Hawaii AMC License Changes
Written by Mike Moore, Chief Revenue Officer
You don’t have to travel to Hawaii to understand just how special and unique of a state it is. Being our only state consisting of an island chain, boasting the tallest peak in the world (Mauna Kea) as well as the wettest place in the world (Mount Waialeale), and serving as the only state in our Union with the climate to grow coffee beans, there are several attributes that make Hawaii unlike any of our other 49 states.
So, none of us should be surprised to learn that they sought to bring that uniqueness to lending and, specifically, to our valuation space. In early September, all AMCs operating under a Hawaii license were notified that their licenses have been revoked as of June 30, 2023 (two-ish months prior). The decision left many confused and a little panicked. The underlying conclusion that many have made was that an AMC could no longer be used for a Federally Related Transaction (FRT) in Hawaii.
State AMC licensure entered our industry in 2015. This simply meant that AMCs needed to obtain a license in every state they wished to continue operating. OK, easy enough… not cheap, but doable. The alternative meant that AMCs would potentially be breaking laws if they were to complete an appraisal for a FRT. Given the simplest path was to obtain licensure in those states, I don’t think a lot of people paid much attention to what a FRT even was. Allow me to help with that.
Federal banking law (12 U.S.C.A. 3350) defines a FRT as “Any real estate-related financial transaction which: (A) a federal financial institutions regulatory agency or the Resolution Trust Corporation engages in, contracts for, or regulates; and (B) requires the services of an appraiser.” Seems pretty far-reaching doesn’t it?? Well, the federal financial agencies have outlined 13 exemptions that change a FRT to a Non-FRT. I won’t list them or their legal definition but here’s your quick list of what exempts a loan:
- Is the loan FHA, VA or USDA? Not a FRT
- Has the loan been underwritten to Fannie Mae and Freddie Mac guidelines? Not a FRT
- Essentially, everything you know to be a conforming loan… not a FRT
What does that leave? Nonconforming loans. If you have a jumbo loan (over $1,089,300) or your loan otherwise does not meet the criteria to be considered conforming, then you have a FRT In 2022, according to HMDA data, 77% of loans in Hawaii would have been classified as a non-FRT. Within the remaining 23%, some may or may not have qualified but not enough information was disclosed to say for sure. Hawaii really does have many fantastically unique features but upon further investigation, it seems clear that your choice to work with an AMC doesn’t have to be any different than the other 49 states in the bulk of your transactions.