Keeping independence intact at your bank or credit union

 

Appraisal independence is a huge part of regulatory compliance for banks and credit unions, and it’s one of the first things your regulator will look for during any review. If we drill down to a definition, independence means that a real estate appraiser must be left alone to develop their own valuation conclusions and opinions. While independence sounds easy enough to manage, if you’re not careful, the lines can be easily blurred. That’s why we’re bringing you a few tips to help you keep independence intact throughout the appraisal process.

TIP 1: SEPARATE YOUR LOAN PRODUCTION STAFF.

Your loan production staff has an integral role in your institution: bring in business. According to FDIC guidelines, you must make sure your loan production staff are independent of your appraisal process. Ultimately, that means your appraisers will operate and form valuation opinions without any influence or ulterior motives.

TIP 2: DON’T CONTACT THE REVIEWER.

If you happen to receive an appraisal before the review is completed, do not contact the reviewer. On one hand, because appraisals often need revisions (and lengthy ones at that), you could find yourself facing a decrease in productivity. Additionally, doing so could mean a regulation disaster. Instead, maintain appraisal independence and wait until the review is complete to make revisions.

TIP 3: SEGREGATE EVALUATIONS AND REVIEWS.

Under the primary federal regulators’ revised Interagency Appraisal and Evaluation Guidelines, evaluations are subject to the same independence standards as formal appraisals. In Section V of the guidelines, it states, “These standards of independence also should apply to persons who perform evaluations.” We recommend managing this internally with a credit department that reports to someone who is not a part of the loan committee or using a third party. Identifying who reports to who helps you manage your appraiser panel as well as independence.

TIP 4: HAVE PROCESSES IN PLACE.

Since all of these regulations are complex, it’s important to have a Compliance Officer or someone who specializes in regulations dedicated to keeping you in tip-top shape. MountainSeed even has a Compliance Director! A Compliance Officer can ensure that your bank or credit union is following all of the appropriate steps at all times and helps you stay out of hot water with your regulator. Another option? Hire a top appraisal management company who specializes in residential and commercial appraisals.

If after going over these tips you’re unsure about your bank’s independence, give us a shout. We’re happy to answer any questions you might have and put you on the right track to independence.