(a) Scope. This section applies to any consumer credit transaction
secured by the consumer’s principal dwelling.
(b) Definitions. For purposes
of this section:
(1) “Covered person” means a creditor with
respect to a covered transaction or a person that provides “settlement
services,” as defined in 12 U.S.C. 2602(3) and implementing regulations,
in connection with a covered transaction.
(2) “Covered transaction” means an extension
of consumer credit that is or will be secured by the consumer’s principal
dwelling, as defined in section 226.2(a)(19).
(3) “Valuation” means an estimate of the
value of the consumer’s principal dwelling in written or electronic
form, other than one produced solely by an automated model or system.
(4) “Valuation management
functions” means:
(i) Recruiting, selecting, or retaining
a person to prepare a valuation;
(ii) Contracting with or employing a
person to prepare a valuation;
(iii) Managing or overseeing the process
of preparing a valuation, including by providing administrative services
such as receiving orders for and receiving a valuation, submitting
a completed valuation to creditors and underwriters, collecting fees
from creditors and underwriters for services provided in connection
with a valuation, and compensating a person that prepares valuations;
or
(iv) Reviewing
or verifying the work of a person that prepares valuations.
(c) Valuation
of consumer’s principal dwelling.
(1) Coercion. In connection with a covered transaction, no covered person shall
or shall attempt to directly or indirectly cause the value assigned
to the consumer’s principal dwelling to be based on any factor other
than the independent judgment of a person that prepares valuations,
through coercion, extortion, inducement, bribery, or intimidation
of, compensation or instruction to, or collusion with a person that
prepares valuations or performs valuation management functions.
(i) Examples of actions that violate paragraph (c)(1) include:
(A) Seeking to influence a person that prepares a valuation to report
a minimum or maximum value for the consumer’s principal dwelling;
(B) Withholding or threatening
to withhold timely payment to a person that prepares a valuation or
performs valuation management functions because the person does not
value the consumer’s principal dwelling at or above a certain amount;
(C) Implying to a person
that prepares valuations that current or future retention of the person
depends on the amount at which the person estimates the value of the
consumer’s principal dwelling;
(D) Excluding a person that prepares a valuation
from consideration for future engagement because the person reports
a value for the consumer’s principal dwelling that does not meet or
exceed a predetermined threshold; and
(E) Conditioning the compensation paid to
a person that prepares a valuation on consummation of the covered
transaction.
(2) Mischaracterization
of value.
(i) Misrepresentation. In connection with a covered transaction, no person that prepares
valuations shall materially misrepresent the value of the consumer’s
principal dwelling in a valuation. A misrepresentation is material
for purposes of this paragraph (c)(2)(i) if it is likely to significantly
affect the value assigned to the consumer’s principal dwelling. A bona fide error shall not be a misrepresentation.
(ii) Falsification or alteration. In connection
with a covered transaction, no covered person shall falsify and no
covered person other than a person that prepares valuations shall
materially alter a valuation. An alteration is material for purposes
of this paragraph (c)(2)(ii) if it is likely to significantly affect
the value assigned to the consumer’s principal dwelling.
(iii) Inducement of mischaracterization. In connection
with a covered transaction, no covered person shall induce a person
to violate paragraph (c)(2)(i) or (ii) of this section.
(3) Permitted actions. Examples of actions
that do not violate paragraph (c)(1) or (c)(2) include:
(i) Asking
a person that prepares a valuation to consider additional, appropriate
property information, including information about comparable properties,
to make or support a valuation;
(ii) Requesting that a person that prepares
a valuation provide further detail, substantiation, or explanation
for the person’s conclusion about the value of the consumer’s principal
dwelling;
(iii) Asking
a person that prepares a valuation to correct errors in the valuation;
(iv) Obtaining multiple
valuations for the consumer’s principal dwelling to select the most
reliable valuation;
(v) Withholding compensation due to breach of contract or substandard
performance of services; and
(vi) Taking action permitted or required
by applicable federal or state statute, regulation, or agency guidance.
(d) Prohibition on conflicts of interest.
(1) (i) In general. No person preparing a valuation
or performing valuation management functions for a covered transaction
may have a direct or indirect interest, financial or otherwise, in
the property or transaction for which the valuation is or will be
performed.
(ii) Employees and affiliates of creditors; providers
of multiple settlement services. In any covered transaction,
no person violates paragraph (d)(1)(i) of this section based solely
on the fact that the person—
(A) Is an employee or affiliate
of the creditor; or
(B)
Provides a settlement service in addition to preparing valuations
or performing valuation management functions, or based solely on the
fact that the person’s affiliate performs another settlement service.
(2) Employees and affiliates of creditors
with assets of more than $250 million for both of the past two calendar
years. For any covered transaction in which the creditor
had assets of more than $250 million as of December 31st for both
of the past two calendar years, a person subject to paragraph (d)(1)(i)
of this section who is employed by or affiliated with the creditor
does not have a conflict of interest in violation of paragraph (d)(1)(i)
of this section based on the person’s employment or affiliate relationship
with the creditor if:
(i) The compensation of the person preparing
a valuation or performing valuation management functions is not based
on the value arrived at in any valuation;
(ii) The person preparing a valuation
or performing valuation management functions reports to a person who
is not part of the creditor’s loan production function, as defined
in paragraph (d)(5)(i) of this section, and whose compensation is
not based on the closing of the transaction to which the valuation
relates; and
(iii)
No employee, officer or director in the creditor’s loan production
function, as defined in paragraph (d)(5)(i) of this section, is directly
or indirectly involved in selecting, retaining, recommending or influencing
the selection of the person to prepare a valuation or perform valuation
management functions, or to be included in or excluded from a list
of approved persons who prepare valuations or perform valuation management
functions.
(3) Employees and affiliates of creditors
with assets of $250 million or less for either of the past two calendar
years. For any covered transaction in which the creditor had
assets of $250 million or less as of December 31st for either of the
past two calendar years, a person subject to paragraph (d)(1)(i) of
this section who is employed by or affiliated with the creditor does
not have a conflict of interest in violation of paragraph (d)(1)(i)
of this section based on the person’s employment or affiliate relationship
with the creditor if:
(i) The compensation of the person preparing
a valuation or performing valuation management functions is not based
on the value arrived at in any valuation; and
(ii) The creditor requires that any
employee, officer or director of the creditor who orders, performs,
or reviews a valuation for a covered transaction abstain from participating
in any decision to approve, not approve, or set the terms of that
transaction.
(4) Providers of multiple settlement services. For any covered transaction, a person who prepares a valuation or
performs valuation management functions in addition to performing
another settlement service for the transaction, or whose affiliate
performs another settlement service for the transaction, does not
have a conflict of interest in violation of paragraph (d)(1)(i) of
this section as a result of the person or the person’s affiliate performing
another settlement service for the transaction if:
(i) The
creditor had assets of more than $250 million as of December 31st
for both of the past two calendar years and the conditions in paragraph
(d)(2)(i)-(iii) are met; or
(ii) The creditor had assets of $250
million or less as of December 31st for either of the past two calendar
years and the conditions in paragraph (d)(3)(i)-(ii) are met.
(5) Definitions. For purposes of this paragraph, the following definitions
apply:
(i) Loan production
function. The term “loan production function” means an employee,
officer, director, department, division, or other unit of a creditor
with responsibility for generating covered transactions, approving
covered transactions, or both.
(ii) Settlement
service. The term “settlement service” has the same meaning as
in the Real Estate Settlement Procedures Act, 12 U.S.C. 2601 et seq.
(iii) Affiliate. The term “affiliate” has the
same meaning as in Regulation Y, 12 CFR 225.2(a).
(e) When extension
of credit prohibited. In connection with a covered transaction,
a creditor that knows, at or before consummation, of a violation of
paragraph (c) or (d) of this section in connection with a valuation shall
not extend credit based on the valuation, unless the creditor documents
that it has acted with reasonable diligence to determine that the
valuation does not materially misstate or misrepresent the value of
the consumer’s principal dwelling. For purposes of this paragraph
(e), a valuation materially misstates or misrepresents the value of
the consumer’s principal dwelling if the valuation contains a misstatement
or misrepresentation that affects the credit decision or the terms
on which credit is extended.
(f) Customary and reasonable compensation—
(1) Requirement
to provide customary and reasonable compensation to fee appraisers. In any covered transaction, the creditor and its agents shall compensate
a fee appraiser for performing appraisal services at a rate that is
customary and reasonable for comparable appraisal services performed
in the geographic market of the property being appraised. For purposes
of paragraph (f) of this section, “agents” of the creditor do not
include any fee appraiser as defined in paragraph (f)(4)(i) of this
section.
(2) Presumption of compliance. A creditor and
its agents shall be presumed to comply with paragraph (f)(1) if—
(i) The creditor or its agents compensate the fee appraiser in an
amount that is reasonably related to recent rates paid for comparable
appraisal services performed in the geographic market of the property
being appraised. In determining this amount, a creditor or its agents
shall review the factors below and make any adjustments to recent
rates paid in the relevant geographic market necessary to ensure that
the amount of compensation is reasonable:
(A) The type of property,
(B) The scope of work,
(C) The time in which the
appraisal services are required to be performed,
(D) Fee appraiser qualifications,
(E) Fee appraiser experience and
professional record, and
(F) Fee appraiser work quality; and
(ii) The creditor and its agents do
not engage in any anticompetitive acts in violation of state or federal
law that affect the compensation paid to fee appraisers, including—
(A) Entering into any contracts or engaging in any conspiracies to
restrain trade through methods such as price fixing or market allocation,
as prohibited under section 1 of the Sherman Antitrust Act, 15 U.S.C.
1, or any other relevant antitrust laws; or
(B) Engaging in any acts of monopolization
such as restricting any person from entering the relevant geographic
market or causing any person to leave the relevant geographic market,
as prohibited under section 2 of the Sherman Antitrust Act, 15 U.S.C.
2, or any other relevant antitrust laws.
(3) Alternative presumption of compliance. A creditor and its agents
shall be presumed to comply with paragraph (f)(1) if the creditor
or its agents determine the amount of compensation paid to the fee
appraiser by relying on information about rates that:
(i) Is based
on objective third-party information, including fee schedules, studies,
and surveys prepared by independent third parties such as government
agencies, academic institutions, and private research firms;
(ii) Is based on recent
rates paid to a representative sample of providers of appraisal services
in the geographic market of the property being appraised or the fee
schedules of those providers; and
(iii) In the case of information based
on fee schedules, studies, and surveys, such fee schedules, studies,
or surveys, or the information derived there from, excludes compensation
paid to fee appraisers for appraisals ordered by appraisal management
companies, as defined in paragraph (f)(4)(iii) of this section.
(4) Definitions. For purposes of this paragraph
(f), the following definitions apply:
(i) Fee appraiser. The term “fee appraiser”
means—
(A) A natural person who is a state-licensed
or state-certified appraiser and receives a fee for performing
an appraisal, but who is not an employee of the person engaging the
appraiser; or
(B) An organization
that, in the ordinary course of business, employs state-licensed or
state-certified appraisers to perform appraisals, receives a fee for
performing appraisals, and is not subject to the requirements of section
1124 of the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 (12 U.S.C. 3331 et seq.).
(ii) Appraisal
services. The term “appraisal services” means the services required
to perform an appraisal, including defining the scope of work, inspecting
the property, reviewing necessary and appropriate public and private
data sources (for example, multiple listing services, tax assessment
records and public land records), developing and rendering an opinion
of value, and preparing and submitting the appraisal report.
(iii) Appraisal management company. The term
“appraisal management company” means any person authorized to perform
one or more of the following actions on behalf of the creditor—
(A) Recruit, select, and retain fee appraisers;
(B) Contract with fee appraisers to perform
appraisal services;
(C)
Manage the process of having an appraisal performed, including providing
administrative services such as receiving appraisal orders and appraisal
reports, submitting completed appraisal reports to creditors and underwriters,
collecting fees from creditors and underwriters for services provided,
and compensating fee appraisers for services performed; or
(D) Review and verify the work
of fee appraisers.
(g) Mandatory reporting—
(1) Reporting required. Any covered person that reasonably believes
an appraiser has not complied with the Uniform Standards of Professional
Appraisal Practice or ethical or professional requirements for appraisers
under applicable state or federal statutes or regulations shall refer
the matter to the appropriate state agency if the failure to comply
is material. For purposes of this paragraph (g)(1), a failure to comply
is material if it is likely to significantly affect the value assigned
to the consumer’s principal dwelling.
(2) Timing of
reporting. A covered person shall notify the appropriate state
agency within a reasonable period of time after the person determines
that there is a reasonable basis to believe that a failure to comply
required to be reported under paragraph (g)(1) of this section has
occurred.
(3) Definition. For purposes of this paragraph
(g), “state agency” means “state appraiser certifying and licensing
agency” under 12 U.S.C. 3350(1) and any implementing regulations.
The appropriate state agency to which a covered person must refer
a matter under paragraph (g)(1) of this section is the agency for
the state in which the consumer’s principal dwelling is located.
