Any amendment to the Agencies' appraisal regulations is beyond the scope of the Guidelines. 1707, et seq., and FRB Regulation Z, 12 CFR 226.36 and 226.42. Indicate all source(s) of information used in the analysis, as applicable, to value the property, including: Include information on the preparer when an evaluation is performed by a person, such as the name and contact information, and signature (electronic or other legally permissible signature) of the preparer. If the qualification for sale is not adequately documented, the transaction should be supported by an appraisal that conforms to the Agencies' appraisal regulations, unless another exemption applies. These Guidelines, including their appendices, address supervisory matters relating to real estate appraisals and evaluations used to support real estate-related financial transactions. Evaluate underlying data used in the model(s), including the data sources and types, frequency of updates, quality control performed on the data, and the sources of the data in states where public real estate sales data are not disclosed. Some commenters referenced industry efforts to mitigate fraud in real estate transactions. on [19] A valuation method that does not provide a property’s market value or sufficient information and analysis to support the value conclusion is not acceptable for an evaluation. Therefore, an institution should establish criteria for determining the level and extent of research or inspection necessary to ascertain the property's actual physical condition, and the economic and market factors that should be considered in developing an evaluation. Communicating a predetermined, expected, or qualifying estimate of value, or a loan amount or target loan-to-value ratio to an appraiser or person performing an evaluation. The sum of retail sales is not the market value for purposes of meeting the minimum appraisal standards in the Agencies' appraisal regulations. Reviewing Appraisals and Evaluations. The Agencies also requested comment on whether appropriate constraints can be placed on the use of these tools and Start Printed Page 77454methods to ensure the overall integrity of the institution's appraisal review process for other low risk mortgage transactions. Validity of Appraisals and Evaluations, C. Modifications and Workouts of Existing Credits, Appendix B, Evaluations Based on Analytical Methods and Technological Tools. Likewise, information on local housing conditions and trends, such as a competitive market analysis, does not contain sufficient information on a specific property that is needed, and therefore, would not be acceptable as an evaluation. An institution is required to obtain appraisals of leases that are the economic equivalent of a purchase or sale of the leased real estate. An institution should ensure that persons who validate an AVM on an ongoing basis are independent of the loan production and collection processes and have the requisite expertise and training. [60] require each institution to adopt and maintain written real estate lending policies that are consistent with principles of safety and soundness and that reflect consideration of the real estate lending guidelines issued as an appendix to the regulations. This process should differentiate between high- and low-risk transactions so that the review is commensurate with the risk. Further, the appraisal must contain an opinion of market value as defined in the Agencies' appraisal regulations. If each note or real estate interest meets the Agencies' regulatory requirements for appraisals at the time the real estate note was originated, the institution need not obtain a new appraisal to support its interest in the transaction. on FederalRegister.gov With world events necessitating the highest standards in loan requirements, it is imperative that all financial institutions comply with these recent Guideline changes. Under the law, the provisions are effective 12 months after final regulations to implement the provisions are published. While some commenters cautioned that the Agencies' examiners should not be overly aggressive in requiring institutions to obtain new appraisals on existing loans, a few commenters asked for clarification on what would constitute a change in market condition and when an institution should re-value collateral. Selection of Appraisers or Persons Who Perform Evaluations, VII. The regulatory agencies issued the Interagency Appraisal and Evaluation Guidelines 1 (“Guidelines”) effective Dec. 10, 2010. Identify circumstances under which an AVM may not be used, including: Expectations for an appropriate sample size. Exposure time is always presumed to precede the effective date of the appraisal. Effective Date of the Appraisal—USPAP requires that each appraisal report specifies the effective date of the appraisal and the date of the report. The following discussion summarizes significant comments on specific provisions of the Proposal, the Agencies' responses, and major changes to the Proposal as reflected in the Guidelines. are not part of the published document itself. Business Loan—As defined in the Agencies' appraisal regulations, a loan or extension of credit to any corporation, general or limited partnership, business trust, joint venture, syndicate, sole proprietorship, or other business entity. These exemptions include a transaction that: ○ There has been no obvious and material change in market conditions or physical aspects of the property that threaten the adequacy of the institution's real estate collateral protection after the transaction, even with the advancement of new monies; or, ○ There is no advancement of new monies other than funds necessary to cover reasonable closing costs.[43]. The Agencies note that their appraisal regulations and guidance have been in place since the early 1990s and that financial institutions are familiar with the regulatory and supervisory framework. For example, an extension arising from a short-term delay in the full repayment of the loan when there is documented evidence that payment from the borrower is forthcoming, or a brief delay in the scheduled closing on the sale of a property when there is evidence that the closing will be completed in the near term. Scope of Work—According to USPAP Scope of Work Rule, the type and extent of research and analyses in an appraisal assignment. An institution's selection process should ensure that a qualified, competent and independent person is selected to perform a valuation assignment. Several commenters asked for clarification on the factors institutions should consider in assessing an appraiser's competency. 1657 0 obj <>/Filter/FlateDecode/ID[<317ED4AAB38EDD43BDC221096B7C1FBE>]/Index[1652 14]/Info 1651 0 R/Length 48/Prev 216112/Root 1653 0 R/Size 1666/Type/XRef/W[1 2 1]>>stream Insulate the persons responsible for ascertaining the compliance of the institution's appraisal and evaluation function from any influence by loan production staff. Interagency Appraisal and Evaluation Guidelines Surnmry: The federal banking and thrift regulatory agencies have issued interagency guidelines on appraisals and evaluations. Therefore, the Guidelines, like the Proposal, allow for some flexibility to exist so long as an institution can demonstrate the independence of its collateral valuation function from the final credit decision. This process should include sufficient analysis by the institution to assess whether the third party provider can perform the services consistent with the institution's performance standards and regulatory requirements. We’ve made big changes to make the eCFR easier to use. In response to commenters' suggestions, additional terms were incorporated in the Guidelines, including appraisal management company, broker price opinion, credit file, going concern value, presold unit, and unsold units. Moreover, the institution's staff responsible for internal controls should have the skills commensurate with the complexity or sophistication of the method or tool. Employees responsible solely for credit administration or credit risk management are not considered loan production staff. Further, these Guidelines provide federally regulated institutions and examiners clarification on the Agencies' expectations for prudent appraisal and evaluation policies, procedures, and practices. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS), and the National Credit Union Administration (NCUA) (the Agencies) are jointly issuing these Interagency Appraisal and Evaluation Guidelines (Guidelines), which supersede the 1994 Interagency Appraisal and … 25. The person selected is capable of rendering an unbiased opinion. For further clarity, this section incorporates certain technical edits to address specific comments. Conditioning a person's compensation on loan consummation. An institution's use of a borrower-ordered or borrower-provided appraisal violates the Agencies' appraisal regulations. 12/21/2020, 294 According to USPAP, an appraisal with a prospective market value reflects an effective date that is subsequent to the date of the appraisal report. The President of the United States manages the operations of the Executive branch of Government through Executive orders. In response to several comments regarding an institution's use of appraisal management companies, this section addresses the due diligence procedures for selecting a third party, including an effective risk management system and internal controls. For example, to be consistent with the standards for an evaluation, the results of an AVM would need to address a property's actual physical condition, and therefore, could not be based on an unsupported assumption, such as a property is in “average” condition. These risks include, but are not limited to, transaction size and purpose, credit quality, and leverage tolerance (loan-to-value). Consistent with safe and sound practices, an institution should have a written contract that clearly defines the expectations and obligations of both the financial institution and the third party, including that the third party will perform its services in compliance with the Agencies' appraisal regulations and consistent with supervisory guidance. Revisions to the Title XI Appraisal Regulations A. In the notice for comment on the Proposal, the Agencies requested comment on the appraisal regulatory exemption for residential real estate transactions involving U.S. government sponsored enterprises (GSEs). Preparation of an Evaluation . for a purchase transaction. [28] documents in the last year, 309 An institution should be able to demonstrate that an evaluation, whether prepared by an individual or supported by an analytical method or a technological tool, provides a reliable estimate of the collateral's market value as of a stated effective date prior to the decision to enter into a transaction. These are designed to ensure a community bank obtains a more detailed evaluation. An institution's policies and procedures should specify methods for communication that ensure independence in the collateral valuation function. Tract Development—As defined in the Agencies' appraisal regulations, a project of five units or more that is constructed or is to be constructed as a single development. Each appraisal must contain an estimate of market value, as defined by the Agencies' appraisal regulations. Prudent portfolio monitoring practices include criteria for determining when to obtain a new appraisal or evaluation. In finalizing the Guidelines, the Agencies considered the Dodd-Frank Act, other Federal statutory and regulatory changes affecting appraisals,[11] Has a transaction value equal to or less than the appraisal threshold of $250,000. 66. 60. An institution should consider performing an inspection to ascertain the actual physical condition of the property and market factors that affect its market value. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) are publishing answers to frequently asked questions (FAQ) concerning appraisals and evaluations for real estate transactions that are covered by the interagency appraisal rules (12 CFR 34, subpart C). An institution also should consider such factors as the quality of the underlying collateral and the validity of the existing appraisal or evaluation. The Guidelines address the types of communications that would not be construed as coercion or undue influence on appraisers and persons performing evaluations, as well as examples of actions that would compromise independence. The 2006 Interagency Statement on the 2006 Revisions to the Uniform Standards of Professional Appraisal Practice, OCC: OCC Bulletin 2006-27; FRB: SR letter 06-9; FDIC: FIL-53-2006; OTS: CEO Memorandum No. OCC: 12 CFR part 34, subpart C; FRB: 12 CFR part 208, subpart E; FDIC: 12 CFR part 365; and OTS: 12 CFR 560.100 and 560.101. 0 The Guidelines make it clear that an institution is responsible for meeting supervisory expectations regarding the selection, use, and validation of an AVM and maintaining an effective system of internal controls. Implement internal controls that promote compliance with these program standards, including those related to monitoring third party arrangements. 30. 40. NCUA: Vincent H. Vieten, Member Business Loan Program Officer, Office of Examination and Insurance, (703) 518-6396; or Sheila A. Albin, Staff Attorney, Office of General Counsel, (703) 518-6547. Standards of performance measures to be used. The Agencies' appraisal regulations must require, at a minimum, that real estate appraisals be performed in accordance with generally accepted uniform appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board, and that such appraisals be in writing. This exemption allows an institution to take liens against real estate without obtaining an appraisal to protect legal rights to, or control over, other collateral. The Guidelines build on … The economic activities over the past 2 years have created a renewed focus on the area of real estate and, as a result, regulatory agencies have increased examination emphasis. To satisfy the condition for no obvious and material change in market conditions or the physical aspects of the property, the current or planned future use of the property should be consistent with the use identified in the existing appraisal or evaluation. 22. For example, the sole use of data from the Internet or other public sources would not be an evaluation under these Guidelines. “As Stabilized” Market Value—Refer to the definition for Prospective Market Value. This document has been published in the Federal Register. The appraisal analysis also should include consideration of the absorption of the unleased space. Recognizing that technology may change, the Guidelines address an institution's responsibility for ensuring that an evaluation based on an analytical method or technological tool is consistent with the Agencies' supervisory expectations in the Evaluation Content section. 50. This section in the Guidelines references Appendix A, Appraisal Exemptions, which has been revised in response to comments on the Proposal. The 2005 Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions, OCC: OCC Bulletin 2005-6; FRB: SR letter 05-5; FDIC: FIL-20-2005; OTS: CEO Memorandum No. Some commenters also asked the Agencies to address the expectations for reviews by property type and risk factors. Maintain a system of adequate controls, verification, and testing to ensure that appraisals and evaluations provide credible market values. These individuals would include any employee whose compensation is based on loan volume (such as processing or approving of loans). An institution should establish an effective system of controls for verifying that a valuation method or tool is employed in a manner consistent with internal policies and procedures. 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