Register (ACFR) issues a regulation granting it official legal status. 1665 0 obj <>stream Appraised Value With respect to any Mortgage Loan originated in connection with a refinancing, the appraised value of the Mortgaged Property based upon the appraisal made at the time of such refinancing or, with respect to any other Mortgage Loan, the lesser of (x) the appraised value of the Mortgaged Property based upon the appraisal made by a fee appraiser at the time of the origination of the related Mortgage Loan, and (y) the sales price of the Mortgaged Property at the time of such origination. 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. Each document posted on the site includes a link to the documents in the last year, 822 USPAP provides various appraisal report options that an appraiser may use to present the results of appraisal assignments. As a matter of policy, OTS uses its supervisory authority to require problem associations and associations in troubled condition to obtain appraisals for all real estate-related transactions over $100,000 (unless the transaction is otherwise exempt). Under certain circumstances, renewals, refinancings, and other subsequent transactions may be supported by evaluations rather than appraisals. However, when a fiduciary transaction requires an appraisal under other laws, that appraisal should conform to the Agencies' appraisal requirements. Savings & Loan Companies vs. Commercial Banks: What's the Difference? 2771 (October 23, 1992); 12 U.S.C. A business loan includes extensions to entities engaged in agricultural operations, which is consistent with the Agencies' real estate lending guidelines definition of an improved property loan that include loans secured by farmland, timberland, and ranchland committed to ongoing management and agricultural production. The Agencies believe that the Guidelines adequately address an institution's responsibility to maintain policies and procedures for obtaining an appropriate appraisal or evaluation to support its credit decision. NCUA's general lending regulation addresses residential real estate lending by Federal credit unions, and its member business loan regulation addresses commercial real estate lending. In addition to certain clarifying edits, language was added in the Guidelines to confirm that an institution may employ a variety of techniques for monitoring the effect of collateral valuation trends on portfolio risk and that such information should be timely and sufficient to understand the risk associated with its lending activity. This review also should ensure that an appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction. Insulate the persons responsible for ascertaining the compliance of the institution's appraisal and evaluation function from any influence by loan production staff. requires each Agency to prescribe appropriate standards for the performance of real estate appraisals in connection with federally related transactions,[17] Exposure time is a function of price, time, and usenot an isolated opinion of time alone. Government-Sponsored Agency, 11. Public Law 101-73, Title XI, 103 Stat. An institution acting as a fiduciary is not required to obtain appraisals under the Agencies' appraisal regulations if an appraisal is not required under other laws governing fiduciary responsibilities in connection with a transaction. The Guidelines contain a new introduction to the Appendix in response to commenters' questions regarding the authority of the Agencies to establish exemptions from their appraisal regulations. These policies and procedures should address the process for selecting the appropriate valuation method for a transaction rather than using the method that renders the highest value, lowest cost, or fastest turnaround time. Appraisal Management Company Oversight. The Guidelines address the types of communications that would not be construed as coercion or undue influence on appraisers and persons performing evaluations, as well as examples of actions that would compromise independence. 10(ii)To qualify for this exemption, transactions that do not conform to all of Fannie Mae or Freddie Mac underwriting standards, such as jumbo or other residential real estate loans, must be supported by an appraisal that meets these government-sponsored agencies' appraisal standards for the applicable property type and is documented in the credit file or reproducible. When an inspection is not performed, an institution should be able to demonstrate how these property and market factors were determined. Compliance date: Federally regulated AMCs must comply with the minimum requirements for providing Further, reviewers should be capable of assessing whether the appraisal or evaluation contains sufficient information and analysis to support the institution's decision to engage in the transaction. 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. WebIf necessary, modify values in appraisals, when warranted and support the decision to do so according to the Interagency Appraisal & Evaluation Guidelines, USPAP and FIRREA requirements. The Agencies believe that the timing of the release of the Guidelines is appropriate to emphasize existing requirements, clarify expectations, and ensure consistency in the application of the Agencies' appraisal regulations, thereby promoting safe and sound collateral valuation practices across federally regulated institutions. Prospective market value opinions should be based upon current and reasonably expected market conditions. Under NCUA regulations, market value of a construction and development project is the value at the time a commercial real estate loan is made, which includes the appraised value of land owned by the borrower on which the project is to be built, less any liens, plus the cost to build the project. 68 FR 56537, 56540 (October 1, 2003) (referring to Office of General Counsel Opinion 01-0422 (June 7, 2001)); 12 CFR 723.3(b). [55] To avoid the appearance of any conflict of interest, appraisal or evaluation development work should not commence until the institution has selected and engaged a person for the assignment. [FR Doc. 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. 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. NCUA's appraisal regulation, 12 CFR 722, does not define business loan. A member business loan is regulated under 12 CFR 723. In these situations, the market value of the leased fee interest should be used. Several appraiser and appraisal organization commenters expressed their longstanding opposition to institutions' use of evaluations in lieu of appraisals for exempt transactions. In finalizing the Guidelines, the Agencies considered the Dodd-Frank Act, other Federal statutory and regulatory changes affecting appraisals,[11] When providing details of a subject asset under the requirements of 12 CFR 614.4245 (b) (2), an evaluation for business chattel and personal property must explain Financial Services InstitutionThe Agencies' appraisal regulations do not contain a specific definition of the term financial services institution. The term is intended to describe entities that provide services in connection with real estate lending transactions on an ongoing basis, including loan brokers. 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. Effective Date of the EvaluationFor the purposes of the Agencies' appraisal regulations and these Guidelines, the effective date of an evaluation is the date that the analysis is completed. [52] Reflect a risk-focused approach for determining the depth of the review. The Agencies collectively received 157 unique comments on the Proposal. Further, the person who selects or oversees the selection of appraisers or persons providing evaluation services should be independent from the loan production area. If an institution does not have the in-house expertise relative to a particular method or tool, then an institution should employ additional personnel or engage a third party. While an appraiser must comply with USPAP and establish the scope of work in an appraisal assignment, an institution is responsible for obtaining an appraisal that contains sufficient information and analysis to support its decision to engage in the transaction. Under USPAP, the appraisal must contain a certification that the appraiser has complied with USPAP. Until the ACFR grants it official status, the XML An institution may find it appropriate to employ additional personnel or engage a third party to perform the reviews. documents in the last year, 36 Going Concern ValueThe value of a business entity rather than the value of the real property. However, the transaction should be supported by an appraisal that analyzes and reports appropriate deductions and discounts if any of the individual units are not completed and sold within the 12-month time frame. Notwithstanding the exemption on renewals, refinancings, and subsequent transactions, some industry groups and appraiser organizations recommended that the Agencies address the circumstances under which institutions are to obtain appraisals even though evaluations are permitted. For example, this exemption should not be applied to a transaction such as an institution's investment in real estate for its own use. 23. Engagement LetterAn engagement letter between an institution and an appraiser documents the expectations of each party to the appraisal assignment. Valuation means the determination, to be made initially by the Board of Directors of the Company, of the fair market value per share of Common Stock pursuant to clause (v) above. An institution would need to obtain an appraisal on the two properties valued in excess of the appraisal threshold and evaluations on the five properties below the appraisal threshold, even though the aggregate loan commitment exceeds the appraisal threshold. The Agencies' appraisal regulations set forth specific appraiser independence requirements that exceed those set forth in the Uniform Standards of Professional Appraisal Practice (USPAP). NCUA requires a written estimate of market value for all real estate-related transactions valued at the appraisal threshold or less, or that involve an existing extension of credit where there is either an advancement of new monies or a material change in the condition of the property. Business Loan ThresholdA business loan with a transaction value of $1,000,000 or less does not require an appraisal if the primary source of repayment is not dependent on the sale of, or rental income derived from, real estate. For more information on real estate-related financial transactions that are exempt from the appraisal requirement, see Appendix A , Appraisal Exemptions. 12 CFR 701.21; 12 CFR part 723. This standard is designed to avoid having appraisals prepared using unrealistic assumptions and inappropriate methods in arriving at the property's market value. 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. A new appraisal or evaluation is necessary if the originally reported market value has changed due to factors such as: The Agencies' appraisal regulations specify that appraisals for federally related transactions must contain sufficient information and analysis to support an institution's decision to engage in the credit transaction. 2 Version Log The Bureau updates this guide on a periodic basis to reflect finalized clarifications to the rule which impacts guide content. The appraisal report should contain sufficient disclosure of the nature and extent of inspection and research performed by the appraiser to verify the property's condition and support the appraiser's opinion of market value. documents in the last year, 1408 Other information might include the prevalence and effect of sales and financing concessions, the list-to-sale price ratio, and availability of financing. A subsequent transaction is exempt from the appraisal requirement if no new monies are advanced (other than Start Printed Page 77467funds necessary to cover reasonable closing costs) even when there has been an obvious and material change in market conditions or the physical aspects of the property that threatens the adequacy of the institution's real estate collateral protection. Changes in market conditions could include material changes in current and projected vacancy, absorption rates, lease terms, rental rates, and sale prices, including concessions and overruns and delays in construction costs. that agencies use to create their documents. Independence is also compromised when loan production staff selects a person to perform an appraisal or evaluation for a specific transaction. The Appendix also addresses the process that institutions are expected to establish for determining whether a method or tool may be used in the preparation of an evaluation and the supplemental information that may be necessary to comply with the minimum supervisory expectations for an evaluation, as set forth in the Guidelines. These regulations also specify the requirement for evaluations of real estate collateral in certain transactions that do not require an appraisal. Should any such developments or changes, in our opinion, be material to the estimated pro forma market value of the Bank, appropriate adjustments to the estimated pro forma market value will be made. See USPAP, Statement 4 on Prospective Value Opinions, for further explanation. In the Proposal, the Agencies specifically requested comment on the Agencies' expectations for reviewing appraisals and evaluations. Establish a process for resolving any deficiencies in appraisals or evaluations. apply to residential and commercial real estate transactions, excluding loans for acquisition, development, and construction of real estate. The Guidelines also reflect refinements made by the Agencies in the supervision of institutions' appraisal and evaluation programs. provide legal notice to the public or judicial notice to the courts. Broker Price Opinion (BPO)An estimate of the probable sales or listing price of the subject property provided by a real estate broker, sales agent, or sales person. on Temporary creation of the Resolution Trust Corp. to resolve the status of the nation's failed savi A loan modification that entails a decrease in the interest rate or a single extension of a limited or short-term nature would not be viewed as a subsequent transaction. documents in the last year, 861 As specified in the Agencies' appraisal regulations, an institution must obtain an evaluation of the real property collateral, if no other appraisal exemption applies. An institution should establish policies and procedures that provide a sound process for using various methods or tools. corresponding official PDF file on govinfo.gov. The Agencies' appraisal regulations[1] 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. In addition, the Agencies expanded certain sections to provide further clarification in an effort to promote consistency in the application and enforcement of their regulatory requirements and supervisory expectations. 1.6 ASB: The Appraisal Standards Board of The Appraisal Foundation. 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). [15] The Agencies also reserve the right to require an appraisal under their appraisal regulations to address safety and soundness concerns in a transaction. In this example, the amount of the line remains unchanged even though the amount available on the line is less than the line commitment. Describe the supplemental information that was considered when using an analytical method or technological tool. For example, an institution must obtain an appraisal on a transaction involving a capital lease, as the real estate interest is of sufficient magnitude to be recognized as an asset of the lessee for accounting purposes. 60. Raw LandA parcel or tract of land with no improvements, for example, infrastructure or vertical construction. Determine whether the scoring system provides an appropriate indicator of model reliability by property types and geographic locations. Abolishment of the Federal Home Loan Bank Board and the creation of two agencies to replace it: the Federal Housing Finance Board (FHFB) and the Office of Thrift Supervision (OTS). 35. Current Appraisal With respect to any Mortgage Loan as to which the Purchaser has made an Election to Delay Foreclosure, an appraisal of the related Mortgaged Property obtained by the Purchaser at its own expense from an independent appraiser (which shall not be an affiliate of the Purchaser) acceptable to the Company as nearly contemporaneously as practicable to the time of the Purchaser's election, prepared based on the Company's customary requirements for such appraisals. The appraiser had no direct, indirect, or prospective interest, financial or otherwise, in the property or transaction. Other commenters recommended revisions to the Agencies' appraisal regulations that cannot be changed with the issuance of the Guidelines. Web( 1) Title XI of FIRREA provides protection for federal financial and public policy interests in real estate-related transactions by requiring real estate appraisals used in connection 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. As Is Market ValueThe estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisal's effective date. (See the discussion in these Guidelines on Third Party Arrangements.). Changes in zoning, building materials, or technology. A BPO generally provides a varying level of detail about a property's condition, market, and neighborhood, as well as comparable sales or listings. Required Appraisal shall have the meaning provided in Section 8.11(g). 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 the public comment process. An institution should establish an effective system of controls for verifying that a valuation method or tool is employed in a manner consistent with internal policies and procedures. An institution may presume that the underlying loans in a marketable, mortgage-backed security satisfy the requirements of the Agencies' appraisal regulations whenever an issuer makes a public statement, such as in a prospectus, that the appraisals comply with the Agencies' appraisal regulations. Laws, that appraisal should conform to the appraisal Foundation for ascertaining the compliance of the property..., an institution should establish policies and procedures that provide a sound process for using various methods or tools should! 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