Some commenters did not agree that institutions should be permitted to use AVMs to develop an evaluation. 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. Going Concern ValueThe value of a business entity rather than the value of the real property. Under USPAP, the appraisal must contain a certification that the appraiser has complied with USPAP. 1652 0 obj <> endobj 59. WebAlternative Valuation Services. 03/01/2023, 205 The use of real property or interests in property as security for a loan or investment, including mortgage-backed securities. If sufficient market data exists to perform both the sales comparison and developmental approaches to value, the appraisal report should detail a reconciliation of these two approaches in arriving at a market value conclusion for the raw land. Under these circumstances, the review may be part of the originating loan officer's overall credit analysis, as long as the originating loan officer abstains from directly or indirectly approving or voting to approve the loan. As a result of FIRREA, the differences between S&Ls and banks have decreased significantly. legal research should verify their results against an official edition of If an institution has a question as to whether a particular transaction qualifies for an exemption, the institution should seek guidance from its primary Federal regulator. An institution should specify the use of an appraisal report option that is commensurate with the risk and complexity of the transaction. [51] The Agencies collectively received 157 unique comments on the Proposal. This policy applies regardless of whether the property was appraised as proposed or existing construction. Prospective Market Value as Completed and as StabilizedA prospective market value may be appropriate for the valuation of a property interest related to a credit decision for a proposed development or renovation project. 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. Some commenters did not support the longstanding flexibility afforded to small and rural institutions when absolute lines of independence cannot be achieved. Changes in zoning, building materials, or technology. An institution should use these findings to analyze and periodically update its policies and procedures for an AVM(s) when warranted. Appropriate deductions and discounts should include items such as feasibility studies, permitting, engineering, holding costs, marketing costs, and entrepreneurial profit and other costs specific to the property. Describe the analysis that was performed and the supporting information that was used in valuing the property. Updated Appraisal means an Appraisal of the Mortgaged Property or related REO Property, as the case may be, conducted subsequent to any Appraisal performed on or prior to the date of this Agreement by an Appraiser, selected by the applicable Servicer, in accordance with MAI standards, the costs of which shall be paid as a Property Advance by the Lead Securitization Note Holder or applicable Servicer. The Proposal confirmed that an institution should make referrals to state appraiser regulatory authorities when it suspects that a state licensed or certified appraiser failed to comply with USPAP, applicable state laws, or engaged in unethical or unprofessional conduct. (1) This $50,000 minimum is referred to as the de minimis threshold level These standards of independence also should apply to persons who perform evaluations. When analyzing individual transactions, examiners will review an Start Printed Page 77457appraisal or evaluation to determine whether the methods, assumptions, and value conclusions are reasonable. FinPro is not a seller of securities within the meaning of any federal or state securities laws and any report prepared by FinPro shall not be used as an offer or solicitation with respect to the purchase or sale of any securities. [60] regulatory information on FederalRegister.gov with the objective of When an institution identifies an appraisal or evaluation that is inconsistent with the Agencies' appraisal regulations and the deficiencies cannot be resolved with the appraiser or person who performed the evaluation, the institution must obtain an appraisal or evaluation that meets the regulatory requirements prior to making a credit decision. 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. According to USPAP, appraisal reports must contain sufficient information to enable the intended user of the appraisal to understand the report properly. We visited the Bank's primary market area and reviewed the market area economic condition. The criteria should ensure that: An institution or its agent must directly select and engage appraisers. FIRREA means the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended. 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. or (ii) involve a residential real estate transaction in which the appraisal conforms to Fannie Mae or Freddie Mac appraisal standards applicable to that category of real estate. 10. 3331, et seq. 12 CFR 722.3(d). Many commenters recognized that additional clarification of existing regulatory and supervisory expectations strengthen the real estate collateral valuation and risk management practices across federally regulated institutions. These can be useful hbbd``b`.Z }$~\b`bdc@ Ensure staff has the requisite expertise and training to manage the selection, use, and validation of an analytical method or technological tool. The appraisal must: Although allowed by USPAP, the Agencies' appraisal regulations do not permit an appraiser to appraise any property in which the appraiser has an interest, direct or indirect, financial or otherwise in the property or transaction. Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction. Deficiencies in an institution's appraisal and evaluation program that result in violations of the Agencies' appraisal regulations or contraventions of the Agencies' supervisory guidance reflect negatively on management. Further, there should be periodic internal review of the use of the approved appraiser list to confirm that appropriate procedures and controls exist to ensure independence in the development, administration, and maintenance of the list. For example, if a property has reportedly increased in value because of a planned change in use of the property resulting from rezoning, an appraisal should be performed unless another exemption applies. The Guidelines make it clear that an institution is responsible for meeting supervisory expectations regarding the selection, use, and validation of an AVM and maintaining an effective system of internal controls. Prospective value opinions are intended to reflect the current expectations and perceptions of market participants, based on available data. This exemption applies to transactions that either (i) qualify for sale to a U.S. government agency or U.S. government-sponsored agency,[58] Each document posted on the site includes a link to the 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. See the Third Party Arrangements section in these Guidelines. Develop criteria to assess whether an existing appraisal or evaluation may be used to support a subsequent transaction. 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. Appendix BEvaluations Based on Analytical Methods or Technological Tools. Government-Sponsored Agency, 10. This exemption is not intended to be applied to real estate-related financial transactions other than those involving loans. An institution may find it appropriate to employ additional personnel or engage a third party to perform the reviews. 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. An institution should be able to demonstrate that an evaluation, whether prepared by an individual or supported by an analytical method or a technological tool, provides a reliable estimate of the collateral's market value as of a stated effective date prior to the decision to enter into a transaction. Moreover, the Guidelines stress that an institution should not select a valuation method or tool solely because it provides the highest value, the lowest cost, or the fastest response or turnaround time. Further, the Agencies revised the Guidelines to confirm that the result of an automated valuation model (AVM), in and of itself, does not meet the Agencies' minimum appraisal standards, regardless of whether the results are signed by an appraiser. An institution is responsible for identifying the appropriate appraisal report option to support its credit decisions. 42. 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. 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. According to USPAP, an appraisal with a prospective market value reflects an effective date that is subsequent to the date of the appraisal report. The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances. Involves an existing extension of credit at the lending institution, provided that: Loans with combined loan-to-value ratios in excess of the supervisory loan-to-value limits. For example, to be consistent with the standards for an evaluation, the results of an AVM would need to address a property's actual physical condition, and therefore, could not be based on an unsupported assumption, such as a property is in average condition. However, the Agencies are issuing the Guidelines to promote consistency in the application and enforcement of the Agencies' current appraisal requirements and related supervisory guidance. 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 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. Qualified Appraiser An appraiser, duly appointed by the Seller, who had no interest, direct or indirect, in the Mortgaged Property or in any loan made on the security thereof, and whose compensation was not affected by the approval or disapproval of the Mortgage Loan, and such appraiser and the appraisal made by such appraiser both satisfied the requirements of Title XI of FIRREA and the regulations promulgated thereunder, all as in effect on the date the Mortgage Loan was originated. 1.6 ASB: The Appraisal Standards Board of The Appraisal Foundation. This appendix provides further clarification on the application of these regulatory exemptions and should be read in the context of each Agency's appraisal regulation. Employees responsible solely for credit administration or credit risk management are not considered loan production staff. 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. When an appraisal includes prospective market value opinions, there should be a point of reference to the market conditions and time frame on which the appraiser based the analysis. 12 CFR 722.3(d). In addition, an appraisal should reflect an analysis of the property's sales history and an opinion as to the highest and best use of the property. Document page views are updated periodically throughout the day and are cumulative counts for this document. Fee simple interest refers to the most complete ownership unencumbered by any leases or other interests. 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. An institution may use sampling and audit procedures to verify the seller's representations and warranties that the appraisals for the underlying loans in a pool of residential loans satisfy the Agencies' appraisal regulations and are consistent with supervisory guidance and an institution's internal policies. Identify circumstances under which an AVM may not be used, including: Expectations for an appropriate sample size. Appendix DGlossary of Terms. The Agencies also requested comment on whether appropriate constraints can be placed on the use of these tools and Start Printed Page 77454methods to ensure the overall integrity of the institution's appraisal review process for other low risk mortgage transactions. Commenters requested further clarification on the process for institutions to obtain approval to use automated tools and sampling methods in the review process. In response to commenters, the Guidelines now provide examples of factors for an institution to consider in assessing whether a significant change in market conditions has occurred. Staff performing the collateral valuation function is responsible for selecting an appraiser. This includes a national or a state-chartered bank and its subsidiaries, a bank holding company and its non-bank subsidiaries, a Federal savings association and its subsidiaries, a Federal savings and loan holding company and its subsidiaries, and a credit union. WebIf an appraisal is prepared by a staff appraiser, that appraiser must be independent of the lending, investment, and collection functions and not involved, except as an appraiser, in Reviewers also should possess the requisite education, expertise, and competence to perform the review commensurate with the complexity of the transaction, type of real property, and market. An institution should perform appropriate model validation regardless of whether it relies on AVMs that are supported by value insurance or guarantees. The review also should consider the process through which the appraisal or evaluation is obtained, either directly by the institution or from another financial services institution. on hb```,'x9 X:d&Z=mVH63Sn14^X=*%TXZku+S8gO;MPS%UejE4E[#A5]MMB"Da D0$gNE;A$X`c#i`h`b d`` 2"AA zV! AVMs are computer programs that estimate a property's market value based on market, economic, and demographic factors. An institution should ensure that persons who validate an AVM on an ongoing basis are independent of the loan production and collection processes and have the requisite expertise and training. 511 (1989); 12 U.S.C. 28. The Agencies' appraisal regulations require appraisals for federally related transactions to comply with the requirements in USPAP, some of which are addressed below. These individuals would include any employee whose compensation is based on loan volume (such as processing or approving of loans). 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). This standard is designed to avoid having appraisals prepared using unrealistic assumptions and inappropriate methods in arriving at the property's market value. 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