House Passes Rep. Stanley’s Legislation to License Appraisal Management Companies

The Massachusetts House of Representatives passed important consumer protection legislation filed by Rep. Stanley to regulate Appraisal Management Companies (AMCs), bringing MA into compliance with the Dodd-Frank Act. This bill (H.3904) needs to be signed into law before August 10th in order to prevent disruptions to home purchases and refinances as AMCs would no longer be able to operate in the Commonwealth if the deadline is missed. The MBREA (the Association for Valuation Professionals), appraisal management companies, the mortgage industry and real estate appraisers all support this legislation.

In 2010, the Dodd-Frank Wall Street reform Act was signed into law. Under the provisions of Dodd-Frank, states are required to enact licensing of AMCs by August 10, 2019. Forty-nine states currently license AMCs. The Dodd-Frank Act requirements will be satisfied with prompt passage of Rep. Stanley’s bill, which has support in both the House and Senate.

Requiring the licensing of appraisal management companies is indirectly driven by consumer concerns. Appraiser independence requirements were established to halt the inordinate pressure from lenders that was placed upon appraisers to reach a pre-determined value – one that would make the loan work. The pressure came mostly in the form of threats to withhold payment for appraisal services and blackballing the appraiser from future work. As a result, lenders were compelled to establish a firewall between staff, compensated based on a loan closing, and appraisers. The firewall most typically employed was made by engaging third-party appraisal management companies to act as go-betweens the lender and the appraiser.

With more than 80% of all residential appraisal orders processed by AMCs, the mortgage industry will not change the way they manage appraisal ordering for the one state that fails to comply. Instead, much of the lending activity will be curtailed and consumers, the residential housing market, and the overall economy will suffer from a lack of competitive mortgage products.