TILA on Appraisals: The Do's and Don'ts

How it was

With the introduction of the HVCC (Home Valuation Code of Conduct) in 2009 which was drafted between the members of Freddie Mac, the FHFA and the NY State Attorney General, the way that appraisals were done changed forever. Pre-HVCC, appraisals had much less oversight, artificially inflated the market and were overall much less stable then they are now. 

How it is

The introduction of the HVCC expanded the area of Appraisal Management Companies (AMCs) because companies wanted to make sure they were playing by the books and not accidentally in violation of any of the new rules. When your company goes through an AMC, there are limitations that prevent the revelation of the name of the appraiser is until later in the game, which negates many of the opportunities that you have to violate the new rules.

TILA’s impact

Now to TILA: ANYONE that deals with valuation management functions is regulated under TILA. This means that they cannot be paid based on productivity, and whether or not the loan funds CANNOT affect that person. They also cannot be managed by anyone whose compensation is related to the loan funding. There should be no connection with the borrower or appraiser and the person that assigns off on it. This avoids any conflict of interest, and avoids incentivizing appraisers to appraise in a certain way.

TILA also prohibits any form of: bribery, intimidation, inducement, extortion, compensation, instruction / collusion, coercion related to the appraisal in any way. Essentially, you cannot reach out to the appraiser almost at all as an LO.

What can you still do?

What you can do (according to TILA): Reach out through the AMC, and ask if the appraiser will consider additional property information, including info about comparable properties to make or support the valuation. You can ask the person that prepares the valuation to correct errors in the valuation. You can obtain multiple valuations for the dwelling, and chose the most reliable appraisal. You can withhold compensation due to breach of contract or sub-standard performance of services (with proper documentation and for reasons other than “value too high”, etc.). You can take action permitted or required by applicable federal or state law, regulation, or agency guidance.

TL;DR: The appraisal should come in as a quality appraisal and you as an LO should have nothing to do with that. If the appraisal is bad, take it up the ladder at YOUR company.