The Federal Reserve Board's new rule on appraisal independence does not prohibit the selection of appraisers by mortgage brokers or loan officers.
In fact, the rule is largely silent on how brokers would interact with wholesalers and banks when it comes to appraisals. (However, Fannie Mae and Freddie Mac are maintaining their ban on broker and LO ordered appraisals. See related story on this website.)
The new Fed rule creates a "safe harbor" for lenders that separates the appraisal and loan production functions.
"The interim final rule establishes a safe harbor and specific criteria for establishing firewalls between the appraisal function and the loan production function to prevent conflicts of interest," the Fed says. There are also specific firewalls for small institutions with assets of $250 million or less that cannot completely separate those functions.
These firewalls allow banks to employ in-house appraisers and use affiliated appraisal management companies.
Working outside the safe harbor, lenders that use appraisals where a loan officer or broker selected the appraiser could face penalties if the appraisal is compromised and materially misstates the value of the collateral.
Violations of the appraisal rule can result in penalties of $10,000 per day under the Dodd-Frank Act.
(Editorial note: On Monday NMN reported that the Fed rule prohibits LOs and brokers from ordering appraisals. After publication, Fed officials insisted the rule does not expressly prohibit or permit the selection of appraisers by mortgage brokers or the creditor's loan officers.)
