Third Party Oversight and Appraisal Operations: 15 Recommendations for vetting your appraisal service providers. Maintain compliance with CFPB, OCC, FRB, and mortgage investor requirements by following industry best practices in selecting appraisers and appraisal management companies.

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Critical appraisal compliance update:
Third party oversight

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Lender
AMC AMC A pprai ser
Mercury Network
Cloud-based vendor management platform, connecting more than 600
lenders and AMCs to their appraisal vendors, and powering more than
20,000 appraisal deliveries a day.

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Third party oversight
“Regulated entities are expected to oversee their business
relationships with service providers in a manner that ensures
compliance with Federal consumer financial law, which is
designed to protect the interests of consumers and avoid
consumer harm.”
CFPB
OCC
FRB
FNMA

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Who are third parties?
• Any service provider
• Defined in Dodd-Frank (section 1002(26)) as “any person
that provides a material service to a covered person in
connection with the offering or provision by such covered
person of a consumer financial product or service.”
• Includes commonly outsourced services:
• Appraisers and appraisal management
companies (AMCs)
• Document and disclosure vendors
• Website and software providers
• Payment processing
• Contract underwriters
• Attorneys
• Affiliates
• Mortgage insurance providers
• More

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The regulators
• CFPB (Bulletin 2012-03, April 13, 2012)
http://files.consumerfinance.gov/f/201204_cfpb_bulletin_service-providers.pdf
• OCC (Bulletin 2013-29, October 30, 2013)
http://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-29.html
• FRB (Federal Reserve Board Supervision and Regulation
Letter 13-19, December 2013)
http://www.federalreserve.gov/bankinforeg/srletters/sr1319.pdf
Plus, investor Fannie Mae
• Fannie Mae Lender Letter LL-2013-10
https://www.fanniemae.com/content/announcement/ll1310.pdf

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Regulatory actions regarding third party providers
• Sept 2013: Chase and JP Morgan, $20 million + restitution
http://www.consumerfinance.gov/newsroom/cfpb-orders-chase-and-jpmorgan-chase-to-pay-309-million-refund-for-illegal-
credit-card-practices/
• June 2014: GE Capital (Synchrony), $3.5 million + restitution
http://www.consumerfinance.gov/newsroom/cfpb-orders-ge-capital-to-pay-225-million-in-consumer-relief-for-deceptive-
and-discriminatory-credit-card-practices/
• July 2014: SunTrust, $160 million
http://www.federalreserve.gov/newsevents/press/enforcement/20140725a.htm

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Third party oversight in appraisal operations:
15
Recommendations
for choosing appraisal
service providers

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1
Collateral valuation is critical,
so consider a site visit
Tour the facility, meet the technology experts charged with
your collateral valuation pipeline, and investigate
their preparedness first-hand.

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2
Check client lists, referrals,
and experience
Are they handling significant order volumes every day?
Choose a tested partner that’s endorsed by other industry leaders.

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3
Get a full audit trail
All the compliance safeguards are irrelevant if you can’t prove it later.
Get an end-to-end audit trail on the full transaction from order
to delivery of the appraisal to the borrower.

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4
With software, choose
enterprise solutions over
custom-built installations
Leverage industry best practices and the compliance knowledge of your
colleagues, and make sure you can easily scale and make adjustments.

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5
Avoid relying on a company
for technology if that’s not
their primary business
Adopt a single technology platform, supported by a technology expert,
and get your AMCs and appraisal vendors to use it.

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6
Don’t sacrifice quality
control for compliance
With technology, you can still control your quality and maintain
compliance with all regulations and investor requirements.

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7
Verify that your vendor’s
tools are compliant
From ECOA, GLB, PCI, and pre-funding QC requirements, make sure your
service provider’s tools are compliant because you’re liable.

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8
Satisfy your production team,
but still maintain compliance
Preserve appraiser independence, but adopt technology that
keeps production in the loop on appraisal pipeline and report status.

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9
Demand vendor
performance reporting
Whether you use one AMC, multiple AMCs, appraisers, or a mix of all
three, the third party oversight requirements mandate that you have
the ability to monitor and report on their performance.

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10
Consider integrations
and partner lists
Is your third party provider integrated with your existing systems?
Even if you don’t currently need an integration, verify your
provider is modern and agile enough to support you when needed.

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11
Check development
methodology and reliability
Verify that your provider has the development and deployment
experience necessary to quickly add or modify compliance tools.

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12
Check uptime statistics and
disaster-recovery plans
The regulators’ service-level expectations are outlined in the memos, and
third party providers should be prepared to answer these questions.

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13
Verify history of innovation
and user-focused updates
The one constant in this environment is change.
Make sure your service provider can adapt quickly and consistently
releases new tools needed by the industry for compliance.

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14
Demand the service
your team will need
Select providers that can answer your questions 24x7x365
and can provide the training essential to your
compliance and your team’s success.

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15
Get flexibility in case you
need to make changes
Regulators require a process for identifying and promptly replacing
weak partners, so avoid contracts or service minimums.

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Regulations are still being formed. Should you
wait for everything to be finalized before you
make changes?
No. Rapid and continual change are the only constants in
our industry lately. Instead of desperately trying to keep
up with new investor guidelines and regulations, you need
a flexible system in place that will let you make changes as
regs and risk tolerance evolve.

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Questions
info@mercuryvmp.com
1-800-434-7260