If absolute lines of independence cannot be achieved, an institution should be able to demonstrate clearly that it has prudent safeguards to isolate its collateral valuation program from influence or interference from the loan production process. Business Loan ThresholdA business loan with a transaction value of $1,000,000 or less does not require an appraisal if the primary source of repayment is not dependent on the sale of, or rental income derived from, real estate. NCUA's appraisal regulation, 12 CFR 722, does not provide a higher appraisal threshold for loans defined as member business loans under 12 CFR 723. Regulation Z also prohibits a creditor from extending credit when it knows that the appraiser independence standards have been violated, unless the creditor determines that the value of the property is not materially misstated. (See Appendix D, Glossary of Terms, for a definition of business loan.). Supervisory Policy. Maintain criteria for the content and appropriate use of evaluations consistent with safe and sound banking practices. Moreover, the institution's staff responsible for internal controls should have the skills commensurate with the complexity or sophistication of the method or tool. 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. Web1 language. 2. Some commenters did not agree that institutions should be permitted to use AVMs to develop an evaluation. FRB: Virginia M. Gibbs, Senior Supervisory Financial Analyst, (202) 452-2521, or T. Kirk Odegard, Manager, Policy Implementation and Effectiveness, (202) 530-6225, Division of Banking Supervision and Regulation; or Walter R. McEwen, Senior Counsel, (202) 452-3321, or Benjamin W. McDonough, Counsel, (202) 452-2036, Legal Division. Exposure time is always presumed to precede the effective date of the appraisal. This document has been published in the Federal Register. Refer to USPAP Standards Rule 1-5(a) and the Ethics Rule. For further clarity, this section incorporates certain technical edits to address specific comments. Even if a subsequent transaction qualifies for this exemption, an institution should consider the risk posed by the transaction and may wish to consider obtaining a new appraisal. Transactions by Regulated Institutions as Fiduciaries, 12. 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. The person selected is capable of rendering an unbiased opinion. According to the FDIC, as of Dec. 31, 2021, there were only 608 FDIC-insured S&Ls in the U.S., compared to 4,231 FDIC-insured commercial banks. (See the Scope of Work Rule in USPAP.). Under these circumstances, the review may be part of the originating loan officer's overall credit analysis, as long as the originating loan officer abstains from directly or indirectly approving or voting to approve the loan. Prospective market value opinions should be based upon current and reasonably expected market conditions. If a transaction does not involve an advancement of new monies and there have been no obvious and material changes in market or property conditions, a credit union must obtain a written estimate of market value that is consistent with the standards for evaluations as discussed in these Guidelines. [64] 11. 12 CFR 701.21; 12 CFR part 723. 3339(3)), which relates to the review of appraisals, is not relevant for determining whether an appraiser is a certified or licensed appraiser under 34.203(a)(1). Third Appraiser has the meaning set forth in Section 6.04(b) hereof. 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. Web( 1) Title XI of FIRREA provides protection for federal financial and public policy interests in real estate-related transactions by requiring real estate appraisals used in connection 511 (1989); 12 U.S.C. Therefore, an institution should be able to demonstrate that sufficient information is available to support the current market value of the collateral and the classification of a problem real estate credit. 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. documents in the last year, 861 OTS: Deborah S. Merkle, Senior Project Manager, Credit Risk, Risk Management, (202) 906-5688; or Marvin L. Shaw, Senior Attorney, Regulations and Legislation Division (202) 906-6639. A few commenters questioned the timing of the Proposal given the stress in the current real estate market. Some commenters encouraged the Agencies to incorporate additional safeguards for consumers in the Guidelines. In addition, prior to making a final commitment to the borrower, the institution should document and retain in the credit file the analysis performed to verify that the abundance of caution exemption has been appropriately applied. Transactions That Qualify for Sale to, or Meet the Appraisal Standards of, a U.S. Government Agency or U.S. This estimated valuation considers the Bank only as a going concern and should not be considered as an indication of its liquidation value. Establish criteria for determining whether a particular valuation method or tool is appropriate for a given transaction or lending activity, considering associated risks. An institution should document the results of its validation and audit findings. daily Federal Register on FederalRegister.gov will remain an unofficial Under certain circumstances, renewals, refinancings, and other subsequent transactions may be supported by evaluations rather than appraisals. hbbd``b`.Z }$~\b`bdc@ electronic version on GPOs govinfo.gov. An institution should use caution if it engages a third party to administer any part of its appraisal and evaluation function, including the ordering or reviewing of appraisals and evaluations, selecting an appraiser or person to perform evaluations, or providing access to analytical methods or technological tools. Other commenters recommended revisions to the Agencies' appraisal regulations that cannot be changed with the issuance of the Guidelines. The appraiser's scope of work should be consistent with the extent of the research and analyses employed for similar property types, market conditions, and transactions. Transactions that Require Evaluations. 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 Evaluation Guidelines. Under their appraisal regulations, the Agencies reserve the right to require an institution to obtain an appraisal or evaluation when there are safety and soundness concerns on an existing real estate secured credit. WebIf an appraisal is prepared by a staff appraiser, that appraiser must be independent of the lending, investment, and collection functions and not involved, except as an appraiser, in These commenters expressed the view that the Proposal gave too much discretion to regulated institutions in the development and implementation of their appraisal and evaluation programs. Value opinions such as going concern value, value in use, or a special value to a specific property user may not be used as market value for federally related transactions. See, for example, Title IV of Division A of the Housing and Economic Recovery Act of 2008, Public Law 110-289, Title IV, Division A, 122 Stat. NCUA's appraisal regulation, 12 CFR 722, does not define business loan. A member business loan is regulated under 12 CFR 723. If an evaluation is permitted under this exemption, an institution may use an existing appraisal or evaluation as long as the institution verifies and documents that the appraisal or evaluation continues to be valid. 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. This revised section also incorporates the section on Accepting Appraisals from Other Financial Services Institutions in the Proposal. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. WebProposed Rule In July 2017, the agencies invited comment on a notice of proposed rulemaking (proposal or proposed rule) 1 that would amend the agencies appraisal regulations promulgated pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI).2 Specifically, the proposal would have FIRREA was put in place for a reason and is being reduced to rubble by agencies that do not want to deal with its guidance. TheFederal Home Loan Bank Board(FHLBB) was abolished. Put BackRepresents the ability of an investor to reject mortgage loans from a mortgage originator if the mortgage Start Printed Page 77473loans do not comply with the warranties and representations in their mortgage purchasing agreement. ?-z#U-&3FK3_kkQ9YV\YB4f~y-rmVK9?ojQ6K|W6-7Fq7[Ct14%74/i_U{}qnAG{13Ry88Y&`[(. To apply this exemption, the Agencies expect the institution to determine that the primary source of repayment for the business loan is operating cash flow from the business rather than rental income or sale of real estate. Minimum Appraisal Standards. Communication between the institution's collateral valuation staff and an appraiser or person performing an evaluation is essential for the exchange of appropriate information relative to the valuation assignment. An institution may take a lien on real estate and be exempt from obtaining an appraisal if the lien on real estate is taken by the lender in an abundance of caution. 62. See, for example, OCC Bulletin 2000-16, Risk ModelingModel Validation (May 30, 2000). An institution may refer to the appraiser's USPAP certification in its assessment of the appraiser's independence concerning the transaction and the property. 61. 2800 (2008); 12 U.S.C. These standards of independence also should apply to persons who perform evaluations. Some commenters contend that regulated institutions should not be allowed to accept appraisals from mortgage brokers so as to ensure compliance with applicable appraisal independence standards. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as: The Agencies' appraisal regulations specify that appraisals for federally related transactions must contain sufficient information and analysis to support an institution's decision to engage in the credit transaction. Sales History and Pending SalesAccording to USPAP Standards Rule 1-5, when the value opinion to be developed is market value, an appraiser must, if such information is available to the appraiser in the normal course of business, analyze: (1) All current agreements of sale, options, and listings of the subject property as of the effective date of the appraisal, and (2) all sales of the subject property that occurred within three years prior to the effective date of the appraisal. These procedures should include a process for qualifying an appraiser for initial placement on the list, as well as periodic monitoring of the appraiser's performance and credentials to assess whether to retain the appraiser on the list. set forth, among other requirements, minimum standards for the performance of real estate appraisals in connection with federally related transactions,[3] on The Guidelines also reference the FRB's Regulation Z (implementing the Truth in Lending Act), which was amended in 2008 and 2010 to include provisions regarding appraiser independence.[12]. The Agencies' appraisal regulations include minimum standards for the preparation of an appraisal. Dated at Washington, DC, the 1st day of December, 2010. If there is a concern regarding the institution's ability or willingness to file a complaint or make a referral, examiners should forward their findings and recommendations to their supervisory office for appropriate disposition and referral to state appraiser regulatory officials and FinCEN, as necessary. An institution would need to obtain an appraisal on the two properties valued in excess of the appraisal threshold and evaluations on the five properties below the appraisal threshold, even though the aggregate loan commitment exceeds the appraisal threshold. Perform the necessary level of due diligence on AVM vendors and their models, including how model developers conducted performance testing as well as the sample size used. When such information is not available, an examiner may direct an institution to obtain a new appraisal or evaluation in order to have sufficient information to understand the current market value of the collateral. The Guidelines also now provide additional clarification on the Agencies' supervisory expectations for the development and content of evaluations. 73 FR 44522, 44604 (Jul. 0 Independence is also compromised when loan production staff selects a person to perform an appraisal or evaluation for a specific transaction. An institution must not accept an appraisal that has been readdressed or altered by the appraiser with the intent to conceal the original client. This section in the Proposal and the Guidelines provides the Agencies' expectations for an institution to establish an effective, risk-focused process for reviewing appraisals and evaluations prior to a final credit decision. Temporary creation of the Resolution Trust Corp. to resolve the status of the nation's failed savi An institution should take into account all aspects of the long-term effect of the relationship, including the managerial expertise and associated costs for effectively monitoring the arrangement on an ongoing basis. While this section in the Guidelines generally tracks the Proposal, the detailed discussion on Start Printed Page 77453analyzing deductions and discounts has been moved to a new appendix. A new section on Evaluation Development provides guidance on the requirement in the Agencies' appraisal regulations that evaluations must be consistent with safe and sound banking practices. This section in the Guidelines addresses the risk management practices that an institution should consider if it uses a third party to manage or conduct all or part of its collateral valuation function. 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