CAR Financing & Lending Standards in Appraisal Review 1 — Questions and Answers
Question 1: Which federal legislation established Appraisal Independence Requirements (AIR) to prevent improper influence on appraisers in mortgage transactions?
- Dodd-Frank Wall Street Reform and Consumer Protection Act (Correct answer)
- Real Estate Settlement Procedures Act (RESPA)
- Truth in Lending Act (TILA)
- Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
Correct answer: Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act codified Appraisal Independence Requirements, prohibiting loan production staff from improperly influencing appraisers.
Question 2: Under Appraisal Independence Requirements (AIR), which individuals are prohibited from selecting, retaining, or influencing appraisers?
- Compliance officers reviewing appraisal quality
- Loan production staff with an interest in the transaction (Correct answer)
- AMC employees contracted by the lender
- State-certified appraisal reviewers
Correct answer: Loan production staff with an interest in the transaction
AIR prohibits loan production staff—those with a financial interest in the outcome—from selecting, retaining, recommending, or influencing appraisers.
Question 3: Which entities establish the primary appraisal guidelines for conventional mortgage loans intended for sale on the secondary market?
- FHA and the VA
- The Consumer Financial Protection Bureau (CFPB)
- Fannie Mae and Freddie Mac (Correct answer)
- The Federal Reserve and OCC
Correct answer: Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac (the GSEs) publish detailed appraisal guidelines that govern conventional loans sold on the secondary mortgage market.
Question 4: FIRREA of 1989 primarily required that appraisals for federally related transactions be performed by:
- State-licensed or state-certified appraisers (Correct answer)
- Lender employees using AMCs
- Appraisers approved directly by the federal government
- Certified General appraisers only
Correct answer: State-licensed or state-certified appraisers
FIRREA mandated that appraisals for federally related transactions must be performed by appraisers who are state-licensed or state-certified.
Question 5: When reviewing an appraisal for a federally related transaction, which credential must the reviewer hold at minimum?
- A valid real estate broker license
- State licensure or certification as an appraiser (Correct answer)
- An MAI designation from the Appraisal Institute
- A CAR credential from an approved organization
Correct answer: State licensure or certification as an appraiser
FIRREA and interagency guidelines require that reviewers of appraisals for federally related transactions be state-licensed or state-certified appraisers.
Question 6: A 'desk review' in the mortgage lending context is best described as:
- A review performed at the subject property's reception desk
- A review that includes a drive-by exterior inspection of the subject
- An evaluation of the appraisal report without an on-site property inspection (Correct answer)
- A review limited to verifying the appraiser's license status
Correct answer: An evaluation of the appraisal report without an on-site property inspection
A desk review evaluates the completeness, accuracy, and reasonableness of an appraisal report using only the document and available data, without any physical inspection.
Question 7: Which of the following best describes the purpose of the Interagency Appraisal and Evaluation Guidelines?
- To set maximum fee limits for appraisal services
- To provide federal regulatory agencies' expectations for safe and sound appraisal practices in real estate lending (Correct answer)
- To replace USPAP for federally related transactions
- To establish AMC registration requirements in all states
Correct answer: To provide federal regulatory agencies' expectations for safe and sound appraisal practices in real estate lending
The Interagency Appraisal and Evaluation Guidelines articulate how federal financial regulatory agencies expect institutions to use appraisals and evaluations to support safe and sound lending.
CAR Financing & Lending Standards in Appraisal Review 1
Which federal legislation established Appraisal Independence Requirements (AIR) to prevent improper influence on appraisers in mortgage transactions?