While every effort has been made to ensure that FDIC: Beverlea S. Gardner, Senior Examination Specialist, Division of Supervision and Consumer Protection, (202) 898-6790; or Janet V. Norcom, Counsel, (202) 898-8886, or Mark Mellon, Counsel, (202) 898-3884, Legal Division. If an evaluation is permitted under this exemption, an institution may use an existing appraisal or evaluation as long as the institution verifies and documents that the appraisal or evaluation continues to be valid. By the National Credit Union Administration Board. The Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency have adopted a final rule that increases the 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. Abolishment of the Federal Savings and Loan Insurance Corporation and the creation of the Federal Deposit Insurance Corporation's funds: the Savings Association Insurance Fund (SAIF) to cover S&Ls and the Bank Insurance Fund (BIF) to cover banks. Appraisal Report OptionsRefer to the definitions for Restricted Use Appraisal Report, Self-Contained Appraisal Report, and Summary Appraisal Report. The only exception to this requirement is that the Agencies' appraisal regulations allow an institution to use an appraisal prepared for another financial services institution provided certain conditions are met. However, when a fiduciary transaction requires an appraisal under other laws, that appraisal should conform to the Agencies' appraisal requirements. Further, the appraiser should disclose the rationale for the omission of a valuation approach. Part 722 Appraisals Final Rule. A marketable security is one that may be sold with reasonable promptness at a price that corresponds to its fair value. 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. Federally Regulated InstitutionFor purposes of the Agencies' appraisal regulations and these Guidelines, an institution that is supervised by a Federal financial institution's regulatory agency. Deficiencies will require appropriate corrective action. An institution may exchange information with appraisers and persons who perform evaluations, which may include providing a copy of the sales contract[27] (See the discussion in these Guidelines on Third Party Arrangements.). The person selected is independent and has no direct, indirect, or prospective interest, financial or otherwise, in the property or the transaction. documents in the last year, 940 These Guidelines pertain to all real estate-related financial transactions originated or purchased by a regulated institution or its operating subsidiary for its own portfolio or as assets held for sale, including activities of commercial and residential real estate mortgage operations, capital markets groups, and asset securitization and sales units. A confidence score generally refers to a vendor's own method of quantifying how reliable a model value is by using a rank ordering process. 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. 11. Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. For example, an engagement letter should show that the financial services institution, not the borrower, engaged the appraiser. Below is a version log noting the history of this document and its changes: Enforcement Act (FIRREA) of 1989, as amended, 12 U.S.C. Although not required, an institution may use state certified or licensed appraisers to perform evaluations. FIRREA Appraisal means an appraisal of a Financed Property that is commissioned by the Administrative Agent and satisfies the requirement of the Federal 31. The institution's credit analysis should verify and document the adequacy and reliability of these repayment sources and conclude that knowledge of the market value of the real estate on which the lien will be taken as an abundance of caution is unnecessary in making the credit decision. Under the NCUA's appraisal regulation, a credit union must meet both conditions to avoid the need for an appraisal. Assess modeling techniques and the inherent strengths and weaknesses of different model types (such as hedonic, index, and blended) as well as how a model(s) performs for different property types (such as condominiums, planned unit developments, and single family detached residences). If an institution is unable to confirm that the appraisal meets the Agencies' appraisal requirements, then the Start Printed Page 77463institution must obtain an appraisal prior to engaging in the transaction. This exemption is intended to have limited application, especially for real estate loans secured by residential properties in which the real estate is the only form of collateral. Virtually all of the commenters either offered suggestions for strengthening or clarifying technical aspects of the Start Printed Page 77452Proposal. A new section on Evaluation Development provides guidance on the requirement in the Agencies' appraisal regulations that evaluations must be consistent with safe and sound banking practices. The Guidelines are effective upon publication in the Federal Register. require each institution to adopt and maintain written real estate lending policies that are consistent with principles of safety and soundness and that reflect consideration of the real estate lending guidelines issued as an appendix to the regulations. 12 CFR 701.21; 12 CFR part 723. For those transactions qualifying for the appraisal threshold, existing extensions of credit, or the business loan exemptions, an institution is exempted from the appraisal requirement, but still must, at a minimum, obtain an evaluation consistent with these Guidelines.[53]. 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. Institutions also should be aware of the recent amendments to Regulation Z, which address mandatory reporting provisions.[14]. documents in the last year, 1408 Even if a subsequent transaction qualifies for this exemption, an institution should consider the risk posed by the transaction and may wish to consider obtaining a new appraisal. Therefore, an institution should be able to demonstrate that sufficient information is available to support the current market value of the collateral and the classification of a problem real estate credit. A valuation method should address the property's actual physical condition and characteristics as well as the economic and market conditions that affect the estimate of the collateral's market value. An institution should use written engagement letters when ordering appraisals, particularly for large, complex, or out-of-area commercial real estate properties. As provided by the USPAP Scope of Work Rule, appraisers are responsible for establishing the scope of work to be performed in rendering an opinion of the property's market value. 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. Board Presentation. 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. In response to commenters' suggestions, additional terms were incorporated in the Guidelines, including appraisal management company, broker price opinion, credit file, going concern value, presold unit, and unsold units. Loan Production StaffGenerally, all personnel responsible for generating loan volume or approving loans, as well as their subordinates and supervisors. Validity of Appraisals and Evaluations, C. Modifications and Workouts of Existing Credits, Appendix B, Evaluations Based on Analytical Methods and Technological Tools. The $300,000 would be considered new monies. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively. It established the Appraisal Subcommittee (ASC) within the Examination Council of theFederal Financial Institutions Examination Council. See, for example, OCC Bulletin 2000-16, Risk ModelingModel Validation (May 30, 2000). (See the Scope of Work Rule in USPAP.). These include white papers, government data, original reporting, and interviews with industry experts. A few commenters recommended broad initiatives for the Agencies to undertake in the context of mitigating mortgage fraud and promoting appraisal quality through, for example, information sharing in the form of national data bases. 44. Start Printed Page 77456and the 2005 Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions. Most commenters appreciated the additional explanation in the Proposal on the appraisal standard to analyze deductions and discounts for residential tract developments. 1652 0 obj <> endobj This exemption is not intended to be applied to real estate-related financial transactions other than those involving loans. The Agencies' real estate lending regulations and guidelines,[22] According to USPAP, appraisal reports must contain sufficient information to enable the intended user of the appraisal to understand the report properly. The Agencies' appraisal regulations include minimum standards for the preparation of an appraisal. The FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (the Federal Agencies) have adopted a final rule that raises the threshold level at or below which appraisals will not be required for residential real estate transactions from $250,000 to $400,000. 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. The Agencies retain the authority to determine when the services of an appraiser are not required in order to protect Federal financial and public policy interests or the safety and soundness of financial institutions. [28] To satisfy the condition for no obvious and material change in market conditions or the physical aspects of the property, the current or planned future use of the property should be consistent with the use identified in the existing appraisal or evaluation. A few commenters also noted that certain factors, such as cost and turnaround time, should not influence the selection of appraisers. The review process should be commensurate with the type of transaction as discussed below: The depth of the review of appraisals and evaluations completed for commercial properties securing lower risk transactions may be less technical in nature, but still should provide meaningful results that are commensurate with the size, type, and complexity of the underlying credit transaction. For complete information about, and access to, our official publications For a small or rural institution or branch, it may not always be possible or practical to separate the collateral valuation program from the loan production process. Federal Register. Staff performing the collateral valuation function is responsible for selecting an appraiser. Improvements to the subject property or competing properties. When a property is non-homogeneous, such as atypical lot sizes or property types. 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. Other Interagency Appraisal-Related Guidance Documents. 48. Appendix DGlossary of Terms. Appraisals Not Necessary To Protect Federal Financial and Public Policy Interests or the Safety and Soundness of Financial Institutions, Appendix BEvaluations Based on Analytical Methods or Technological Tools, Attached or Detached Single-family Homes, https://www.federalregister.gov/d/2010-30913, MODS: Government Publishing Office metadata. ?-z#U-&3FK3_kkQ9YV\YB4f~y-rmVK9?ojQ6K|W6-7Fq7[Ct14%74/i_U{}qnAG{13Ry88Y&`[(. documents in the last year, 1479 Institutions are reminded that the results of their review process and other relevant information should be used as a basis for considering persons for future collateral valuation assignments and that collateral valuation deficiencies should be reported to appropriate internal parties, and if applicable, to external authorities in a timely manner. An institution should establish policies and procedures for resolving any inaccuracies or weaknesses in an appraisal or evaluation identified through the review process, including procedures for: An institution should establish policies for documenting the review of appraisals and evaluations in the credit file. Persons who review appraisals and evaluations should be independent of the transaction and have no direct or indirect interest, financial or otherwise, in the property or transaction, and be independent of and insulated from any influence by loan production staff. 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. Further, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act)[35] [FR Doc. Sources of relevant information may include external market data, internal data, or reviews of recently obtained appraisals and evaluations. Restricted Use Appraisal ReportAccording to USPAP Standards Rule 2-2(c), a restricted use appraisal report briefly states information significant to solve the appraisal problem as well as a reference to the existence of specific work-file information in support of the appraiser's opinions and conclusions. NCUA's regulations do not provide an exemption from the appraisal requirements specific to member business loans. 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. Appropriate deductions and discounts should reflect holding costs, marketing costs, and entrepreneurial profit during the sales absorption period of the completed units. appraisal education and real estate appraisal examination requirements Excluding a person from consideration for future engagement because a property's reported market value does not meet a specified threshold. Under the law, the provisions are effective 12 months after final regulations to implement the provisions are published. A federal savings and loan is an institution of thrift that focuses on residential mortgages. 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. 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. This estimated valuation considers the Bank only as a going concern and should not be considered as an indication of its liquidation value. Prudent portfolio monitoring practices include criteria for determining when to obtain a new appraisal or evaluation. on Operating leases that are not the economic equivalent of the purchase or sale of the leased property do not require appraisals. Describe the supplemental information that was considered when using an analytical method or technological tool. Although the Agencies' appraisal regulations exempt certain real estate-related financial transactions from the appraisal requirement, most real estate-related financial transactions over the appraisal threshold are considered federally related transactions and, thus, require appraisals. 12 CFR 701.21; 12 CFR part 723. An institution's risk management system should reflect the complexity of the outsourced activities and associated risk. Supplemental information is needed to assess the effect of market conditions or other factors on the estimate of market value. FIRREA means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended. CREFC Appraisal Reduction Template A report substantially in the form of, and containing the information called for in, the downloadable form of the Appraisal Reduction Template available as of the Closing Date on the CREFC Website, or such other form for the presentation of such information and containing such additional information as may from time to time be approved by the CREFC for commercial mortgage securities transactions generally. Under the NCUA's appraisal regulation, a credit union must meet both conditions to avoid the need for an appraisal. documents in the last year, 287 including: After obtaining an appraisal or evaluation, or as part of its business practice, an institution may find it necessary to obtain another appraisal or evaluation of a property and would be expected to adhere to a policy of selecting the most credible appraisal or evaluation, rather than the appraisal or evaluation that states the highest value. The Guidelines, including their appendices, update and replace existing supervisory guidance documents to reflect developments concerning appraisals and evaluations, as well as changes in appraisal standards and advancements in regulated institutions' collateral valuation methods. FIRREA Appraisal ReviewsNow that the S&L crisis is long past, the skills of appraisal review are in demand for other purposes, including institutional equity and loan decisions and litigation support. As a result of FIRREA, the differences between S&Ls and banks have decreased significantly. If a transaction does not involve an advancement of new monies and there have been no obvious and material changes in market or property conditions, a credit union must obtain a written estimate of market value that is consistent with the standards for evaluations as discussed in these Guidelines. 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. Appraisal Regulatory System Modernization. Such policies should address the level of documentation needed for the review, given the type, risk and complexity of the transaction. Our valuation is not intended, and must not be construed, to be a recommendation of any kind as the advisability of purchasing shares of Common Stock in the Conversion and Reorganization. Refer to USPAP Standards Rule 1-5(a) and the Ethics Rule. [37] In particular, these commenters raised concerns over the enforcement of the Guidelines by the Agencies. 13. NCUA's appraisal regulation requires credit unions to meet both conditions to avoid the need for an appraisal as set forth in 12 CFR 722.3(d). 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