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 person selected is capable of rendering an unbiased opinion. In response to commenters, the Guidelines now provide examples of factors for an institution to consider in assessing whether a significant change in market conditions has occurred. Appendix B addresses an institution's use of analytical methods or technological tools in the development of an evaluation. Effective Date of the Appraisal—USPAP requires that each appraisal report specifies the effective date of the appraisal and the date of the report. These tools are designed to help you understand the official document 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. 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. By order of the Federal Deposit Insurance Corporation. The Agencies' appraisal regulations require appraisals for federally related transactions to comply with the requirements in USPAP, some of which are addressed below. Dodd-Frank Act, Section 1473(r). 45. In implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act), This process should differentiate between high- and low-risk transactions so that the review is commensurate with the risk. Unsold Units—An unsold unit is a unit that does not meet the conditions listed in the definition of Presold Units. We invite you to try out our new beta eCFR site at https://ecfr.federalregister.gov. These standards of independence also should apply to persons who perform evaluations. Since analytical methods such as TAVs generally need additional support to meet these Guidelines, institutions should develop policies and procedures that specify the level and extent of supplemental information that should be obtained to develop an evaluation. For example, if no other law requires an appraisal in connection with the sale of a parcel of real estate to a beneficiary of a trust on terms specified in a trust instrument, an appraisal is not required under the Agencies' appraisal regulations. The appraisal must: Although allowed by USPAP, the Agencies' appraisal regulations do not permit an appraiser to appraise any property in which the appraiser has an interest, direct or indirect, financial or otherwise in the property or transaction. If an institution has a question as to whether a particular transaction qualifies for an exemption, the institution should seek guidance from its primary Federal regulator. Appraisers are expected to be selected for individual assignments based on their competency to perform the appraisal, including knowledge of the property type and specific property market. Register (ACFR) issues a regulation granting it official legal status. Preparation of an Evaluation . Refer to USPAP Standards Rule 1-5(a) and the Ethics Rule. An institution should perform appropriate model validation regardless of whether it relies on AVMs that are supported by value insurance or guarantees. Dodd-Frank Act, Section 1473(r). An evaluation must: These policies and procedures should foster timely and appropriate communications regarding the assignment and establish a process for responding to questions from the appraiser or person performing an evaluation. Appendix D (previously Appendix C in the Proposal) provides a glossary of terms. Improvements to the subject property or competing properties. 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. 0
Frequently Asked Questions on the Appraisal Regulations and the Interagency Appraisal and Evaluation Guidelines SR 17-10 Temporary Exceptions to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) Appraisal Requirements in Areas Affected by Severe Storms and Flooding Related to Hurricanes Harvey, Irma, and Maria If sufficient market data exists to perform both the sales comparison and developmental approaches to value, the appraisal report should detail a reconciliation of these two approaches in arriving at a market value conclusion for the raw land. 48. An institution is not required to obtain an appraisal on a loan that is not secured by real estate, even if the proceeds of the loan are used to acquire or improve real property. 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. 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. 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. Therefore, when using an AVM or TAV, the resulting evaluation should be consistent with the supervisory expectations in the Evaluation Development and Evaluation Content sections in the Guidelines. The sale, lease, purchase, investment in or exchange of real property, including interests in property, or the financing thereof; The refinancing of real property or interests in real property; or. Counts are subject to sampling, reprocessing and revision (up or down) throughout the day. These can be useful Public Law 101-73, Title XI, 103 Stat. 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. documents in the last year, 1437 An institution should consider performing an inspection to ascertain the actual physical condition of the property and market factors that affect its market value. Further, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)  Determine and document how the tax jurisdiction calculates the TAV and how frequently property revaluations occur. As noted above, some appraiser and appraisal group commenters expressed their views that evaluations generally do not provide an adequate assessment of a property's market value and requested that the Agencies provide additional guidance on the content of evaluations and the level of detail to be included in evaluations supporting higher risk transactions. 3331, et seq. 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. Communicating the noted deficiencies to and requesting correction of such deficiencies by the appraiser or person who prepared the evaluation. 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.. 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. 36. Public Law 111-203, 124 Stat. In response, the Agencies note that these commenters' suggestions address statutes and regulations that are generally beyond the scope of the Guidelines, such as the Real Estate Settlement Procedures Act (RESPA) and the FRB's Regulation B (implementing the Equal Credit Opportunity Act). 12 CFR 701.21; 12 CFR part 723. However, on a case-by-case basis, an institution needing to improve its appraisal and evaluation program may be granted some flexibility from its primary Federal regulator on the timeframe for revising its procedures to be consistent with the Guidelines. on FederalRegister.gov Virtually all of the commenters either offered suggestions for strengthening or clarifying technical aspects of the Start Printed Page 77452Proposal. 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. (See Appendix D, Glossary of Terms, for the definition of appraisal report options.). In response to comments, the Guidelines clarify how institutions can use analytical methods or technological tools to develop an evaluation. The Office of the Comptroller of the Currency has adopted a final rule to increase the appraisal threshold for commercial real estate (CRE) transactions from $250,000 to $500,000. To assess the effectiveness of its AVM practices, an institution should verify whether loans in which an AVM was used to establish value met the institution's performance expectations relative to similar loans that used a different valuation process. It is subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power and escheat. 12/21/2020, 41 26. documents in the last year. In addition, an institution should establish criteria for when to expand the depth of the review. Excluding a person from consideration for future engagement because a property's reported market value does not meet a specified threshold. the appraisal must reflect an appropriate scope of work that provides for “credible” assignment results. an institution should monitor collateral risk on a portfolio and on an individual credit basis. SR letter 16-5, "Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions." In assessing whether changes in market conditions are material, an institution should consider the individual and aggregate effect of these changes on its collateral protection and the risk in its real estate lending programs or credit portfolios. For loans to purchase an existing property, “value” means the lesser of the actual acquisition cost or the estimate of value. 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. 57. by the Farm Credit Administration 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. Document Drafting Handbook 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. 6. The following guidance documents continue to be in effect: The 2005 Interagency FAQs on Residential Tract Development Lending USPAP—USPAP does not specifically require interior inspections as part of its standards. The Agencies are issuing final Interagency Appraisal and Evaluation Guidelines (Guidelines) to provide further clarification of the Agencies' appraisal regulations and supervisory guidance to institutions and examiners about prudent appraisal and evaluation programs.  An institution should not rely solely on validation representations provided by an AVM vendor. Institutions should establish policies and procedures to determine the appropriate valuation method for a given transaction, taking into consideration the associated risks. The Interagency Appraisal and Evaluation Guidelines establish minimum supervisory expectations for an evaluation. The statement references the Interagency Appraisal and Evaluation Guidelines (Guidelines) which were implemented several years ago by the other agencies. In year 14, the borrower seeks to refinance the loan at a lower interest rate and requests a loan of $2.8 million. Identify circumstances under which an AVM may not be used, including: Expectations for an appropriate sample size. This exemption applies to transactions that are wholly or partially insured or guaranteed by a U.S. government agency or U.S. government-sponsored agency. Under the Agencies' appraisal regulations, the result of an Automated Valuation Model (AVM), by itself or signed by an appraiser, is not an appraisal, because a state certified or licensed appraiser must perform an appraisal in conformance with USPAP and the Agencies' minimum appraisal standards. The policies and procedures also should address the need to obtain current valuation information for collateral supporting an existing credit that may be modified or considered for a loan workout. V. Independence of the Appraisal and Evaluation Program, VI. 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. A Notice by the Comptroller of the Currency, the Federal Reserve System, the Federal Deposit Insurance Corporation, the Thrift Supervision Office, and the National Credit Union Administration on 12/10/2010. Supervisory Policy. 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. COVID-19 Updates. Under the NCUA's appraisal regulation, a credit union must meet both conditions to avoid the need for an appraisal. 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 Agencies will determine whether future revisions to the Guidelines may be necessary. The institution should consider the risk, size, and complexity of the transaction and the real estate collateral when determining the appraisal report format to be specified in its appraisal engagement instructions to an appraiser. 21. A marketable security is one that may be sold with reasonable promptness at a price that corresponds to its fair value. An institution should document the results of ongoing monitoring efforts and periodic assessments of the arrangement(s) with a third party for compliance with applicable regulations and consistency with supervisory guidance and its performance standards. 1652 0 obj
An appraisal may contain separate opinions of such values so long as they are clearly identified and disclosed. At the time of renewal, the borrower has drawn down $1 million. This site displays a prototype of a âWeb 2.0â version of the daily Further, USPAP requires the appraiser to disclose whether he or she previously appraised the property. This interagency statement outlines existing flexibilities in industry appraisal standards and in the appraisal regulations issued by the OCC, FRB, FDIC, and NCUA (agencies) and describes temporary changes to Fannie Mae and Freddie Mac appraisal standards that can assist lenders during this challenging time. and the public comment process. If the mortgages that secure the mortgage warehouse loan are sold to Fannie Mae or Freddie Mac, the sale itself may be used to demonstrate that the underlying loans complied with the Agencies' appraisal regulations. 22. include documents scheduled for later issues, at the request 2800 (2008); 12 U.S.C. Government-Sponsored Agency, 11. NCUA's regulations do not provide an exemption from the appraisal requirements specific to loans not secured by real estate. In communicating an appraisal assignment, an institution should convey to the appraiser that the Agencies' minimum appraisal standards must be followed. October 16, 2018. 12 CFR 722.3(d). In these situations, the market value of the leased fee interest should be used. Insulate the persons responsible for ascertaining the compliance of the institution's appraisal and evaluation function from any influence by loan production staff. The revisions reflect clarifying text in response to comments from institutions on the regulatory requirements for reappraisals of real estate collateral for existing credits, particularly in modification and workout situations. The valuation is based on the existing operations of the business and its current operating record, with the assumption that the business will continue to operate. for a purchase transaction. Since the issuance of the 1994 Guidelines, the Agencies have issued additional supervisory guidance documents  ○ The appraiser had no direct, indirect, or prospective interest, financial or otherwise, in the property or transaction. Some commenters encouraged the Agencies to incorporate additional safeguards for consumers in the Guidelines. The major difference among these report options is the level of detail presented in the report. An institution would need to seek a waiver from its supervisory Federal agency before entering into the transaction. 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. 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. The Agencies believe that the restricted use appraisal report will not be appropriate to underwrite a significant number of federally related transactions due to the lack of supporting information and analysis in the appraisal report. Address the selection, use, and validation of the valuation method or tool. Appendix B—Evaluations Based on Analytical Methods or Technological Tools. These standards are promulgated by the Appraisal Standards Board of the Appraisal Foundation and are incorporated as a minimum appraisal standard in the Agencies' appraisal regulations. 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. This section also addresses the factors that an institution should consider in determining whether to obtain an appraisal, even though an evaluation is permitted. Reviewers also should possess the requisite education, expertise, and competence to perform the review commensurate with the complexity of the transaction, type of real property, and market. Although the Agencies' appraisal regulations allow an institution to use an evaluation for certain transactions, an institution should establish policies and procedures for determining when to obtain an appraisal for such transactions. 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