PERSON OF THE WEEK: As with mortgage lenders and servicers, compliance has become a critical issue in recent years for appraisers and appraisal management companies (AMCs). To learn more about how AMCs are dealing with an increasing array of rules and regulations, MortgageOrb recently interviewed Emeka Madu, director of compliance at LRES, a national AMC, manager of real estate owned (REO) properties and provider of technology solutions.
Q: What are some of the biggest compliance challenges facing AMCs today?
Madu: One challenge is the monitoring and reporting of state and federal regulations that specifically impact appraisal management and ensuring that the entire organization complies with each state's rules. This is even more of a challenge if the AMC is licensed nationwide, as each state has its own unique set of guidelines. Another challenge impacting an AMC's compliance department is ensuring that the rules regarding communication with all parties involved in the federally related transaction are well established.
Q: What are some best practices that all AMCs should be doing to counter these challenges?
Madu: To address the challenge of monitoring and reporting state and federal regulations, it is important for AMCs to subscribe to legal databases in which the federal and state regulations can be easily retrieved. Users can either manually search by state for the laws that affect appraisal management or receive automatic alerts for proposed or enacted rules.
To address the challenge of ensuring that the AMC complies with each state-specific rule, as there are some state laws that are more prescriptive than others, it is a best practice to default to the highest standard. Another solution is to maintain a database where the AMC can easily store and access the laws by state.
Regarding the challenge involving maintaining well-established lines of communication among all parties involved in the transaction, all parties must understand and comply with the Appraiser Independence Requirements. These requirements prohibit the loan production team from selecting, retaining, recommending or influencing the selection of the appraiser for a particular appraisal assignment. It is important for AMCs to have an appraisal independence compliance certificate that ensures the appraiser acted independently and the lines of communication were as such for each appraisal conducted.
Q: What do lenders need to look for in their AMC's compliance departments?
Madu: Lenders should evaluate an AMC's compliance program to determine whether it has the necessary licenses to operate legally in the states where it conducts business. Lenders should also ensure that an AMC's compliance department has the necessary processes and controls in place to comply with the federal and state laws and regulations applicable to the parties involved.
Also, lenders should ensure that the AMC's compliance department either directly oversees or ensures the performance of background checks and license verification of its vendor partners.
Finally, lenders should seek out AMCs that have a training program in place designed to continually educate their employees about the latest regulations impacting the company and the importance of complying with those regulations.
Q: Why should all AMCs employ an experienced compliance officer?
Madu: An experienced compliance officer brings forth knowledge learned from past experiences in the field, which shapes the direction of compliance. They are tasked with the identification, interpretation and recommendation for compliance regarding rules and regulations. An experienced officer will offer the professional interpretation and the requisite guidance needed to steer the entire company in the right direction. A good compliance officer is proactive as opposed to reactive – not only providing adequate guidance for the company but also proactively assessing risk.
Q: What is the most common myth about compliance?
Madu: A damaging misconception among some AMCs, or any mortgage institution for that matter, is that the compliance department is solely responsible for the company's compliance. Everyone in the company is responsible for compliance from the associates on the floor to the board of directors.
This is not to imply that every associate should have the capacity or level of understanding of a compliance officer, but everyone should have a working knowledge of the current rules and regulations. The compliance department is responsible for maintaining the overall oversight and direction for the company's compliance program, but there should be an established culture of compliance within the entire organization.