In response to comments, the Agencies revised the Guidelines to stress that an institution should consider transaction risk when it is evaluating the appropriate collateral valuation method and level of documentation for an evaluation. an appraisal rather than an evaluation when the institution’s portfolio risk increases or for higher-risk real estate-related financial transactions. 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. 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. If an institution finances construction of a single condominium building with less than five units or a condominium project with multiple buildings with less than five units per building, the institution may rely on appraisals of the individual Start Printed Page 77471units if the institution can demonstrate through an independently obtained feasibility study or market analysis that all units collateralizing the loan can be constructed and sold within 12 months. Through the review process, the institution should be able to assess the reasonableness of the appraisal or evaluation, including whether the valuation methods, assumptions, and data sources are appropriate and well-supported. Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: Presold Unit—A unit may be considered presold if a buyer has entered into a binding contract to purchase the unit and has made a substantial and non-refundable earnest money deposit. Maintain AVM performance criteria for accuracy and reliability in a given transaction, lending activity, and geographic location. 44. Independence is compromised when a borrower recommends an appraiser or a person to perform an evaluation. An institution is accountable for ensuring that any services performed by a third party, both affiliated and unaffiliated entities, comply with applicable laws and regulations and are consistent with supervisory guidance. Also refer to 12 CFR 226.42, which is mandatory beginning on April 1, 2011. In response, the Agencies have revised the Guidelines to reflect a principles-based approach to ensure that an institution's collateral valuation program complies with the Agencies' appraisal regulations and is consistent with supervisory guidance and an institution's internal policies. Address the selection, use, and validation of the valuation method or tool. Transactions Involving Real Estate Notes, 9. For example, an engagement letter facilitates the communication of this information. OCC: 12 CFR 34.43 and 164.3; Board: 12 CFR 225.63; FDIC: 12 CFR 323.3; NCUA: 12 CFR722.3. For the purposes of these Guidelines, an institution is considered to have advanced new monies (excluding reasonable closing costs) when there is an increase in the principal amount of the loan over the amount of principal outstanding before the renewal or refinancing. Given the risk to the institution that it may have to repurchase a loan that does not comply with the appraisal standards of the U.S. Start Printed Page 77468government agency or U.S. government-sponsored agency, the institution should have appropriate policies to confirm its compliance with the underwriting and appraisal standards of the U.S. government agency or U.S. government-sponsored agency. These FAQs clarify existing regulatory requirements and guidance provided in the 2010 Interagency Appraisal and E… electronic version on GPO’s During the supervisory review of an institution's real estate lending activities, the Agencies' examiners assess the adequacy of risk management practices, including the independence of the collateral valuation function. Provide additional supporting information about the basis for a valuation. Other commenters urged the Agencies to work with other Federal agencies and government-sponsored enterprises (such as Freddie Mac and Fannie Mae) in an effort to harmonize standards for appraisals and other collateral valuations across all channels of mortgage lending, not just lending by federally regulated institutions. Other information might include the prevalence and effect of sales and financing concessions, the list-to-sale price ratio, and availability of financing. Ensure that timely information is available to management for assessing collateral and associated risk. Testing frequency and criteria for re-testing. 12 CFR 722.3(d). 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. Institutions may employ AVMs for a variety of uses such as loan underwriting and portfolio monitoring. Under the NCUA's appraisal regulation, a credit union must meet both conditions to avoid the need for an appraisal. This exemption is intended to apply to individual transactions on a case-by-case basis rather than broad categories of transactions that would otherwise be addressed by an appraisal exemption. The Interagency Appraisal and Evaluation Guidelines (Guidelines) 7. provide guidance on the use of and parameters for evaluations. Independence is also compromised when loan production staff selects a person to perform an appraisal or evaluation for a specific transaction. The Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC), — also referred to as the agencies — have issued a number of appraisal regulations: Reducing Burden Associated With Appraisals B. Incorporation of the Rural Residential Appraisal Exemption Under Sectio… Test and document how closely TAVs correlate to market value based on contemporaneous sales at the time of assessment and revalidate whether the correlation remains stable as of the effective date of the evaluation. Exposure Time—As defined in USPAP, the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. on 2010-30913 Filed 12-9-10; 8:45 am], updated on 4:20 PM on Friday, December 18, 2020, updated on 8:45 AM on Monday, December 21, 2020. The Court finds that FHFA carried this burden with respect to at least 184 of the 672 Sample 82 Defendants moved into evidence the Interagency Appraisal and Evaluation Guidelines appearing at 75 Fed. Anticipated demand for the units should be supported and presented in the appraisal. A few commenters questioned the timing of the Proposal given the stress in the current real estate market. Appendix B—Evaluations Based on Analytical Methods or Technological Tools. ), 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. AVMs are computer programs that estimate a property's market value based on market, economic, and demographic factors. Raw Land—A parcel or tract of land with no improvements, for example, infrastructure or vertical construction. The statement references the Interagency Appraisal and Evaluation Guidelines (Guidelines) which were implemented several years ago by the other agencies. To avoid the appearance of any conflict of interest, appraisal or evaluation development work should not commence until the institution has selected and engaged a person for the assignment. Interagency Appraisal and Evaluation Guidelines Jointly Issued by the OCC, FRB, FDIC and OTS in 1992 By: Jeff Graham, CPA, Partner at Condley and Company, L.L.P. 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. While an institution must confirm that the appraiser holds a valid credential from the appropriate state appraiser regulatory authority, a state certification or license is a minimum credentialing Start Printed Page 77460requirement. on Appraisers and appraisal groups asked for further explanation on the enforceability of the Guidelines and the distinction between supervisory guidance and regulatory requirements. Borrowers with high risk characteristics. These commenters were in general agreement that the Proposal adequately addressed developments in collateral valuation practices, but also raised technical issues and requested that the Agencies provide further clarification on a variety of topics. These costs may be incurred during the permitting, construction or selling stages of development. While an appraiser must comply with USPAP and establish the scope of work in an appraisal assignment, an institution is responsible for obtaining an appraisal that contains sufficient information and analysis to support its decision to engage in the transaction. Be sure to leave feedback using the 'Feedback' button on the bottom right of each page! These Guidelines, including their appendices, address supervisory matters relating to real estate appraisals and evaluations used to support real estate-related financial transactions. (See Appendix D, Glossary of Terms, for a definition of business loan.). The federal financial institution regulatory agencies 1 (collectively, the agencies) are issuing the attached Interagency Appraisal and Evaluation Guidelines (Guidelines) to clarify the agencies’ real estate appraisal regulations and to provide institutions and examiners with supervisory guidance for a prudent appraisal and evaluation program. The Guidelines retain the possible use of automated tools and sampling methods in the review of appraisals and evaluations supporting lower risk residential mortgages. Several commenters asked whether other guidance documents issued by the Agencies on appraisal-related issues would be rescinded with the issuance of the Guidelines. A few commenters also noted that certain factors, such as cost and turnaround time, should not influence the selection of appraisers. This section in the Guidelines references Appendix A, Appraisal Exemptions, which has been revised in response to comments on the Proposal. Appraisal Report Options—Refer to the definitions for Restricted Use Appraisal Report, Self-Contained Appraisal Report, and Summary Appraisal Report. [63] Further, the Agencies revised the Guidelines to confirm that the result of an automated valuation model (AVM), in and of itself, does not meet the Agencies' minimum appraisal standards, regardless of whether the results are signed by an appraiser. Based on comments on the Proposal, the Agencies added this additional appendix. An institution must not accept an appraisal that has been readdressed or altered by the appraiser with the intent to conceal the original client. The documentation in the credit file should provide the facts and analysis to support the institution's conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. These revisions incorporate and clarify certain supervisory expectations from the Evaluation Content section of the Proposal, and emphasize an institution's responsibility to establish criteria addressing the appropriate level of analysis and information necessary to support the estimate of market value in an evaluation. With world events necessitating the highest standards in loan requirements, it is imperative that all financial institutions comply with these recent Guideline changes. %PDF-1.4 %���� The agencies’ appraisal regulations and the IAEGprovide guidance for determining market values, creating an effective real estate valuation program, and establishing the usage and content of evaluations. documents in the last year, 945 The collateral valuation program is an integral component of the credit underwriting process and, therefore, should be isolated from influence by the institution's loan production staff. and services, go to For example, an institution originated a 15-year term loan for $3 million and, in year 14, the outstanding principal is $2.5 million. NCUA has recognized that it may be necessary for credit union loan officers or other officials to participate in the appraisal or evaluation function although it may be sound business practice to ensure no single person has the sole authority to make credit decisions involving loans on which the person ordered or reviewed the appraisal or evaluation. 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. The Interagency Appraisal and Evaluation Guidelines establish parameters for the development of an evaluation. documents in the last year, 986 An Agency may require compliance with additional appraisal standards if it makes a determination that such additional standards are required to properly carry out its statutory responsibilities. If the operating performance or financial condition of the company subsequently deteriorates and the lender determines that the real estate will be relied upon as a repayment source, an appraisal should then be obtained, unless another exemption applies. Supersedes the 1994 Interagency Appraisal & Evaluation Guidelines Address supervisory matters relating to real estate appraisal and evaluations used to support real estate related financial transactions Identifies scope –All real estate related financial transactions originated or purchased by a regulated The Guidelines reaffirm that a state certification or license is a minimum credentialing requirement and that an appraiser must be selected based on his or her competency to perform a particular assignment, including knowledge of the specific property type and market. 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. (Refer to the Reviewing Appraisals and Evaluations section in these Guidelines for additional information on determining and documenting the credibility of an appraisal or evaluation.) 61. Additionally, valuation methods that do not contain sufficient information and analysis or provide a market value conclusion would not be acceptable as evaluations. Provide an estimate of the property's market value in its actual physical condition, use and zoning designation as of the effective date of the evaluation (that is, the date that the analysis was completed), with any limiting conditions. informational resource until the Administrative Committee of the Federal Other Interagency Appraisal-Related Guidance Documents. endstream endobj 1653 0 obj <>/Metadata 143 0 R/OCProperties<>/PageLabels 1643 0 R/PageLayout/OneColumn/Pages 1645 0 R/PieceInfo<>>>/StructTreeRoot 298 0 R/Type/Catalog>> endobj 1654 0 obj <>/Font<>/ProcSet[/PDF/Text]/Properties<>>>/Rotate 0/StructParents 0/Type/Page>> endobj 1655 0 obj <>stream The criteria should ensure that: An institution or its agent must directly select and engage appraisers. This exemption applies to transactions that either (i) qualify for sale to a U.S. government agency or U.S. government-sponsored agency,[58] The Agencies' appraisal regulations permit an evaluation for a renewal or refinancing of an existing extension of credit at the institution when either: (i) There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution's real estate collateral protection after the transaction, even with the advancement of new monies; or, (ii) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs.[57]. Changes in underlying economic and market assumptions, such as capitalization rates and lease terms. [56] ... 2 The interagency guidelines may be found in: Comptroller's Handbook for Commercial Real Estate and Construction Lending for OCC; SR letter 94-55 for FRB; FIL-74-94 for FDIC; and Thrift Bulletin 55a for OTS. To address these comments, the Agencies incorporated clarifying edits in the Guidelines to emphasize the importance of appraiser competency for a particular assignment relative to both the property type and geographic market. Appraisal Management Company—The Agencies' appraisal regulations do not define the term appraisal management company. Although not required, an institution may use state certified or licensed appraisers to perform evaluations. the Agencies will determine whether future revisions to the Guidelines may be necessary. include documents scheduled for later issues, at the request An institution should implement a risk-focused approach for determining the depth of the review needed to ensure that appraisals and evaluations contain sufficient information and analysis to support the institution's decision to engage in the transaction. 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 Referrals. 2. [55] 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. Preparation of an Evaluation . proposed Guidelines, which would supersede the 1994 Interagency Appraisal and Evaluation Guidelines (1994 Guidelines), reflect revisions to the Uniform Standards of Professional Appraisal Practice (USPAP) and the evolution of collateral valuation practices, such as the use of automated valuation models (AVMs). 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