversees higher-risk processes, and ensures adherence to requirements through monitoring and testing. They’re backed by additional control groups that serve as additional lines of defense, performing audits, identifying risks, and ensuring any gaps are remediated to keep our clients safely in compliance.”

As COVID-19 continues to impact our economy and the real estate industry, the work of appraisers moves forward as a federally deemed essential service. Now, more than ever, it is in the best interest of lenders to protect themselves by partnering with an AMC that has a robust, dedicated compliance team facilitating seamless third-party oversight.

For more information on partnering with an AMC, consider checking out our article “Is It Time to Shift from Appraisal Self-Management to an AMC Model?

(1)Department of Treasury, Office of the Comptroller of the Currency, Federal Register, Vol. 75, No. 237, Friday, December 10, 2010, https://www.govinfo.gov/content/pkg/FR-2010-12-10/pdf/2010-30913.pdf

*ServiceLink Valuation Solutions, LLC, (“ServiceLink”) is a registered Appraisal Management Company (“AMC”) in all states with AMC licensing requirements. ServiceLink’s AMC license numbers in states that require disclosure on these instructions are: NV # AMC.0000118, VT # 077.0067954-MAIN, WI #2-900.

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