An institution may rely on the second opinion of market value obtained through an acceptable USPAP-compliant appraisal review to support its credit decision. 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. In this example, the amount of the line remains unchanged even though the amount available on the line is less than the line commitment. 24. An Agency may require compliance with additional appraisal standards if it makes a determination that such additional standards are required to properly carry out its statutory responsibilities. Index models generally use geographic repeat sales data over time rather than property characteristic data. Changes in zoning, building materials, or technology. USPAP provides various appraisal report options that an appraiser may use to present the results of appraisal assignments. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively. 2 Version Log The Bureau updates this guide on a periodic basis to reflect finalized clarifications to the rule which impacts guide content. TheOffice of Thrift Supervision(OTS), a bureau of theU.S. Treasury Department, was created to charter, regulate, examine, and supervise savings institutions. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. 1652 0 obj <> endobj 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. Business LoanAs defined in the Agencies' appraisal regulations, a loan or extension of credit to any corporation, general or limited partnership, business trust, joint venture, syndicate, sole proprietorship, or other business entity. 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. [59] 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. 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. [28] The Proposal and Guidelines reference each Agency's guidance on third party arrangements. 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. 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. Effective Date of the AppraisalUSPAP requires that each appraisal report specifies the effective date of the appraisal and the date of the report. In these situations, the market value of the leased fee interest should be used. If multiple AVMs are used, an institution should understand how the combination of models affects overall accuracy. Establish procedures for obtaining an appraisal or using a different valuation method to develop an evaluation when an AVM's resulting value is not reliable to support the credit decision. 48. Leased fee interest, on the other hand, refers to a landlord's ownership that is encumbered by one or more leases. In the notice for comment on the Proposal, the Agencies requested comment on the appraisal regulatory exemption for residential real estate transactions involving U.S. government sponsored enterprises (GSEs). When the supplemental information indicates the AVM is not an acceptable valuation tool, the institution's policies and procedures should require the use of an alternative method or tool. 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. Establish criteria for monitoring collateral values. Since the issuance of the 1994 Guidelines, the Agencies have issued additional supervisory guidance documents[7] Independent Appraiser means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant. Appraisers must be appropriately certified or licensed, but this minimum credentialing requirement, although necessary, is not sufficient to determine that an appraiser is competent to perform an assignment for a particular property or geographic market. An institution may find it appropriate to employ additional personnel or engage a third party to perform the reviews. 1376 (2010). An institution is responsible for identifying the appropriate appraisal report option to support its credit decisions. 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. 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. 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. An institution should maintain documentation to demonstrate that the appraiser or person performing an evaluation is competent, independent, and has the relevant experience and knowledge for the market, location, and type of real property being valued. The financial services institution (not the borrower) ordered the appraisal. 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. Appendix DGlossary of Terms. Refer to the institution's primary Federal regulator for additional guidance on third party arrangements: OCC Bulletin 2001-47, Third-Party Relationships (November 1, 2001); OTS Thrift Bulletin 82a, Third Party Arrangements (September 1, 2004); NCUA Letter to Credit Unions: 01-CU-20, Due Diligence Over Third Party Service Arrangements (November 2001), 07-CU-13, Supervisory LetterEvaluation Third Party Relationships (December 2007), 08-CU-09, Evaluating Third Party Relationships Questionnaire (April 2008); and FDIC Financial Institution Letter 44-2008, Guidance for Managing Third-Party Risk (June 2008). Maintain criteria for the content and appropriate use of evaluations consistent with safe and sound banking practices. Regardless of the report option, the appraisal report should contain sufficient detail to allow the institution to understand the scope of work performed. The Guidelines also address questions from several commenters on the appropriate use of broker price opinions (BPOs) in the context of the Agencies' appraisal regulations. 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. 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. Information about this document as published in the Federal Register. Ensure staff has the requisite expertise and training to manage the selection, use, and validation of an analytical method or technological tool. 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 213; and NCUA: NCUA Letter to Credit Unions 05-CU-06. You can learn more about the standards we follow in producing accurate, unbiased content in our. Appropriate deductions and discounts should reflect holding costs, marketing costs, and entrepreneurial profit during the sales absorption period for the sale of the developed lots. Refer to USPAP Standards Rule 1-5(a) and the Ethics Rule. Scope of WorkAccording to USPAP Scope of Work Rule, the type and extent of research and analyses in an appraisal assignment. Appropriate deductions and discounts should reflect holding costs, marketing costs, and entrepreneurial profit during the sales absorption period of the completed units. FIRREA allows an exemption from a state licensed or state certified appraisal for business loans of $1M or less that are not dependent upon the sale of, or rental income generated from the collateral real estate as the primary source of repayment. A "business loan" is defined as an extension of credit to "any" corporation or other business entity. OCC: Robert L. Parson, Appraisal Policy Specialist, (202) 874-5411, or Darrin L. Benhart, Director, Credit and Market Risk Division, (202) 874-4564; or Christopher C. Manthey, Special Counsel, Bank Activities and Structure Division, (202) 874-5300, or Mitchell Plave, Counsel, Legislative and Regulatory Activities Division, (202) 874-5090. 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. An institution should file a complaint with the appropriate state appraiser regulatory officials when it suspects that a state certified or licensed appraiser failed to comply with USPAP, applicable state laws, or engaged in other unethical or unprofessional conduct. NCUA's regulations do not provide an exemption from the appraisal requirements specific to loans not secured by real estate. documents in the last year, 24 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. 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. Some small institutions noted that they could be placed at a competitive disadvantage with larger institutions that use AVMs. A reader of the appraisal report should be able to understand the risk characteristics associated with the subject property and the market, including the anticipated supply of competing properties. According to the Agencies' appraisal regulations, fee appraisers must be engaged directly by the federally regulated institution or its agent,[65] 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. 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. Anticipated demand for the units should be supported and presented in the appraisal. An institution should document the results of its validation and audit findings. Michelle P. Scott is a New York attorney with extensive experiencein tax, corporate, financial, and nonprofit law, and public policy. The estimate of market value should consider the real property's actual physical condition, use, and zoning as of the effective date of the appraiser's opinion of value. Compliance date: Federally regulated AMCs must comply with the minimum requirements for providing 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. An institution generally should not rely on an evaluation prepared by or for another financial services institution because it will not have sufficient information relative to the other institution's risk management practices for developing evaluations. 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