CAR CAR Legal & Liability Considerations 2 — Questions and Answers
Question 1: A lender's chief appraiser asks a reviewer to change a review conclusion to make a loan eligible for purchase by a government-sponsored enterprise. How should the reviewer respond?
- Refuse, as changing a professional conclusion due to pressure violates USPAP appraiser independence requirements (Correct answer)
- Comply if the request is made in writing and documented in the workfile
- Comply only if the change is less than 5% of the original appraised value
- Refer the matter to the AMC and take no further action
Correct answer: Refuse, as changing a professional conclusion due to pressure violates USPAP appraiser independence requirements
USPAP prohibits any party from influencing an appraiser or reviewer to provide a misleading opinion, and reviewers must maintain independence regardless of business pressure.
Question 2: Under Regulation B (ECOA), what must a lender do with a copy of the appraisal or valuation used in connection with a credit application?
- Provide it to the applicant promptly upon completion, and no later than three business days before consummation (Correct answer)
- Keep it confidential to protect the appraiser's proprietary methodology
- Provide it only upon written request from the applicant within 90 days of loan closing
- Share it exclusively with the secondary market purchaser of the loan
Correct answer: Provide it to the applicant promptly upon completion, and no later than three business days before consummation
Regulation B requires lenders to provide applicants with a copy of all appraisals and written valuations promptly upon completion, ensuring borrower access to valuation information.
Question 3: When a reviewer identifies a potential USPAP violation in an appraisal, what is their first professional obligation?
- Document the finding in the review report and notify the client according to the assignment conditions (Correct answer)
- File an immediate complaint with the state appraisal board without notifying the client
- Contact the original appraiser directly and demand a corrected report
- Withhold the review report until the appraiser corrects the deficiency
Correct answer: Document the finding in the review report and notify the client according to the assignment conditions
The reviewer's primary obligation is to document findings in the review report and fulfill reporting obligations to the client; state board referrals may follow based on the client's direction or the reviewer's judgment about severity.
Question 4: What is the purpose of an engagement letter in a review assignment?
- It defines the scope of work, deliverables, fees, and assignment conditions to protect both the reviewer and client (Correct answer)
- It certifies that the reviewer has inspected the subject property
- It substitutes for the review report when the client waives the written report requirement
- It authorizes the reviewer to access the original appraiser's workfile
Correct answer: It defines the scope of work, deliverables, fees, and assignment conditions to protect both the reviewer and client
An engagement letter establishes a mutual understanding of the assignment's parameters, reducing disputes about scope, deliverables, and liability boundaries.
Question 5: Under the Homeowners Protection Act (HPA), at what loan-to-value ratio must a lender automatically cancel borrower-paid private mortgage insurance (PMI) on a residential mortgage?
- 78% LTV based on the original amortization schedule (Correct answer)
- 80% LTV based on the current appraised value
- 90% LTV once the borrower requests cancellation in writing
- 85% LTV when the property has appreciated sufficiently
Correct answer: 78% LTV based on the original amortization schedule
The HPA mandates automatic PMI termination when the principal balance reaches 78% of the original purchase price or appraised value at origination, based on scheduled amortization.
Question 6: A reviewer working for a financial institution is asked to review an appraisal for a portfolio loan. Which interagency guidance most directly governs the institution's appraisal review requirements?
- The Interagency Appraisal and Evaluation Guidelines issued by federal banking regulators (Correct answer)
- Fannie Mae Selling Guide requirements exclusively
- HUD Handbook 4000.1 for all residential transactions
- State real estate commission regulations for licensed appraisers
Correct answer: The Interagency Appraisal and Evaluation Guidelines issued by federal banking regulators
The Interagency Appraisal and Evaluation Guidelines, issued by the OCC, Fed, FDIC, NCUA, and CFPB, govern appraisal review standards for federally regulated financial institutions.
CAR CAR Legal & Liability Considerations 2
A lender's chief appraiser asks a reviewer to change a review conclusion to make a loan eligible for purchase by a government-sponsored enterprise.
How should the reviewer respond?