LRES Corporation. Best Business Practices for an Appraisal Management Company

Transcription

1 LRES Corporation Best Business Practices for an Appraisal Management Company [This document outlines the key principles and characteristics of an appraisal management company. The contents contained within offer standard guidelines and assessment procedures to measure progress in implementing best practices.]

2 Executive Summary LRES is a national provider of property valuation and REO asset management for the real estate, capital market and finance industries. LRES specializes in helping clients effectively manage regulatory compliance and financial risks associated with valuation matters in the mortgage origination and default markets. To that end, LRES has developed this set of Best Business Practices for an Appraisal Management Company. It sets the bar and the standard for all appraisal management companies to follow. This framework is comprised of two areas of responsibility: Definitions: Best Practices Assessment Procedures Appraiser: one qualified to estimate the value of real property Appraisal Management Company (AMC): a company, engaged in providing the service to place an appraisal order, track an appraisal order, review an appraisal order and distribute an appraisal order for a fee AVM (automated valuation model): a computerized method for estimating the value of a property Appraisal: a report performed by an appraiser that provides an appraiser s professional opinion of value based on research of appropriate market areas and the assembly/analysis of information pertinent to a property Appraiser Independence Requirements: state and federal law that requires that the appraiser and the appraisal process must be independent from influence, coercion and pressure Best Practice: a method or technique that has consistently shown results superior to those achieved with other means, and that is used as a benchmark. In addition, a best practice can evolve to become better as improvements are discovered. Best practice is considered by some as a business buzzword, used to describe the process of developing and following a standard way of doing tasks that multiple organizations can use. It is not a substitute for legal advice. It simplifies a complicated maze of regulations and guidance s. It recognizes there is not just one right way to do a job but rather focuses on the best way Broker: a state licensed agent who, for a fee, acts for the property owners and real property buyers in real estate transactions, within the scope of law Broker Price Opinion: a value or price indication developed by a real estate broker Consumer s Financial Protection Bureau (CFPB): the regulatory oversight agency created to oversee the financial industries with the power and responsibility to educate, enforce and research in order to prevent unfair, deceptive or abusive credit and lending practices and to manage the resolution thereof 1

3 Company: a legally formed and recognized entity with rights and privileges as prescribed by law Dodd-Frank Wall Street Reform and Consumer Protection Act: a compilation of federal regulations, primarily affecting financial institutions and their customers that was passed in 2010 in an effort to lower risk in various parts of the U.S. financial system Evaluation: a valuation performed by an automated process or an individual that is not an appraisal; e.g. AVM, BPO, BOV, etc. Federally Insured Financial Institution: an institution underwritten by the good faith and confidence of the United States Government and insured by the Federal Deposit Insurance Corporation (FDIC) Licenses: rights granted by a state or federal regulatory agency to an individual for the privilege of conducting business under laws specified to govern those activities Third Party: includes all entities that have entered into a business relationship with an institution, whether the third party is a bank or a non-bank, affiliated or not affiliated, regulated or non-regulated, wholly or partially owned subsidiary, or a domestic or foreign institution USPAP (Uniform Standards of Professional Appraisal Practice): the rules by which appraisals are generated and under which appraisers perform covering ethics, record keeping research and reporting Best Practices: 1. Best Practice: Apply for and maintain current license(s) as required to conduct the business of an AMC Purpose: Meet the requirements of Dodd Frank; helps ensure the AMC remains in good standing with the state; lends to trust and good faith on the part of the consumer Apply for and maintain applicable AMC licenses Maintain compliance with licensing laws, registrations or similar state requirements Maintain compliance with USPAP 2. Best Practice: Adopt and maintain appropriate written procedures and controls for an AMC Purpose: Ensure accuracy, consistency and control with the intent to minimize risk of loss to clients and consumers Accurately document all steps in the receipt of an order, placing an order, tracking an order, reviewing/quality controlling an order and delivering an order Create work flow charts to support each process step Ensure availability to all employees by providing in hard copy and soft copy format Provide a specific compliance manual for all state AMC requirements; establish ongoing monitoring and testing to ensure compliance with these state laws 3. Best Practice: Establish a mandatory training program, utilizing both internal and external resources, required to be completed by all employees of the AMC. Continued employment is contingent upon successful completion of the training 2

4 Purpose: Ensure that all employees are operating from the same set of rules thereby optimizing accuracy and consistency in all applications of the AMC process Through use of internal or external resources, provide USPAP continuing education Develop mentorship program where experienced employees are partnered with less experienced employees Provide in-service training on specific areas of current interest to the appraisal/valuation industry Establish remedial steps to be taken when an employee with deficiencies is identified 4. Best Practice: Maintain a written policy regarding privacy and information security to protect non-public personal information as required by local, state and federal law Purpose: Develop a program appropriate to the nature and scope of the AMC s activities, the size of the AMC and the sensitivity of the customer information handled by the AMC Review and understand all relevant state and federal laws Ensure physical security restricts access to non-public personal information to only those who have a need to know; control or prohibit removable media; and use only secure delivery methods for transmitting non-public personal information Network security must be restricted to Company information technology; have written guidelines for use of information technology; and ensure secure collection and transmission of non-public personal information Disposal of non-public personal information must follow federal and state law but in all cases be done to protect against unauthorized access to or use of the information Establish a Business Disaster and Recovery Program Conduct necessary training to ensure all employees are fully compliant with the AMC program Conduct oversight and audit of the program to the degree and extent necessary to ensure protection of the non-public personal information through the program Establish a notification policy in the event of security breaches to client/customer and law enforcement 5. Best Practice: Adopt standards that ensure compliance with regulations issued by the Consumer s Financial Protection Bureau (CFPB) Purpose: Helps maintain the transparency required by CFPB to ensure consumer trust in the industry and protection from abuses in the industry Review and understand all standards issued by the CFPB Establish training programs for all employees of the above standards Provide oversight and audit at a transactional level of sufficient transactions to ensure all employees are following and adhering to said standards Establish definitive consequences or the breach of said standards, up to and including loss of employment 3

5 6. Best Practice: Maintain appropriate professional liability insurance and fidelity coverage Purpose: Helps AMC to maintain the financial capacity to stand behind the level of professional services being performed; meets state law requirements Secure and maintain liability, errors and omissions insurance and surety bonds as needed (determined by law and level of services provided) 7. Best Practice: Maintain written procedures for resolving client/consumer complaints Purpose: Ensure reported instances of poor service or non-compliance do not go undiscovered Establish a procedure for receiving and addressing client/customer complaints, including but not limited to o Intake of complaint; documentation of complaint; investigation and tracking to completion of complaint Develop standard complaint form that identifies information necessary to resolve complaint Set a single point of contact Establish procedures for involving appropriate personnel Maintain a log of complaints including how the complaint was resolved 8. Best Practice: Establish and maintain a due diligence process whereby all third party vendors of the AMC are evaluated and reviewed not less than annually Purpose: Ensure that all protections and controls are in place at the lowest level of the systems and processes to protect the integrity of the end product and thus cause no harm to the client or consumer Request and review third party s policies, procedures, internal controls and training materials Request and review contract with service provider to confirm clear expectations about compliance, scope of work, and consequences for failure to perform are included Establish internal controls with on-going monitoring to ensure third party is complying with all local, state and federal consumer financial law Review historical performance in relation to expectations and established SLAs Take all steps necessary to ensure effective risk management is practiced at all times including but not limited to periodic independent reviews which assess proper alignment between client and vendor Utilize a contract that clearly defines roles, expectations, obligations and consequences for both parties Evaluate financial condition of all parties 9. Best Practice: Engage a vendor panel management process Purpose: To ensure the best independent and most competent appraiser is available for assignments. Establish a qualifying process as well as ongoing monitoring 4

6 Utilize available lists such as exclusionary, approved or probationary; have a policy on how these lists are utilized At minimum, incorporate a vendor scorecard in the vendor panel process Monitor/evaluate vendor performance; administer disciplinary action, as needed Verify licensing, certifications, competence and ethical behavior Exclude production departments from the qualifying process Incorporate quality and service in the qualifying process Ensure all vendors are extremely knowledgeable in o FNMA and Freddie Mac appraiser selection rules o Interagency and Evaluation Guidelines o USPAP o FIRREA o All other applicable state and federal regulations Do all things necessary to ensure appraiser independence Perform background checks on all vendors Create vendor oversight committee to discuss performance of certain vendors. Mentor vendors as needed on a case by case basis Assessment Procedures: Assessment Procedure Number Best Practice Assessment Procedure Best Practice Apply for and maintain current license(s) as required to conduct the business of an AMC Apply for and maintain applicable AMC licenses Maintain compliance with licensing laws, registrations or similar state requirements Maintain compliance with USPAP Best Practice Adopt and maintain appropriate written procedures and controls for an AMC Accurately document all steps in the receipt of order, placing an order, tracking an order, reviewing/quality controlling an order and delivering an order Create work flow charts to support Assessment Recap If any individual procedure is marked with FAIL, Best Practice fails 5

7 each process step Ensure availability to all employees by providing in hard copy and soft copy format Provide a specific compliance manual for all state AMC requirements; establish ongoing monitoring and testing to ensure compliance with these state laws Best Practice Establish a mandatory training program required to be completed by all employees of the AMC 3.02 Continued employment is contingent upon successful completion of the training Best Practice Maintain a written policy regarding privacy and information security to protect non-public information as required by local, state and federal law Review and understand all relevant state and federal laws Ensure physical security restricts access to non-public personal information to only those who have a need to know; control or prohibit removable media; and use only secure delivery methods for transmitting nonpublic personal information Network security must be restricted to Company information technology; have written guidelines for use of information technology; and ensure secure collection and transmission of non-public personal information Disposal of non-public personal information must follow federal and state law but in all cases be done to protect against unauthorized access to or use of the information Establish a Business Disaster and 6

8 Recovery Program Conduct necessary training to ensure all employees are fully compliant with the AMC program Establish a notification policy in the event of security breaches to client/customer and law enforcement Best Practices Adopt standards that ensure compliance with regulations issued by the Consumer s Financial Protection Bureau (CFPB) Review and understand all standards issued by the CFPB Establish training programs for all employees of the above standards Provide oversight and audit at a transactional level of sufficient transactions to ensure all employees are following and adhering to said standards Establish definitive consequences for the breach of said standards, up to and including loss of employment Best Practice Maintain appropriate professional liability insurance and fidelity coverage Secure and maintain liability errors and omissions insurance and surety bonds as needed (determined by law and level of services provided) Best Practice Maintain written procedures for resolving client/customer complaints Establish a procedure for receiving and addressing client/customer complaints, including but not limited to o Intake of complaint; documentation of complaint; investigation and tracking to completion of complaint 7

9 Develop standard complaint form that identifies information necessary to resolve complaint Set a single point of contact Establish procedures for involving appropriate personnel Maintain a log of complaints including how the complaint was resolved Best Practice Establish and maintain a due diligence process whereby all third party vendors of the AMC are evaluated and reviewed not less than annually Request and review third party s policies, procedures, internal controls and training materials Request and review contract with service provider to confirm clear expectations about compliance, scope of work, and consequences for failure to perform are included Establish internal controls with ongoing monitoring to ensure third party is complying with all local, state and federal consumer financial law Review historical performance in relation to expectations and established SLAs Take all steps necessary to ensure effective risk management is practiced at all times including but not limited to periodic independent reviews which assess proper alignment between client and vendor Utilize a contract that clearly defines roles, expectations, obligations and consequences for both parties Best Practice Engage a vendor panel management process Utilize available lists such as exclusionary, approved or probationary; have a policy on how these lists are utilized 8

10 At minimum, incorporate a vendor scorecard in the vendor panel process Monitor/evaluate vendor performance; administer disciplinary action, as needed Verify licensing, certifications, competence and ethical behavior Exclude production departments from the qualifying process Incorporate quality and service in the qualifying process Ensure all vendors are extremely knowledgeable in o FNMA and Freddie Mac appraiser selection rules o Interagency and Evaluations Guidelines o USPAP o FIRREA o All other applicable state and federal regulations o Do all things necessary to ensure appraiser independence o Perform background checks on all vendors o Create vendor oversight committee to discuss performance of certain vendors. Mentor vendors as needed on a case by case basis 9