A creditor exceeded $250 million in assets in each of the past two calendar years and seeks Regulation Z's employee/affiliate valuation safe harbor for a principal-dwelling loan. A loan-production officer selects the appraiser. How does that affect the safe harbor?
Correct Answer
C) It fails the condition barring loan-production staff from involvement in appraiser selection
C. Loan-production involvement in selection fails this safe-harbor condition. Use the employee/affiliate safe harbor for a creditor above the stipulated asset threshold in both years. Selecting the appraiser is involvement in selection. Avoiding pressure over the final value does not cure that separate condition. Scope and exceptions: Losing a safe harbor is not itself a conclusive finding of a conflict-of-interest violation; the broader inquiry is fact-specific. Source: 12 CFR 1026.42(d)(2)(iii); comment 42(d)(2)-1 — https://www.consumerfinance.gov/rules-policy/regulations/1026/42/
Why This Is the Correct Answer
C. Loan-production involvement in selection fails this safe-harbor condition. Use the employee/affiliate safe harbor for a creditor above the stipulated asset threshold in both years. Selecting the appraiser is involvement in selection. Avoiding pressure over the final value does not cure that separate condition. Scope and exceptions: Losing a safe harbor is not itself a conclusive finding of a conflict-of-interest violation; the broader inquiry is fact-specific.
Why the Other Options Are Wrong
Option A: It satisfies the condition if the officer negotiates only the appraisal fee
Fee negotiation does not excuse the stated selection by a production officer.
Option B: It satisfies the condition if the officer does not ask for a particular appraised value
Not requesting a particular value does not satisfy the independent selection condition.
Option D: It fails only if the appraiser is also paid a commission based on loan closing
Selection and compensation are separate conditions; both violations need not occur.
Exam Tip
Failure to qualify for a safe harbor and proof of a violation are different conclusions.
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