It’s not uncommon that we hear of lenders pacing the floor stressing over their appraisal and evaluation program, especially when it comes to USPAP. We get it. Understanding USPAP can be stress-inducing. It’s dense and somewhat difficult to understand, but the good news is that we’re here to break it down for you. So, how does USPAP impact your bank or credit union? Let’s start with the basics.
Why should you care about USPAP Guidelines?
The Uniform Standards of Professional Appraisal Practice (USPAP) are drafted and maintained by the Appraisal Standards Board (ASB). These standards establish uniform guidelines for the development and reporting of real estate appraisals. The ASB is a board sponsored by the Appraisal Foundation. Neither the ASB nor the Appraisal Foundation is a regulatory body that checks up on your compliance. In fact, neither group has any authority to examine your bank, to penalize you, or to take any enforcement action whatsoever. For that matter, neither the ASB nor the Appraisal Foundation has any authority to force any appraiser to use or comply with USPAP. So if they can’t judge your compliance, why should you care about USPAP? Because Congress did, and as a result, your regulator does which means you should too.
Do your appraisals need to comply with USPAP Guidelines?
As with most areas of financial regulation, the authority of your regulator is directly derived from a statute. For now, let’s focus on FIRREA, Financial Institutions Reform, Recovery, and Enforcement Act, Title XI which includes provisions on real estate appraisal reform. Here, in Section 1110, Congress tells regulators to promulgate regulations to govern the appraisal process. As such, Section 1110 is the primary authority underlying your regulator’s appraisal regulations and guidance. It also shows Congress’ expectations for minimum requirements for those standards. Under these standards and expectations, the appraisal must “be performed in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation” – in other words, since the appraisal has to comply with the ASB, the appraisal essentially must also comply with USPAP.
It’s important for lenders to understand USPAP because appraisals that fail to comply with USPAP don’t meet the basic minimum appraisal requirements set forth in FIRREA, and won’t satisfy your regulator. In a nutshell, by not complying with USPAP, you’re setting yourself up for potential disaster. It’s all connected.
Pro Tip: Consider adding a mandatory instructional addendum to all orders, advising appraisers of the lender’s obligations to USPAP compliance. This is a great way to make sure everyone is on the same page at all times.