The Future of Dodd-Frank

 

Wading the waters of regulations can be a bit like navigating unchartered territory. If you’re not careful, you’ll be in over your head in compliance. Don’t worry, though – no need to feel like you’re sinking. We’re here to be your captains, guiding and helping you weather any potential storms. Imagine today that we’re on the USS Dodd-Frank. Effective since 2010, the bill contains some 16 major areas of reform and contains hundreds of pages. Most important, however, is the interagency guidelines on appraisals and evaluations that are the regulations used to implement the Dodd-Frank Act, specifically sections 1471-1475.

WHAT IS THE DODD-FRANK ACT?

Let’s dive in with a Dodd-Frank summary. Simply put, Dodd-Frank is a law that places regulations on the financial industry, and specifically, appraisals. Not only was the law enacted to protect consumers against poor lending practices, but it was also put into place to prevent another collapse like movie-goers witnessed in the Big Short. Dodd-Frank gives some general guidelines for what standards for AVMs need to address, including ensuring high levels of confidence in the results, protecting against data manipulation, avoiding conflicts of interest, requiring random sampling and reviews, and accounting for other factors as determined by the agency.

HOW ARE BANKS AND FINANCIAL INSTITUTIONS IMPACTED?

For banks and other regulated financial institutions and subsidiaries of regulated financial institutions, these AVM regulations will continue to be enforced by their primary federal regulator. With respect to other non-bank participants in the market, the regulations will be enforced by the FTC, the CFPB and state attorneys general. At its core, Dodd Frank includes provisions to stop reckless risk-taking and includes plans for how banks would be sold or shut down in a collapse. Recent studies suggest that the law is doing its job to prevent something like this from happening which means, so far it’s working.

IS IT SMOOTH SAILING FROM HERE?

Interestingly enough, at MountainSeed, we really don’t hear many questions about these regulations anymore. In the years following the passage of the Dodd-Frank Act and other relevant regulations, banks and credit unions began looking into their appraisal process from a compliance standpoint. Today the world is different. Financial institutions can look to appraisal management companies to solve a real business need instead of a compliance function. The benefit of using an AMC, particularly a commercially focused AMC, is one of economies of scale, efficiency, and skill. With appraisal volume being unpredictable and seasonal in many locations, it’s hard to keep internal staff busy, making scalability difficult. As such, outsourcing to a third party ensures systems, processes, and automations are in place for a seamless process. Hiring an AMC helps you ensure the right people are performing appraisal reviews on all property types, in all areas.

Ultimately, working with an AMC leaves you knowing that your ship is sailing in the right direction, and you don’t get off course. You navigate waters like Dodd-Frank smoothly because you can rest assured that your AMC is taking care of their role as co-captain. Together, you can glide into the harbor complete with regulation knowledge and compliance.