The appraiser must provide an opinion of value for raw land based on its current condition and existing zoning. It also created the Bank Insurance Fund (BIF). For the pooling of loans or interests in real property for resale or purchase, the amount of the loan or market value of the real property calculated with respect to each such loan or interest in real property. Conversion Valuation Appraisal Report Page: 3 ================================================================================ In preparing our valuation, we relied upon and assumed the accuracy and completeness of financial and other information provided to us by the Bank and its independent accountants. 1.5 FIRREA: The Financial Institutions Reform, Recovery and Enforcement Act of 1989. The Agencies believe that the timing of the release of the Guidelines is appropriate to emphasize existing requirements, clarify expectations, and ensure consistency in the application of the Agencies' appraisal regulations, thereby promoting safe and sound collateral valuation practices across federally regulated institutions. Liens for Purposes Other Than the Real Estate's Value, 7. documents in the last year, by the Food Safety and Inspection Service and the Food and Drug Administration Prospective market value opinions should be based upon current and reasonably expected market conditions. Further, technical edits were incorporated in the Evaluation Content section of the Guidelines to address commenters' questions regarding the appropriate level of documentation in an evaluation. The revisions reflect clarifying text in response to comments from institutions on the regulatory requirements for reappraisals of real estate collateral for existing credits and subsequent transactions, particularly loan workout situations. A tract development is defined in the Agencies' appraisal regulations as a project of five units or more that is constructed or is to be constructed as a single development. An institution's policies and procedures for reviewing appraisals and evaluations, at a minimum, should: An institution should establish qualification criteria for persons who are eligible to review appraisals and evaluations. The system exists to this day. Transactions Involving Real Estate Notes, 9. Register (ACFR) issues a regulation granting it official legal status. 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. Exposure time is always presumed to precede the effective date of the appraisal. documents in the last year, 83 Although the Agencies' appraisal regulations exempt certain real estate-related financial transactions from the appraisal requirement, most real estate-related financial transactions over the appraisal threshold are considered federally related transactions and, thus, require appraisals. Independence is compromised when a borrower recommends an appraiser or a person to perform an evaluation. OCC: 12 CFR part 34, subpart D; FRB: 12 CFR part 208, Appendix C; FDIC: 12 CFR part 365; and OTS: 12 CFR 560.100 and 560.101. The Proposal confirmed that an institution should make referrals to state appraiser regulatory authorities when it suspects that a state licensed or certified appraiser failed to comply with USPAP, applicable state laws, or engaged in unethical or unprofessional conduct. 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 Assess modeling techniques and the inherent strengths and weaknesses of different model types (such as hedonic, index, and blended) as well as how a model(s) performs for different property types (such as condominiums, planned unit developments, and single family detached residences). For existing or proposed developments of five or more residential lots in a single development, the appraiser must analyze and report appropriate deductions and discounts. Most commenters appreciated the additional explanation in the Proposal on the appraisal standard to analyze deductions and discounts for residential tract developments. However, the transaction should be supported by an appraisal that analyzes and reports appropriate deductions and discounts if any of the individual units are not completed and sold within the 12-month time frame. Under this rule, credible assignment results depend on meeting or exceeding both (1) the expectations of parties who are regularly intended users for similar assignments, and (2) what an appraiser's peers' actions would be in performing the same or a similar assignment. Conversely, financial institutions found the Proposal to be an improvement over existing guidance and indicated that it would promote consistent application of the Agencies' appraisal requirements. [63] Independent Appraiser means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant. headings within the legal text of Federal Register documents. An institution may not rely solely on the data provided by local tax authorities to develop an evaluation unless the resulting evaluation is consistent with safe and sound banking practices and these Guidelines. As provided by the USPAP Scope of Work Rule, appraisers are responsible for establishing the scope of work to be performed in rendering an opinion of the property's market value. 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. The appraiser selected to perform an appraisal holds the appropriate state certification or license at the time of the assignment. documents in the last year, 983 The original appraiser should complete the appraisal update; however, lenders may use substitute appraisers. The Public Inspection page may also Deficiencies will require appropriate corrective action. 1828(o). Therefore, an institution should be cautious in limiting the scope of the appraiser's inspection, research, or other information used to determine the property's condition and relevant market factors, which could affect the credibility of the appraisal. Appraisal shall have the meaning assigned to such term in the Servicing Agreement. 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. 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. Further, there should be periodic internal review of the use of the approved appraiser list to confirm that appropriate procedures and controls exist to ensure independence in the development, administration, and maintenance of the list. 28. Appendix BEvaluations Based on Analytical Methods or Technological Tools. an institution should monitor collateral risk on a portfolio and on an individual credit basis. The documents posted on this site are XML renditions of published Federal These Guidelines, including their appendices, address supervisory matters relating to real estate appraisals and evaluations used to support real estate-related financial transactions. 3352. An institution should understand the real property's as is market value and should consider the prospective market value that corresponds to the credit decision and the phase of the project being funded, if applicable. Further, for loan workouts, an institution's policies should specify conditions under which an appraisal or evaluation will be obtained. New Documents As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively. 12 CFR 722.3(d). An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. By order of the Federal Deposit Insurance Corporation. 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. hb```,'x9 X:d&Z=mVH63Sn14^X=*%TXZku+S8gO;MPS%UejE4E[#A5]MMB"Da D0$gNE;A$X`c#i`h`b d`` 2"AA zV! This is a new Appendix in the Guidelines that is based on the discussion in the Proposal on the Agencies' minimum appraisal standards. OCC: 12 CFR part 34, subpart C: FRB: 12 CFR part 208, subpart E and 12 CFR part 225; subpart G; FDIC: 12 CFR part 323; OTS: 12 CFR part 564; and NCUA: 12 CFR part 722. Monitoring Collateral Value. For instance, the dollar amount of the appraisal threshold and of the business loan threshold from the Agencies' appraisal regulations were incorporated in the text of this section. Approved Appraiser means any of the following: Xxxxx Xxxxxxxx Xxxxxx, Xxxxx, H Xxxxxxxx & Co. Ltd., London, X.X. 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. These commenters contended that appropriate risk management practices provide sufficient safeguards to elevate their collateral valuation methods (that is, obtaining an appraisal instead of an evaluation) when warranted. An institution may exchange information with appraisers and persons who perform evaluations, which may include providing a copy of the sales contract[27] The Agencies expect an institution to consider current collateral valuation information to assess its collateral risk and facilitate an informed decision on whether to engage in a modification or workout of an existing real estate credit. Document page views are updated periodically throughout the day and are cumulative counts for this document. ), If the loan workout does not include the advancement of new monies other than reasonable closing costs, the institution may obtain an evaluation in lieu of an appraisal. Institutions may employ AVMs for a variety of uses such as loan underwriting and portfolio monitoring. [18] 12 CFR 722.3(d). which are defined as those real estate-related financial transactions that an Agency engages in, contracts for, or regulates and that require the services of an appraiser. Moreover, as an institution's reliance on collateral becomes more important, its policies and procedures should: Consistent with sound collateral valuation monitoring practices, an institution can use a variety of techniques for monitoring the effect of collateral valuation trends on portfolio risk. An institution should have internal controls for identifying, monitoring, and managing the risks associated with using a third party arrangement for valuation services, including compliance, legal, reputational, and operational risks. Index models generally use geographic repeat sales data over time rather than property characteristic data. This exemption is not intended to be applied to real estate-related financial transactions other than those involving loans. (See the Scope of Work Rule in USPAP.). The Agencies believe that the Proposal adequately addressed an institution's responsibility to maintain a risk-focused process for elevating its collateral valuation methods consistent with safe and sound banking practices. These regulations also specify the requirement for evaluations of real estate collateral in certain transactions that do not require an appraisal. Implement controls to preclude value shopping when more than one AVM is used for the same property. (See market value above and USPAP Standards Rule 1-2(c).). 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. documents in the last year, 20 To implement these provisions, the Agencies recognize that future regulations will address the requirement that the appraiser conduct a physical property visit of the interior of the mortgaged property. 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). This estimated valuation considers the Bank only as a going concern and should not be considered as an indication of its liquidation value. An institution that engages a third party to perform certain collateral valuation functions on its behalf is responsible for understanding and managing the risks associated with the arrangement. Appropriate deductions and discounts should include holding costs, marketing costs, and entrepreneurial profit during the sales absorption period of the completed units. When an appraisal of raw land includes entitlements, the appraisal should disclose when such entitlements will expire if improvements are not completed within a specified time period and the potential effect on the value conclusion. The final Interagency Appraisal and Evaluation Guidelines appear below. NCUA's general lending regulation addresses residential real estate lending by Federal credit unions, and its member business loan regulation addresses commercial real estate lending. An example of a hypothetical condition is when an appraiser assumes a particular property's zoning is different from what the zoning actually is. 73 FR 44522, 44604 (Jul. The Agencies believe that the Proposal adequately addressed the issue of enforceability and their supervisory process. 12 CFR 701.21; 12 CFR part 723. 36. For a transaction financing construction or renovation of a building, an institution would generally request an appraiser to provide the property's current market value in its as is condition, and, as applicable, its prospective market value upon completion and/or prospective market value upon stabilization. All real estate-related In this example, the amount of the line remains unchanged even though the amount available on the line is less than the line commitment. We did not independently verify the financial statements and other information provided by the Bank and its independent accountants, nor did we independently value any of the Bank's assets or liabilities. In order for a business loan to qualify for the abundance of caution exemption, the Agencies expect the extension of credit to be well supported by the borrower's cash flow or collateral other than real property. Further, the Guidelines promote consistency in the application and enforcement of the Agencies' appraisal regulations and safe and sound banking practices. First, the process of obtaining an evaluation is not new since IDIs already obtain evaluations for transactions at or below the current $250,000-threshold. The use of FIRREA as an enforcement tool has grown since 2015 and is expected to increase under the Biden Administration. NCUA requires a written estimate of market value for all real estate-related transactions valued at the appraisal threshold or less, or that involve an existing extension of credit where there is either an advancement of new monies or a material change in the condition of the property. [33] Establish acceptable minimum performance criteria for a model prior to and independent of the validation process. and have no direct or indirect interest, financial or otherwise, in the property or the transactions. WebAlternative Valuation Services. Under USPAP, the appraisal must contain a certification that the appraiser has complied with USPAP. Ensure the institution's practices result in the selection of appraisers and persons who perform evaluations with the appropriate qualifications and demonstrated competency for the assignment. The President of the United States manages the operations of the Executive branch of Government through Executive orders. An institution should document the results of its validation and audit findings. 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. There also have been significant industry developments, such as advancements in information technology that have affected the Start Printed Page 77451development and delivery of appraisals and evaluations. Where appropriate, we considered information based upon other publicly available sources, which we believe to be reliable; however, we cannot guarantee the accuracy or completeness of such information. Dodd-Frank Act, Section 1473(r). Borrowers with high risk characteristics. For certain transactions that do not require an appraisal, the Agencies' regulations require an institution to obtain an appropriate evaluation of real property collateral that is consistent with safe Start Printed Page 77462and sound banking practices. The guidance addresses the authority as set forth in the Agencies' appraisal regulations for an institution to use an appraisal that was performed by an appraiser engaged directly by another regulated institution or financial services institution (including mortgage brokers), provided certain conditions are met. It is subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat. An institution should perform appropriate model validation regardless of whether it relies on AVMs that are supported by value insurance or guarantees. The Federal Home Loan Bank Act was passed in 1932 to stimulate home sales by releasing funds to banks for mortgages. The President of the United States issues other types of documents, including but not limited to; memoranda, notices, determinations, letters, messages, and orders. 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 A federal savings and loan is an institution of thrift that focuses on residential mortgages. 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. 62. Therefore, an institution should have the resources and expertise necessary for performing ongoing oversight of third party arrangements. 43. Loan Production StaffGenerally, all personnel responsible for generating loan volume or approving loans, as well as their subordinates and supervisors. This exemption applies to appraisal requirements for transactions involving the purchase, sale, investment in, exchange of, or extension of credit secured by a loan or interest in a loan, pooled loans, or interests in real property, including mortgage-backed securities. The Office of Thrift Supervision was responsible for issuing and enforcing regulations governing the nation's savings and loan industry. The Appendix clarifies that an institution may not rely solely on the results of a method or tool to develop an evaluation unless the resulting evaluation meets all of the supervisory expectations for an evaluation and is consistent with safe and sound banking practices. As used in Section 5.12 hereof, an Approved Third-Party Appraiser selected by the Administrative Agent shall mean any of the firms identified in the preceding sentence and any other Independent nationally recognized third-party appraisal firm identified by the Administrative Agent and consented to by the Borrower (such consent not to be unreasonably withheld or delayed). 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]. As specified in the Agencies' appraisal regulations, an institution must obtain an evaluation of the real property collateral, if no other appraisal exemption applies. 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. For loans to purchase an existing property, value means the lesser of the actual acquisition cost or the estimate of value. 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. For certain transactions, an institution also must comply with the provisions addressing valuation independence in Regulation Z (Truth in Lending).[32]. An institution or its agents also should directly select and engage persons who perform evaluations. Refer to USPAP Standards Rule 1-5(a) and the Ethics Rule. To apply the exemption, the institution should determine that the market value of the real estate as an individual asset is not necessary to support its decision to extend credit. NCUA's regulations do not provide an exemption from the appraisal requirements specific to member business loans. The Guidelines clarify the Agencies' longstanding expectations for an institution's appraisal and evaluation program to conduct real estate lending in a safe and sound manner. The Guidelines also emphasize the importance of monitoring collateral values in the institution's lending markets, consistent with the Agencies' real estate lending regulations and guidelines.