Data Facts Lending Solutions Blog

Appraiser Independence: What Is It, and Why Is It Important?

by Matt Holmes

May 11, 2020 9:02:00 AM


Just as having an impartial jury is essential to a fair justice system, having unbiased appraisers is essential to the mortgage industry. All too often we see lenders, brokers, or real estate agents who use shady tactics to collude with appraisers and artificially impact the appraised value of the property. This is called appraiser pressure. Many appraisers consider appraiser pressure to be one of the biggest issues facing appraisers today.

Industry Response to Appraiser Pressure

Biased appraisers have long been an issue in the mortgage industry, especially in the decade preceding the financial collapse of 2008. This prompted Fannie Mae, Freddie Mac, the FHFA and other key industry players to develop the Appraiser Independence Requirements (AIR). Enforced on October 15th, 2010, these rules protect consumers, investors, and the housing market from unethical valuation practices.

The Requirements

AIR is required for all appraisals on 1- to 4-unit properties with non-government-insured loans delivered to Fannie Mae. In order for an appraiser to comply, they must be licensed or certified in the state the appraisal is located.

The requirements state that anyone who may benefit financially from the mortgage process must not influence the appraisal process. This rule should be not only be recognized, but enforced. Assessment of reviewer independence should include a thorough examination of the document flows and reporting lines between the valuation reviewer and their supervisor. And it’s not enough to simply “talk the talk”, but to “walk the walk” as well. These lines should represent real, identifiable actions taken by the organization.

Although the requirements prohibit any attempts by lenders or brokers to impact the value of the appraisal, it does grant them the ability to ask appraisers to consider additional property information if needed. It also gives them the authority to ask the appraiser to correct any unsubstantiated errors on the report.

Penalties for Breach of Compliance

What happens if a lender fails to comply with AIR requirements? Fannie and Freddie typically treat this the same way they would treat any other breach of the seller’s reps and warranties. This could mean suspension or removal of the lender’s ability to sell loans to the GSEs if the issue isn’t remediated.

How an AMC Can Help

Using an Appraisal Management Company (AMC) can help you take the necessary steps to achieve AIR compliance. An AMC allows you to stay compliant while staying at arm’s length with your appraisers. AMCs often have panels with hundreds of appraisers, and orders are blindly rotated so that they are selected by performance and proximity rather than external factors determined by parties affiliated with the transaction. Choosing the right AMC can ensure that these Appraiser Independence Requirements remain intact.

To learn more about how Data Facts can elevate your appraisals, click here.

Topics: Appraisal, Appraisal Management, AMC

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