(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 1026.2(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 (d), 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 of
the Board of Governors of the Federal Reserve System, 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) of this
section 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) of this section 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 therefrom, 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. 3353).
(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.
(h) The Bureau issued
a joint rule to implement the appraisal management company minimum
requirements in the Financial Institutions Reform, Recovery, and Enforcement
Act, as amended by section 1473 of the Dodd-Frank Wall Street Reform
and Consumer Protection Act. See 12 CFR part 34.
