Bankin’ Bits

On November 19, 2008, the federal bank regulatory agencies jointly issued Proposed Interagency Appraisal and Evaluation Guidelines to re-enforce the importance of sound collateral valuation practices, which are necessary to promote safe and sound real estate lending activity.  The proposed guidelines would supersede the 1994 Interagency Appraisal and Evaluation Guidelines and incorporate recently issued supervisory guidance to address the increased use of automated valuation methods and tax assessment values as evaluation alternatives. The guidelines would also address changes to uniform appraisal standards.  Each agency’s real estate lending regulations and guidelines require institutions to adopt and maintain an appropriate real estate appraisal and evaluation program.  Examiners will review that program’s compliance with appraisal regulations and supervisory guidelines as part of the examination of the institution’s overall real estate related activities.  The new guidance, when finalized, will apply to real estate lending activities of federally regulated financial institutions.  Institutions are invited to submit comments on the proposal to their primary federal regulator on or before January 20, 2009.  The proposed guidelines include the following: 

• Further clarification of the minimum appraisal standards set forth in the agencies’ appraisal regulations.  
• Incorporation of changes to uniform appraisal standards, which were provided by the June 2006 Interagency Statement on the 2006 Revisions to Uniform Standards of Professional Appraisal Practice.  
• Clarification of what information should be included in an evaluation including the inclusion of a new appendix that discusses appropriate practices and controls regarding an institution’s use of automated valuation methods and tax assessment valuations as evaluation alternatives.  
• A new section emphasizing the importance of an institution’s process for ensuring that appraisals and evaluations support credit decisions, including a discussion of internal controls, documentation independence, review procedures and reviewers’ qualifications.  
• A discussion of the importance of sound portfolio monitoring principles that set forth criteria for when an institution should replace or update collateral valuations for existing real estate loans and certain factors that institutions should consider when establishing that criteria. 

To read the entire text of the proposed guidelines, please click here.