The Guidelines provide further clarification on an institution's procedures for the selection of an appraiser for an assignment, including the development, administration, and maintenance of an approved appraiser list, if used. establishing the XML-based Federal Register as an ACFR-sanctioned These transactions should have been originated according to secondary market standards and have a history of performance. 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. An institution also should consider such factors as the quality of the underlying collateral and the validity of the existing appraisal or evaluation. A BPO generally provides a varying level of detail about a property's condition, market, and neighborhood, as well as comparable sales or listings. Appraisal The purpose of the act was to create a more efficient, productive, and effective base on which to build the industry and safeguard future transactions. The Public Inspection page Transactions Involving Real Estate Notes, 9. A small or rural institution or branch with limited staff should implement prudent safeguards for reviewing appraisals and evaluations when absolute lines of independence cannot be achieved. For loan workouts that involve the advancement of new monies, an institution may obtain an evaluation in lieu of an appraisal provided there has been no obvious and material change in market conditions and no change in the physical aspects of the property that threatens the adequacy of the institution's real estate collateral protection after the workout. 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. Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); and National Credit Union Administration (NCUA) (collectively, the Agencies). However, a borrower can inform an institution that a current appraisal exists, and the institution may request it directly from the other financial services institution. 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. This section in the Guidelines references Appendix A, Appraisal Exemptions, which has been revised in response to comments on the Proposal. For example, an institution should consider obtaining an appraisal as an institution's portfolio risk increases or for higher risk real estate-related financial transactions, such as those involving: An evaluation must be consistent with safe and sound banking practices and should support the institution's decision to engage in the transaction. The program should: For both appraisal and evaluation functions, an institution should maintain standards of independence as part of an effective collateral valuation program for all of its real estate lending activity. An institution should use these findings to analyze and periodically update its policies and procedures for an AVM(s) when warranted. An institution should establish policies and procedures for determining an appropriate collateral valuation method for a given transaction considering associated risks. 38. NCUA's appraisal regulation, 12 CFR 722, does not define business loan. A member business loan is regulated under 12 CFR 723. 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. If an institution establishes an approved appraiser list for selecting an appraiser for a particular assignment, the institution should have appropriate procedures for the development and administration of the list. 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. 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. 1652 0 obj <> endobj 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. 1.6 ASB: The Appraisal Standards Board of The Appraisal Foundation. 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. A sales concession may include, but is not limited to, the seller paying all or some portion of the purchaser's closing costs (such as prepaid expenses or discount points) or the seller conveying to the purchaser personal property which is typically not conveyed with the real property. Examiners will review the steps taken by an institution to ensure that the persons who perform the institution's appraisals and evaluations are qualified, competent, and are not subject to conflicts of interest. Moreover, because such valuation is necessarily based upon estimates and projections of a number of matters, all of which are subject to change from time to time, no assurance can be given that persons who purchase shares of Common Stock in the Conversion and Reorganization will thereafter be able to sell such shares at prices related to the foregoing valuation of the pro forma market value thereof. For residential transactions, loan production staff can use a revolving, pre-approved appraiser list, provided the development and maintenance of the list is not under their control. 22. Legislative Background 1989: FIRREA directed regulatory agencies to prescribe appropriate appraisal standards and required certified appraisers for federally related transactions of $1 million or publication in the future. For example, if the transaction value is below the appraisal threshold of $250,000. The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. issued pursuant to section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),[23] 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. As in the Proposal, the Guidelines address when an institution may modify an existing credit without obtaining either an appraisal or an evaluation. Describe the requirements for reviewing 21. Appendix D (previously Appendix C in the Proposal) provides a glossary of terms. For this type of exempted loan, under the Agencies' appraisal regulations, an institution may obtain an evaluation in lieu of an appraisal. An evaluation should contain sufficient information detailing the analysis, assumptions, and conclusions to support the credit decision. Establish a process for resolving any deficiencies in appraisals or evaluations. 5. Leased fee interest, on the other hand, refers to a landlord's ownership that is encumbered by one or more leases. A few commenters asked the Agencies to provide further clarification on the types of employees who would be considered as loan production staff. Sales ConcessionsA cash or noncash contribution that is provided by the seller or other party to the transaction and reduces the purchaser's cost to acquire the real property. 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. 54. Evaluate underlying data used in the model(s), including the data sources and types, frequency of updates, quality control performed on the data, and the sources of the data in states where public real estate sales data are not disclosed. OCC: 12 CFR part 34, subpart C; FRB: 12 CFR part 208, subpart E; FDIC: 12 CFR part 365; and OTS: 12 CFR 560.100 and 560.101. (See the discussion in these Guidelines on Selection of Appraisers or Persons Who Perform Evaluations.). 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. The documentation also should provide an audit trail that documents the resolution of noted deficiencies or details the reasons for relying on a second opinion of market value. (See also Appendix A, Appraisal Exemptions, for transactions where an evaluation would be allowed in lieu of an appraisal.). (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.) By order of the Federal Deposit Insurance Corporation. Additional filters are available in search. For example, an engagement letter may specify, among other items: (i) The property's location and legal description; (ii) intended use and users of the appraisal; (iii) the requirement to provide an opinion of the property's market value; (iv) the expectation that the appraiser will comply with applicable laws and regulations, and be consistent with supervisory guidance; (v) appraisal report format; (vi) expected delivery date; and (vii) appraisal fee. These standards also required that real estate loans falling in certain categories above $50,000 be appraised by a state licensed or state certified appraiser. 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. 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. Agencies' Appraisal Regulations. 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. To promote the quality of appraisals, the Proposal and the Guidelines provide further clarification of the minimum appraisal standards in the Agencies' appraisal regulations and contain guidance on appraisal development and reporting to reflect revisions to USPAP. Election to Delay Foreclosure: Any election by the Purchaser to delay the Commencement of Foreclosure, made in accordance with Section 2.02(b). In response to comments, the Guidelines clarify how institutions can use analytical methods or technological tools to develop an evaluation. Examiners also will determine whether the appraisal or evaluation complies with the Agencies' appraisal regulations and is consistent with supervisory guidance as well as the institution's policies. During April 2018, banking federal banking Regulators issued changes for appraisal, FIRREA, requirements. In light of these comments, the Agencies have expanded the discussion in the Guidelines and moved the discussion to a separate Appendix. We visited the Bank's primary market area and reviewed the market area economic condition. To apply this exemption, the Agencies expect the institution to determine that the primary source of repayment for the business loan is operating cash flow from the business rather than rental income or sale of real estate. An institution's risk management system should reflect the complexity of the outsourced activities and associated risk. 27. 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. 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. 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. The appraiser's scope of work should reflect the extent to which the property is identified and inspected, the type and extent of data researched, and the analyses applied to arrive at opinions or conclusions. 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. Federal Register issue. An appraisal may contain separate opinions of such values so long as they are clearly identified and disclosed. The final rule requires evaluations for transactions at or below the $500,000 threshold for CRE transactions, although banks may use appraisals for these exempt transactions in appropriate circumstances, such as for higher-risk transactions, as discussed in the "Interagency Appraisal and Evaluation Guidelines" attached to OCC 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. While this section in the Guidelines generally tracks the Proposal, the detailed discussion on Start Printed Page 77453analyzing deductions and discounts has been moved to a new appendix. 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. 47. 12 CFR 701.21; 12 CFR part 723. 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firrea appraisal rules