April 30 – In the past 30 years, my wife and I have worked at 4 large banks ranging in size from $150 Billion to over $1 Trillion. At all of these banks loan officers were allowed to talk directly with fee appraisers about the subject collateral. Obviously, there were important restrictions on what could not be discussed – e.g. value.
As many banks do not allow loan officers to talk with appraisers at all, I took a survey of some Chief Appraisers and Chief Credit Officers to get their viewpoints. Their anonymous responses are below.
First, I talked with the Federal Regulators that write and interpret FIRREA guidance. It is not against any law or guidance to allow loan officers to talk with fee appraisers directly. Each financial institution can decide how they want to handle this issue. Those institutions that allow such contact should provide training to their loan officers and also make it clear to their fee appraisers what is permitted to be discussed. ((NOTE: I promise the Regulators I will not publish any written responses they provide. Therefore, I cannot provide their exact reply. Feel free to call them if you doubt the above is their response.))
I always like to present both sides of an issue. Then you can decide which side you prefer and have information to defend your stance. The responses follow in no particular order. Editing is minimal and mostly limited to getting rid of the use of my name or any personal discussion or anything that would identify the author. Again both sides are represented, so there is no attempt to influence you to go one way or another. It is you and your financial institution’s decision.
If there is information that is pertinent to the appraisal, then yes, the LOs or property contact can provide property specific information during the appraisal process. It helps in the exchange of information to the appraiser. However, many times, they would rather communicate through us, but it just depends. They know they cannot discuss value, fees or changing delivery dates.
We require any and all info to go through the appraisal department, however if there are complex issues regarding the assignment and the loan officer has an extensive knowledge of the property we may refer the appraiser to them if it is necessary for credible assignment results.
We recently provided training on AI rules, prohibited topics, and provided examples of various influence e.g. bribery, coercion, etc. Once a lender has undertaken training he may speak to an appraiser after engaged, but only in response to inquiries regarding property. I prefer all conversations are monitored by my team. Lenders are not allowed to initiate dialogue with an appraiser at any time or discuss appraisal after receipt of report.
during the assignment, the appraisal department must be aware in advance of all communication between the loan officer and the appraiser. This allows the department to monitor any potential change in scope of the appraisal and oversee appraiser independence.
The reality is that some loan officers can be trusted not to “cross the line” in their conversations with appraisers, and others, maybe not so much. Our policy allows the appraisal department access to those conversations. The bias of the borrower is obvious and expected by appraisers. However, since the appraiser’s client is the bank, and loan officers are representatives of the bank, their influence on the appraiser can be significant. Independent oversight is therefore important.
after the assignment is awarded, we do not categorically restrict all communications between the LOB and the appraiser but do ask that all communications concerning needed information and clarification go through the appraisal department so that we can keep track of the status of the assignment and to facilitate the flow of information. We prefer to keep copies of any data shared with the appraiser so we can understand what is going on. However, sometimes direct officer contact is not possible to prevent. If the issue is needed information, we are more lenient, but if the officer oversteps their role and starts raising value or timing issues, then they likely will be contacted by the job manager. Direct contact has not been a major problem in many years and on the rare occasions it does occur, it’s typically a new officer hire!
I think it depends on the size of the organization. In our case, we do not have an “appraisal department” so the Lenders do issue the Appraisal Engagement letters, send copies of leases, tax cards, the contact number of the Borrower, etc. While not prohibited, once the appraiser is engaged and the name and contact number of the Borrower is provided, the appraiser usually does not have any more contact with the lender unless there is a need for some type of clarification, until the final report is delivered. The lenders do not pick the appraiser, we have a process in which they go to a single person that gives the name of the next appraiser on the list, or in limited cases they give a couple of names for an expensive appraisal to make sure the fees charged are fair. In that case a couple of appraisers would be asked to give their bid for cost and delivery date. Without naming the appraiser, the Lender may have a situation in which one has lower price but a longer delivery time frame so the lender would ask the Borrower (without naming the appraiser) which is more important, price or delivery date to determine the appraiser. Once the appraisal is received by the lender, if there are any issues that need to be addressed (after your review) the Lender makes contact with Appraiser to point out those issues and requests a re-submission/correction, etc.
So in summary that is what we do, understanding our Bank size does not afford us the luxury of having an appraisal department. I think our process maintains the integrity of keeping the appraisal assignment away from the Lender, but, it would be too cumbersome to keep the exchange of initial information regarding the assignment (leases, tax cards, addresses, surveys, etc.) away from the lender. And, as you know, we could not just assign such a task to just anyone, so the instructions for the appraiser need to come from someone that has some understanding of appraisals and the subject property.
Finally, our lenders do not question the appraiser on a final value unless the Review results in a questionable value. And, our lenders do not discuss “where the value needs to be to make the deal work” or any such discussions during the appraisal process. And, of course we have an approved list of appraisers that we use, divided by residential and commercial designations.
We allow the loan officer to have very limited contact, but they are allowed to discuss factual information about the property and coordinate site visits with the appraiser if they need to see the property and it is too disruptive to have multiple inspections. The appraisers and account officers are cautioned to not discuss anything related to value, whether that be the actual value, investment parameters, rents, etc.
If there is any question as to whether an account officer might cross the line, we require that someone from appraisal be on the call.
We actually have “relationship managers” and “account officers”. The RMs are more salesmen, are closer to the borrower, and have more to gain by trying to influence an appraiser. We try to limit their access to the appraiser to none if possible. There have been a few that consistently try to cross the line (usually only the smaller loans and SBA loans as far as I know). The institutional property group RMs are rarely a problem, although when learning they might make a mistake. They learn quickly though. The account officers are in a different role and are in general much more professional and aware of the consequences. They will generally ask permission first if they want to talk to the appraiser, or will send comments / concerns to me and I filter and pass along to the appraiser.
We eliminate any loan officer communication with appraiser. Safe full proof approach. Unfortunately I’m heavily involved in all aspects of the appraisal process but necessary due to loan policy. Have a great weekend.