On December 2, 2010, the federal financial regulatory agencies issued new Appraisal and Evaluation Guidelines, the purpose of which is to reflect changes in appraisal and evaluation practices.
The Guidelines replace the 1994 guidelines and explain the agencies' minimum regulatory standards for appraisals, incorporating the agencies' recent supervisory issuances on appraisal practices, addressing advancements in information technology used in collateral valuation practices, and clarifying standards for the industry's appropriate use of analytical methods and technological tools in developing evaluations.
The Guidelines clarify that:
(1) an analytical method or technological tool, such as an automated valuation model, cannot be substituted for an appraisal when the transaction requires an appraisal, and (2) there are "enhanced" requirements for collateral valuation methods for transactions that permit the use of an evaluation.
Review appraisal and evaluation programs to ensure they are consistent with the Guidelines.
- Recognize that while borrowers' ability to repay real estate loans according to reasonable terms remains the primary consideration in a lending decision, sound collateral valuation practices are an integral part of the loan underwriting process.
- Update and replace existing supervisory guidance to reflect developments regarding appraisals and evaluations as well as changes in appraisal standards and advancements in regulated institutions' collateral valuation methods.
- Clarify that collateral valuation methods that use an analytical method or technological tool, such as an automated valuation model, cannot be substituted for an appraisal when the transaction requires an appraisal.
- Enhance the requirements for collateral valuation methods for transactions that permit the use of an evaluation and specify that valuation methods that do not provide a property's market value, such as a broker price opinion, are not acceptable as an evaluation.
- Instruct institutions to file a complaint with the appropriate state appraiser regulatory officials when they suspect that a state certified or licensed appraiser fails to comply with the Uniform Standards of Professional Appraisal Practices, applicable laws, or engages in other unethical or unprofessional conduct, and to file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network when the suspicious activity meets the SAR filing criteria.
The appendices are particularly interesting and relevant to appraisal and evaluation practices. It is important to become familiar with the guidelines and implement them accordingly.
1. Appraisal Threshold
2. Abundance of Caution
3. Loans Not Secured by Real Estate
4. Liens for Purposes Other Than the Real Estate's Value
5. Real Estate-Secured Business Loans
7. Renewals, Refinancings, and Other Subsequent Transactions Loan Workouts or Restructurings.
8. Transactions Involving Real Estate Notes
9. Transactions Insured or Guaranteed by a U.S. Government Agency or U.S. Government-sponsored Agency
10. Transactions that Qualify for Sale to, or Meet the Appraisal Standards of, a U.S. Government Agency or U.S. Government-sponsored Agency
11. Transactions by Regulated Institutions as Fiduciaries
12. Appraisals Not Necessary to Protect Federal Financial and Public Policy Interests or the Safety and Soundness of Financial Institutions
Evaluations Based on Analytical Methods or Technological Tools
Automated Valuation Models (AVMs)
Selecting an AVM(s)
Determining AVM Use
Validating AVM Results
Tax Assessment Valuations (TAVs)
Deductions and Discounts
Proposed Construction or Renovation
Partially Leased Buildings
Non-market Lease Terms
Tract Developments with Unsold Units: Raw Land, Developed Lots, Attached or Detached Single-family Homes, Condominiums
Glossary of Terms
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