Maintain criteria for the content and appropriate use of evaluations consistent with safe and sound banking practices. This process should differentiate between high- and low-risk transactions so that the review is commensurate with the risk. 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. For residential transactions, loan production staff can use a revolving, pre-approved appraiser list, provided the development and maintenance of the list is not under their control. For example, an extension arising from a short-term delay in the full repayment of the loan when there is documented evidence that payment from the borrower is forthcoming, or a brief delay in the scheduled closing on the sale of a property when there is evidence that the closing will be completed in the near term. Minimum Appraisal Standards. (FIRREA)2 requires each Agency to prescribe appropriate standards for the performance of real estate appraisals in connection with federally related Referrals. Is a business loan with a transaction value equal to or less than the business loan threshold of $1 million, and is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. Moreover, the institution's staff responsible for internal controls should have the skills commensurate with the complexity or sophistication of the method or tool. Table A1: Collateral Interest Underlying Property Characteristic Provided ValueCommuter Portfolio 161 North Arlington Avenue USPAP Appraisal (Y/N) FIRREA Appraisal (Y/N) Y YNew Horizon Apartments NAP Ground Lease Maturity 3/28/2040Exhibit 2 to Attachment A Page 8 of 14Notes: (continued)3. Generally, credit unions have limited fiduciary authority and NCUA's appraisal regulation does not specifically exempt transactions by fiduciaries. In response to commenters, the Agencies expanded this section in the Guidelines to further detail their expectations for appropriate communication and information sharing with persons performing collateral valuation assignments. Appropriate deductions and discounts should include holding costs, marketing costs, and entrepreneurial profit during the sales absorption period of the completed units. Financial institutions appreciated the flexibility contained in the Proposal that permitted the use of evaluations for low-risk transactions, consistent with the Agencies' appraisal regulations. These standards are promulgated by the Appraisal Standards Board of the Appraisal Foundation and are incorporated as a minimum appraisal standard in the Agencies' appraisal regulations. The Agencies note that both the Proposal and Guidelines include a definition in Appendix D for loan production staff. Regulations Laws Rules FDIC Law, Regulations, Related Acts FDIC and Interagency Statements FDIC and Interagency Statements provide guidance to insured An institution may use a TAV in developing an evaluation when it can demonstrate that a valid correlation exists between the tax assessment data and the market value. Address the independence, educational and training qualifications, and role of the reviewer. for better understanding how a document is structured but The final rule requires evaluations for transactions at or below the $500,000 threshold for CRE transactions, although banks may use appraisals for these exempt transactions in appropriate circumstances, such as for higher-risk transactions, as discussed in the "Interagency Appraisal and Evaluation Guidelines" attached to OCC 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 An institution's appraisal and evaluation policies should establish internal controls to promote an effective appraisal and evaluation program. Provide an estimate of the property's market value in its actual physical condition, use and zoning designation as of the effective date of the evaluation (that is, the date that the analysis was completed), with any limiting conditions. OCC: 12 CFR part 34, subpart D; FRB: 12 CFR part 208, Appendix C; FDIC: 12 CFR part 365; and OTS: 12 CFR 560.100 and 560.101. However, an institution should not directly or indirectly coerce, influence, or otherwise encourage an appraiser or a person who performs an evaluation to misstate or misrepresent the value of the property. 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. Appropriate deductions and discounts should reflect holding costs, marketing costs, and entrepreneurial profit during the sales absorption period of the completed units. This term does not include: Control Appraisal Period shall exist with respect to the Mortgage Loan, if and for so long as: MAI Appraiser With respect to any real property, a member of the American Institute of Real Estate Appraisers with a minimum of 5 years of experience appraising real property of a type similar to the real property being appraised and located in the same geographical area as the real property being appraised. Therefore, in their appraisal regulations, the Agencies identified certain real estate-related financial transactions that do not require the services of an appraiser and that are exempt from the appraisal requirement. As a result of FIRREA, the differences between S&Ls and banks have decreased significantly. The Agencies believe that the Proposal reaffirmed existing guidance addressing their supervisory expectations for prudent appraisal and evaluation policies, procedures, and practices. The Appendix also addresses the expertise necessary to manage the use of a method or tool, which may require an institution to employ additional personnel or engage a third party. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)[16] Transaction ValueAs defined in the Agencies' appraisal regulations: For purposes of this definition, the transaction value for loans that permit negative amortization should be the institution's total committed amount, including any potential negative amortization. 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. When a property is non-homogeneous, such as atypical lot sizes or property types. In these situations, the market value of the leased fee interest should be used. It also reaffirmed that, when examining an institution's real estate lending activity, supervisory staff will review an institution's appraisal and evaluation program for compliance with the Agencies' appraisal regulations and consistency with related guidance. We also reviewed the competitive environment in which the Bank operates and its relative strengths and weaknesses. Further, these Guidelines provide federally regulated institutions and examiners clarification on the Agencies' expectations for prudent appraisal and evaluation policies, procedures, and practices. The Public Inspection page may also %PDF-1.4 % 2354; 12 U.S.C. Transactions involving existing extensions of credit with significant risk to the institution. 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. ?-z#U-&3FK3_kkQ9YV\YB4f~y-rmVK9?ojQ6K|W6-7Fq7[Ct14%74/i_U{}qnAG{13Ry88Y&`[(. See USPAP, Scope of Work Rule, Advisory Opinions 28 and 29. For example, an institution makes a loan secured by seven commercial properties in different markets with two properties valued in excess of the appraisal threshold and five properties valued less than the appraisal threshold. The Guidelines also reflect refinements made by the Agencies in the supervision of institutions' appraisal and evaluation programs. 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. For purposes of these Guidelines, an appraisal management company includes, but is not limited to, a third-party entity that provides real property valuation-related services, such as selecting and engaging an appraiser to perform an appraisal based upon requests originating from a regulated institution. Determine and document how the tax jurisdiction calculates the TAV and how frequently property revaluations occur. An institution should assess the level of in-house expertise available to review appraisals for complex projects, high-risk transactions, and out-of-market properties. Appraisers and appraisal groups asked for further explanation on the enforceability of the Guidelines and the distinction between supervisory guidance and regulatory requirements. (See the discussion in the Validity of Appraisals and Evaluations section of these Guidelines.) WORK & FEES $32,500 $12,500 $0 $20,000 SOFT COSTS FIRREA Appraisal $4,000 $4,000 Market Study $3,500 $3,500 Environmental Study/Review $20,100 $20,100 TOTAL SOFT COSTS $27,600 $7,500 $20,100 $0 GRAND TOTAL OF COSTS $60,100 $20,000 $20,100 $20,000 2017 CITY OF MISSOULA HOME USES OF FUNDS ATTACHMENT C HOME Administration and Indirect Cost Selection Form INSTRUCTIONS: Subrecipients interested in reimbursement for indirect costs must complete all parts of this form. Improvements to the subject property or competing properties. 40. 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. 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. Maintain a system of adequate controls, verification, and testing to ensure that appraisals and evaluations provide credible market values. 7. For properties subject to leases with terms that do not reflect current market conditions, the appraisal must clearly state the ownership interest being appraised and provide a discussion of the leases that are in place. Xxxxxx Shipbrokers, Norway, or Fearnley AS, Norway. Most commenters appreciated the additional explanation in the Proposal on the appraisal standard to analyze deductions and discounts for residential tract developments. [20] documents in the last year, by the Environmental Protection Agency Moreover, as an institution's reliance on collateral becomes more important, its policies and procedures should: Consistent with sound collateral valuation monitoring practices, an institution can use a variety of techniques for monitoring the effect of collateral valuation trends on portfolio risk. Further, the appraisal must contain an opinion of market value as defined in the Agencies' appraisal regulations. In the Guidelines, this section was expanded to provide additional specificity on an institution's responsibilities for the selection, monitoring, and management of arrangements with third parties. For complete information about, and access to, our official publications Program Compliance. Specify criteria when a market event or risk factor would preclude the use of a particular method or tool. Staff performing the collateral valuation function is responsible for selecting an appraiser. 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. 0 22. 1631 et seq.). 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). The Guidelines are also responsive to the majority of comments, which expressed support for the Proposal and confirmed that additional clarification of existing regulatory and supervisory standards serve to strengthen the real estate collateral valuation and risk management practices across insured depository institutions. USPAP provides various appraisal report options that an appraiser may use to present the results of appraisal assignments. Start Printed Page 77456and the 2005 Frequently Asked Questions on the Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions. Hypothetical ConditionAs defined in USPAP, a condition that is contrary to what exists but is supposed for the purpose of analysis. 1665 0 obj <>stream 1. In developing an opinion of market value, an appraiser must take into consideration the effect of any sales concessions on the market value of the real property. 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. We compared the Bank's performance with selected publicly traded thrift institutions. Appraisal shall have the meaning assigned to such term in the Servicing Agreement. In addition to the other information, the engagement letter will identify the intended use and user(s), as defined in USPAP. To apply the exemption, the institution should determine that the market value of the real estate as an individual asset is not necessary to support its decision to extend credit. In response to these developments, the Agencies published for comment the Proposed Interagency Appraisal and Evaluation Guidelines (Proposal) on November 19, 2008. The institution should consider the risk, size, and complexity of the transaction and the real estate collateral when determining the appraisal report format to be specified in its appraisal engagement instructions to an appraiser. 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. Prudent portfolio monitoring practices include criteria for determining when to obtain a new appraisal or evaluation. Inventory Appraisal means (a) on the Original Closing Date, the report prepared by DoveBid Valuation Services, Inc. dated October 27, 2003 and (b) thereafter, the most recent inventory appraisal conducted by an independent appraisal firm designated by Collateral Agent and reasonably acceptable to Borrower and delivered pursuant to Section 9.02 hereof. (See market value above and USPAP Standards Rule 1-2(c).). 30, 2008); 75 FR 66554 (Oct. 28, 2010). These commenters expressed the view that the Proposal gave too much discretion to regulated institutions in the development and implementation of their appraisal and evaluation programs. Exposure TimeAs defined in USPAP, the estimated length of time the property interest being appraised would have been offered on the market prior to the hypothetical consummation of a sale at market value on the effective date of the appraisal. To eliminate redundancies, the Guidelines incorporate the discussion in the Proposal's section on qualifications of persons who perform evaluations into a new section that addresses both the qualifications and selection of an appraiser and a person who performs an evaluation. For example, this exemption should not be applied to a transaction such as an institution's investment in real estate for its own use. 21. For transactions with a transaction value equal to or less than $250,000, the Agencies' appraisal regulations, at a minimum, require an evaluation consistent with safe and sound banking practices. An institution should take into account all aspects of the long-term effect of the relationship, including the managerial expertise and associated costs for effectively monitoring the arrangement on an ongoing basis. Consistent with safe and sound practices, an institution should have a written contract that clearly defines the expectations and obligations of both the financial institution and the third party, including that the third party will perform its services in compliance with the Agencies' appraisal regulations and consistent with supervisory guidance. Properties outside the institution's traditional lending market. 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. A valuation method that does not provide a property's market value or sufficient information and analysis to support the value conclusion is not acceptable as an evaluation. In the Guidelines, the Agencies clarified their expectations that while a loan qualifying for sale to a GSE is exempted from the appraisal regulations, an institution is expected to have appropriate policies to confirm their compliance with the GSEs' underwriting and appraisal standards. 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. documents in the last year, 11 For loans to purchase an existing property, value means the lesser of the actual acquisition cost or the estimate of value. OCC: 12 CFR part 34, subpart C: FRB: 12 CFR part 208, subpart E and 12 CFR part 225; subpart G; FDIC: 12 CFR part 323; OTS: 12 CFR part 564; and NCUA: 12 CFR part 722. As Stabilized Market ValueRefer to the definition for Prospective Market Value. ), Institutions should be aware that provisions in the Dodd-Frank Act address appraisal requirements for a higher-risk mortgage to a consumer. On the other hand, an institution has provided a $5 million revolving line of credit to a borrower for two years and, at the end of year two, renews the $5 million line for another two years. 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. 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. NCUA's appraisal regulation, 12 CFR 722, does not define business loan. A member business loan is regulated under 12 CFR 723. While this section in the Guidelines generally tracks the Proposal, the detailed discussion on Start Printed Page 77453analyzing deductions and discounts has been moved to a new appendix. For users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263-4869. 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. (1) This $50,000 minimum is referred to as the de minimis threshold level TheFederal Home Loan Bank Board(FHLBB) was abolished. Examiners will consider the size and the nature of an institution's real estate-related activities when assessing the appropriateness of its program. It is not an official legal edition of the Federal WebAlternative Valuation Services. 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. The person selected is capable of rendering an unbiased opinion. 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. To implement these provisions, the Agencies recognize that future regulations will address the requirement that the appraiser conduct a physical property visit of the interior of the mortgaged property. To address these comments, the Agencies incorporated clarifying edits in the Guidelines to emphasize the importance of appraiser competency for a particular assignment relative to both the property type and geographic market. Register documents. The Agencies' appraisal regulations require appraisals for federally related transactions to comply with the requirements in USPAP, some of which are addressed below. Exposure time is always presumed to precede the effective date of the appraisal. 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. An institution's risk management system should reflect the complexity of the outsourced activities and associated risk. 2. (Refer to the Reviewing Appraisals and Evaluations section in these Guidelines for additional information on determining and documenting the credibility of an appraisal or evaluation.) This estimated valuation considers the Bank only as a going concern and should not be considered as an indication of its liquidation value. A marketable security is one that may be sold with reasonable promptness at a price that corresponds to its fair value. The Guidelines also reference the FRB's Regulation Z (implementing the Truth in Lending Act), which was amended in 2008 and 2010 to include provisions regarding appraiser independence.[12]. Many thrifts employed weak real estate investment requirements, and federal agency oversight failed to recognize the problem wasn't discovered until it was too late. 47. For proposed construction and sale of five or more attached or detached single-family homes in the same development, the appraiser must analyze and report appropriate deductions and discounts. These individuals would include any employee whose compensation is based on loan volume (such as processing or approving of loans). (See the discussion in these Guidelines on Third Party Arrangements.). ), If the loan workout does not include the advancement of new monies other than reasonable closing costs, the institution may obtain an evaluation in lieu of an appraisal. establishing the XML-based Federal Register as an ACFR-sanctioned An example of an extraordinary assumption is when an appraiser assumes that an application for a zoning change will be approved and there is no evidence to suggest otherwise. documents in the last year, 662 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 [51] In particular, comments from appraisers and appraisal organizations noted that the Agencies should not permit evaluations, even detailed ones, to substitute for appraisals in higher risk real estate loans. 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. Summary Appraisal ReportAccording to USPAP Standards Rule 2-2(b), the summary appraisal report summarizes all information significant to the solution of an appraisal problem while still providing sufficient information to enable the client and intended user(s) to understand the rationale for the opinions and conclusions in the report. Therefore, to ensure that an appraisal is appropriate for the intended use, an institution should discuss its needs and expectations for the appraisal with the appraiser. Consistent with the USPAP Scope of Work Rule,[41] In finalizing the Guidelines, the Agencies considered the Dodd-Frank Act, other Federal statutory and regulatory changes affecting appraisals,[11] Conversion Valuation Appraisal Report Page: 3 ================================================================================ In preparing our valuation, we relied upon and assumed the accuracy and completeness of financial and other information provided to us by the Bank and its independent accountants. Deficiencies will require appropriate corrective action. The Proposal addressed longstanding supervisory expectations that an institution should implement procedures to affirm its program's independence. In the AVM validation procedures, an institution should specify, at a minimum: To ensure unbiased test results, an institution should compare the results of an AVM to actual sales data in a specified trade area or market prior to the information being available to the model. Sample 1 Appendix C clarifies the minimum appraisal standards required by the Agencies' appraisal regulations for analyzing and reporting appropriate deductions and discounts in appraisals. This exemption is intended to apply to individual transactions on a case-by-case basis rather than broad categories of transactions that would otherwise be addressed by an appraisal exemption. These standards also required that real estate loans falling in certain categories above $50,000 be appraised by a state licensed or state certified appraiser. The information provided by commenters will be considered in assessing the need to revise these regulations. This section in the Guidelines references Appendix A, Appraisal Exemptions, which has been revised in response to comments on the Proposal. As stated in the Agencies' appraisal regulations, a state certified or licensed appraiser may not be considered competent solely by virtue of being certified or licensed. An institution should use these findings to analyze and periodically update its policies and procedures for an AVM(s) when warranted. Institutions frequently take real estate liens to protect legal rights to other collateral rather than because of the contributory value of the real estate as an individual asset. Lack of maintenance of the subject or competing properties. 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. These include white papers, government data, original reporting, and interviews with industry experts. Further, the Guidelines now discuss the appropriate depth of review by property type, including factors to consider in the review of appraisals and evaluations of commercial and single-family residential real estate. Third Appraiser has the meaning set forth in Section 6.04(b) hereof. 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