[Sen e Footnote 2] Footnote 1-- OCC : 12 CFR 34 , C and D ; FRB 208 E appendix 225 G FDIC 323 365; and OTS: 12 CFR 564, and 12 CFR 560.100, and 12 CFR 560.101 NCU. [64] 53. 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. 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. Evaluation Development and Evaluation Content. endstream endobj startxref By order of the Board of Governors of the Federal Reserve System, December 1, 2010. For example, in areas that have experienced a high incidence of fraud, the institution should consider whether the AVM may be relied upon for the transaction or another valuation method should be used. A few institution commenters asked the Agencies to address whether loan production staff can recommend an appraiser for a particular assignment or inclusion on the institution's list of approved appraisers. Federal Register issue. The savings and loan (S&L) crisis was a financial disaster that caused the failure of more than 1,000 U.S. savings and loans in the 1980s and 1990s. 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. In the Guidelines, this section was expanded to provide additional specificity on an institution's responsibilities for the selection, monitoring, and management of arrangements with third parties. 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. Institutions may employ AVMs for a variety of uses such as loan underwriting and portfolio monitoring. The Guidelines are effective on December 10, 2010. The original appraiser should complete the appraisal update; however, lenders may use substitute appraisers. Dodd-Frank Act, Section 1473(r). documents in the last year, 983 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. Changes in underlying economic and market assumptions, such as capitalization rates and lease terms. The Agencies' appraisal regulations[1] 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. (See the discussion in the Validity of Appraisals and Evaluations section of these Guidelines.) Finally, minor edits were made to this section to reaffirm that small institutions should ensure that reviewers are independent and appropriately qualified, and may need to employ additional personnel or engage a third party to perform the review function. The appraisal analysis also should include consideration of the absorption of the unleased space. This is a new Appendix in the Guidelines that is based on the discussion in the Proposal on the Agencies' minimum appraisal standards. As loan repayment becomes more dependent on the sale of collateral, an institution's policies should address the need to obtain an appraisal or evaluation for safety and soundness reasons even though one is not otherwise required by the Agencies' appraisal regulations. The Lending Guidelines state that an institution is responsible for establishing a real estate appraisal and evaluation program, including the type and frequency of collateral valuations. Program Compliance. Appraisal Report A report setting forth the fair market value of a Mortgaged Property as determined by an appraiser who, at the time the appraisal was conducted, met the minimum qualifications of FNMA and FHLMC for appraisers of conventional residential mortgage loans. An employee is not considered loan production staff just because part of their compensation includes a general bonus or profit sharing plan that benefits all employees. 1828(o). The Agencies also revised the Guidelines to reaffirm an institution's responsibility to maintain policies and procedures that establish standards for obtaining current collateral valuation information to facilitate its decision to engage in a loan modification or workout. An institution should not allow lower cost or the speed of delivery time to inappropriately influence its appraisal ordering procedures or the appraiser's determination of the scope of work for an appraisal supporting a federally related transaction. 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. 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. FIRREA created civil enforcement authority to relevant agencies to impose significant enforcement penalties for violations. As stated in the Agencies' appraisal regulations, a state certified or licensed appraiser may not be considered competent solely by virtue of being certified or licensed. The Agencies' appraisal regulations [ 1] implementing Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) [ 2] set forth, Government-Sponsored Agency, 10. These costs may be incurred during the permitting, construction or selling stages of development. Appraisal shall have the meaning assigned to such term in the Servicing Agreement. The Guidelines, for instance, emphasize the importance of considering the property's condition in the development of an evaluation, regardless of the method or tool used. This estimated valuation considers the Bank only as a going concern and should not be considered as an indication of its liquidation value. Maintain a system of adequate controls, verification, and testing to ensure that appraisals and evaluations provide credible market values. Exposure TimeAs 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. An institution should not rely solely on validation representations provided by an AVM vendor. The Agencies requested comment on all aspects of the Proposal, and specifically requested comment on: (1) The clarity of the Proposal regarding interpretations of the appraisal exemptions discussed in Appendix A; (2) the appropriateness of risk management expectations and controls in the evaluation process, including those discussed in Appendix B; and (3) the expectations in the Proposal on reviewing appraisals and evaluations. For example, one commenter suggested that the Agencies withdraw the Proposal to allow additional time to study the lessons learned from the recent stress in the residential mortgage markets. 41. V. Independence of the Appraisal and Evaluation Program, VI. informational resource until the Administrative Committee of the Federal An institution should obtain an appraisal that is appropriate for the particular federally related transaction, considering the risk and complexity of the transaction. By order of the Federal Deposit Insurance Corporation. An institution may not rely solely on the results of an AVM to develop an evaluation unless the resulting evaluation is consistent with safe and sound banking practices and these Guidelines. Some commenters did not agree that institutions should be permitted to use AVMs to develop an evaluation. 27. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. 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. Institutions frequently take real estate liens to protect legal rights to other collateral rather than because of the contributory value of the real estate as an individual asset. These risks include, but are not limited to, transaction size and purpose, credit quality, and leverage tolerance (loan-to-value). 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. %%EOF In the Guidelines, this section also was reorganized to list the minimum program compliance standards and to incorporate clarifying text. 62. This topic was moved from the Evaluation Content section in the Proposal to this section, as it relates to the regulatory requirement that evaluations reflect safe and sound banking practices. It established the Appraisal Subcommittee (ASC) within the Examination Council of theFederal Financial Institutions Examination Council. 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. OCC: 12 CFR part 34, subpart D; FRB: 12 CFR part 208, subpart E; FDIC: 12 CFR part 365; OTS: 12 CFR 560.100 and 560.101; and NCUA: 12 CFR 701.21. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) requires real estate appraisals used in connection with certain federally related transactions to be (1) written; (2) performed in accordance with uniform standards; and (3) conducted by appraisers whose competency has been demonstrated and whose 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. The changes can only be related with a blizzard of acronyms attached to federal agencies created or abolished: FIRREA gaveFreddie MacandFannie Maeadditional responsibility and funding for making homeownership more accessible for low- and moderate-income families. An institution should perform appropriate model validation regardless of whether it relies on AVMs that are supported by value insurance or guarantees. 2354; 12 U.S.C. Engagement LetterAn engagement letter between an institution and an appraiser documents the expectations of each party to the appraisal assignment. 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. 58. WebFor CRE transactions, a certified appraisal will not be required for transactions of $500,000 (note the increase from the previous $250,000 limit) and those that exceed $1 million. An institution's use of a borrower-ordered or borrower-provided appraisal violates the Agencies' appraisal regulations. For example, an extension arising from a short-term delay in the full repayment of the loan when there is documented evidence that payment from the borrower is forthcoming, or a brief delay in the scheduled closing on the sale of a property when there is evidence that the closing will be completed in the near term. This feature is not available for this document. An institution should include the engagement letter in its credit file. Further, the institution should obtain sufficient documentation that the buyer has entered into a legally binding sales contract and has obtained a written prequalification or commitment for permanent financing. Independent Engineering Report means a report, in form and substance satisfactory to the Administrative Agent and each of the Lenders, prepared by an Independent Engineer, addressed to the Administrative Agent and the Lenders with respect to the Oil and Gas Properties owned by the Borrower or its Subsidiaries (or to be acquired by the Borrower or any of its Subsidiaries, as applicable) which are or are to be included in the Borrowing Base, which report shall (a) specify the location, quantity, and type of the estimated Proven Reserves attributable to such Oil and Gas Properties, (b) contain a projection of the rate of production of such Oil and Gas Properties, (c) contain an estimate of the net operating revenues to be derived from the production and sale of Hydrocarbons from such Proven Reserves based on product price and cost escalation assumptions specified by the Administrative Agent and the Lenders, and (d) contain such other information as is customarily obtained from and provided in such reports or is otherwise reasonably requested by the Administrative Agent or any Lender. 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. 1376 (2010). Renewals, Refinancings, and Other Subsequent Transactions, 8. Some commenters encouraged the Agencies to incorporate additional safeguards for consumers in the Guidelines. Several commenters asked for clarification on the factors institutions should consider in assessing an appraiser's competency. Address standards for the use of multiple methods or tools, if applicable, for valuing the same property or to support a particular lending activity. USPAP requires the appraiser to disclose whether or not the subject property was inspected and whether anyone provided significant assistance to the appraiser signing the appraisal report. 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. When compliance cannot be confirmed, institutions are reminded that they must obtain an appraisal(s) prior to engaging in the transaction. Further, USPAP requires the appraiser to disclose whether he or she previously appraised the property. 47. An institution may rely on the second opinion of market value obtained through an acceptable USPAP-compliant appraisal review to support its credit decision. It would not be acceptable for an institution to base an evaluation on unsupported assumptions, such as a property is in average condition, the zoning will change, or the property is not affected by adverse market conditions. and services, go to 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. 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. As a result of FIRREA, the differences between S&Ls and banks have decreased significantly. [51] The documents posted on this site are XML renditions of published Federal 03/01/2023, 43 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. Government-Sponsored Agency, 11. 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