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. That is why a simple Brokers Price Opinion (BPO) is not acceptable, nor an Automated Valuation Model (AVM) or Tax Assessment Value (T… The Interagency Appraisal and Evaluation Guidelines establish minimum supervisory expectations for an evaluation. A BPO is not by itself an appraisal or evaluation, but could be used for monitoring the collateral value of an existing loan, when deemed appropriate. 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. In these situations, the market value of the leased fee interest should be used. The Agencies' appraisal regulations include minimum standards for the preparation of an appraisal. Quick Facts on Interagency Guidelines • Interagency Appraisal and Evaluation Guidelines • Published in the Federal Register on December 10, 2010, 75 FR 77450 • Effective on publication • Rescinds • 1994 Interagency Appraisal and Evaluation Guidelines • 2003 Interagency Statement on Independent Appraisal and Evaluation Functions the new Interagency Appraisal and Evaluation Guidelines to update and supersede the 1994 guidelines for providing regulatory guidance on real property valuations for all real estate related transactions at regulated financial institutions (i.e. on FederalRegister.gov 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. 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. Refer also to the Federal Financial Institutions Examination Council Bank Secrecy Act/Anti-Money Laundering Examination Manual (Revised April 29, 2010) to review the general criteria, but note that instructions on filing a SAR through the Financial Crime Enforcement Network (FinCEN) of the Department of the Treasury are attached to the SAR form. (See Appendix C, Deductions and Discounts, for further explanation on deductions and discounts.). The revisions also confirm that examiners will forward such findings to their supervisory office for appropriate disposition if there are concerns with an institution's ability or willingness to make a referral or file a SAR. Many commenters recognized that additional clarification of existing regulatory and supervisory expectations strengthen the real estate collateral valuation and risk management practices across federally regulated institutions. 11. If deficiencies are discovered, an institution should take remedial action in a timely manner. For a discussion on changes in market conditions, see the section on Validity of Appraisals and Evaluations in these Guidelines. Effective Date of the Appraisal—USPAP requires that each appraisal report specifies the effective date of the appraisal and the date of the report. An institution may use a TAV in developing an evaluation when it can demonstrate that a valid correlation exists between the tax assessment data and the market value. (See USPAP Statement 4 and Advisory Opinion 17.). For properties subject to leases with terms that do not reflect current market conditions, the appraisal must clearly state the ownership interest being appraised and provide a discussion of the leases that are in place. Under the NCUA's appraisal regulation, a credit union must meet both conditions to avoid the need for an appraisal. In the Guidelines, the Agencies clarified their expectations that while a loan qualifying for sale to a GSE is exempted from the appraisal regulations, an institution is expected to have appropriate policies to confirm their compliance with the GSEs' underwriting and appraisal standards. In some markets, entrepreneurial profit is treated as a line item deduction while in other markets it is reflected as a component of the discount rate. Independence of the Appraisal and Evaluation Program. The discussion of loan modifications in the Proposal was incorporated in the section on Monitoring Collateral Value. Interagency Appraisal and Evaluation Guidelines Surnmry: The federal banking and thrift regulatory agencies have issued interagency guidelines on appraisals and evaluations. Ensure that timely information is available to management for assessing collateral and associated risk. 12/21/2020, 294 daily Federal Register on FederalRegister.gov will remain an unofficial This revised section also incorporates the section on Accepting Appraisals from Other Financial Services Institutions in the Proposal. The definition of market value assumes that the price is not affected by undue stimulus, which would allow the value of the real property to be increased by favorable financing or seller concessions. 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. The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and the National Credit Union Administration have adopted the attached Interagency Appraisal and Evaluation Guidelines (guidelines), which replace the 1994 guidelines. 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. When an institution identifies an appraisal or evaluation that is inconsistent with the Agencies' appraisal regulations and the deficiencies cannot be resolved with the appraiser or person who performed the evaluation, the institution must obtain an appraisal or evaluation that meets the regulatory requirements prior to making a credit decision. 1652 0 obj <> endobj As specified in the Agencies' appraisal regulations, an institution must obtain an evaluation of the real property collateral, if no other appraisal exemption applies. Moreover, an institution's compliance with the regulatory requirements and consistency with supervisory expectations is considered during an Agency's on-site review of an institution's real estate lending activities. Each appraisal must contain an estimate of market value, as defined by the Agencies' appraisal regulations. Interagency Appraisal and Evaluation Guidelines, 75 Fed. issued pursuant to section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),[23] Further, the Dodd-Frank Act provides “[i]n conjunction with the purchase of a consumer's principal dwelling, broker price opinions may not be used as the primary basis to determine the value of a piece of property for the purpose of loan origination of a residential mortgage loan secured by such piece of property.” [66]. An institution should implement adequate internal controls to ensure that such communications do not result in any coercion or undue influence on the appraiser or person who performed the evaluation. The Agencies' appraisal regulations require appraisals for federally related transactions to comply with the requirements in USPAP, some of which are addressed below. In such cases, the Agencies expect an institution to monitor its borrower's performance in selling loans to the secondary market and take appropriate steps, such as increasing sampling and auditing of the loans and the supporting documentation, if the borrower experiences more than a minimal rate of loans being put back by an investor. An example of a hypothetical condition is when an appraiser assumes a particular property's zoning is different from what the zoning actually is. An institution should use written engagement letters when ordering appraisals, particularly for large, complex, or out-of-area commercial real estate properties. As required by USPAP, the appraisal must include any approach to value (that is, the cost, income, and sales comparison approaches) that is applicable and necessary to the assignment. 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. Other commenters asked the Agencies to clarify certain aspects of the process for engaging an appraiser and when the appraiser/client relationship is established. The Agencies also reserve the right to require an appraisal under their appraisal regulations to address safety and soundness concerns in a transaction. The following guidance documents have been incorporated in the Guidelines and are now being rescinded: (1) The 1994 Interagency Appraisal and Evaluation Guidelines; (2) the 2003 Interagency Statement on Independent Appraisal and Evaluation Functions; (3) and the Interagency Statement on the 2006 Revisions to the Uniform Standards of Professional Appraisal Practice. 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. The agencies issued the Guidelines to clarify the existing real estate appraisal regulations and to provide institutions and examiners with supervisory guidance for a prudent appraisal and evaluation program. The Agencies' appraisal regulations permit an institution to use an evaluation in lieu of an appraisal for certain transactions. 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. The Agencies note that the Guidelines do not expand the categories of appraisal exemptions set forth in the Agencies' appraisal regulations. 1665 0 obj <>stream 7. In response to commenters, the Appendix was revised to provide clarification on the appropriate use of analytical methods or technological tools to develop an evaluation. of the issuing agency. (See the Evaluation Development and Evaluation Content sections.) documents in the last year, 787 Commenters also asked the Agencies to reaffirm that an institution cannot outsource its responsibility to maintain an effective and independent collateral valuation function. To eliminate redundancies, the revised section incorporates from Appendix A of the Proposal the discussion of an institution's Start Printed Page 77455responsibility to obtain current collateral valuation information for loan modifications and workouts of existing credits. For this type of exempted loan, under the Agencies' appraisal regulations, an institution may obtain an evaluation in lieu of an appraisal. 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. 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. By the National Credit Union Administration Board. Credible (Appraisal) Assignment Results—According to USPAP, credible means “worthy of belief” used in the context of the Scope of Work Rule. 66. Fee simple interest refers to the most complete ownership unencumbered by any leases or other interests. 55. While the arrangement may allow an institution to achieve specific business objectives, such as gaining access to expertise that is not available internally, the reduced operational control over outsourced activities poses additional risk. Addressing significant deficiencies in the appraisal that could not be resolved with the original appraiser by obtaining a second appraisal or relying on a review that complies with Standards Rule 3 of USPAP and is performed by an appropriately qualified and competent state certified or licensed appraiser prior to the final credit decision. documents in the last year, 1469 While borrowers' ability to repay their real estate loans according to reasonable terms remains the primary consideration in the lending decision, an institution also must consider the value of the underlying real estate collateral in accordance with the Agencies' appraisal regulations. An engagement letter also may specify whether there are any legal or contractual restrictions on the sharing of the appraisal with other parties. 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. Comments provided by financial institutions support the approach taken in the Proposal, which establishes minimum supervisory expectations for an evaluation and is designed to ensure an institution obtains a more detailed evaluation, or possibly an appraisal, when additional information is necessary to assess collateral risk in the credit decision. Further, when an institution advances funds to protect its interest in a property, such as to repair damaged property, a new appraisal or evaluation would not be required because these funds would be used to restore the damaged property to its original condition. An appraiser can determine a property’s characteristics using alternative methods or can bypass a physical inspectio… Value of Collateral (for Use in Determining Loan-to-Value Ratio)—According to the Agencies' real estate lending standards guidelines, the term “value” means an opinion or estimate set forth in an appraisal or evaluation, whichever may be appropriate, of the market value of real property, prepared in accordance with the Agencies' appraisal regulations and these Guidelines. For loans or other extensions of credit, the amount of the loan or extension of credit; For sales, leases, purchases, and investments in or exchanges of real property, the market value of the real property interest involved; and. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis. If a loan workout involves acceptance of new real estate collateral that facilitates the orderly collection of the credit, or reduces the institution's risk of loss, an appraisal or evaluation of the existing and new collateral may be prudent, even if it is obtained after the workout occurs and the institution perfects its security interest. Though a reviewer cannot change the value conclusion in the original appraisal, an appraisal review performed by an appropriately qualified and competent state certified or licensed appraiser in accordance with USPAP may result in a second opinion of market value. Describe the analysis that was performed and the supporting information that was used in valuing the property. An institution should consider performing an inspection to ascertain the actual physical condition of the property and market factors that affect its market value. 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