In a move that could have significant implications for the entire banking industry, the federal bank, thrift and credit union regulatory agencies yesterday jointly issued for comment proposed Interagency Appraisal and Evaluation Guidelines. According to the release, the proposed guidance "builds on the existing federal regulatory framework to clarify risk management principles and internal controls for ensuring that financial institutions’ real estate collateral valuations (both appraisals and evaluations) are reliable and support their real estate-related transactions." The initiative is intendedto respond to heightened concerns over appraisals and credit quality.
The proposed guidance would replace the 1994 Interagency Appraisal and Evaluation Guidelines to incorporate recent supervisory issuances and reflect changes in industry practice, uniform appraisal standards and available technologies. As with prior issuances, the proposed guidance would apply to all real estate lending functions within a federal financial institution, including commercial and residential lending departments, capital market groups, and asset securitization and sales units.
The proposed revisions address:
- Additional detail on the agencies’ expectations for an independent appraisal and evaluation function.
- Greater explanation of the agencies’ minimum appraisal standards, including clarification of requirements for appraisals of residential tract developments.
- Revisions to the Uniform Standards of Professional Appraisal Practice, which are incorporated by reference in the agencies’ appraisal regulations.
- Risk-focused appraisal and evaluation reviews separate and apart from an institution’s compliance function.
- New appendices – Appendix A provides further clarification on real estate transactions that are exempt from the agencies’ appraisal regulations; Appendix B addresses acceptable evaluation alternatives and use of automated valuation models; and Appendix C contains a new glossary of terms.
The agencies have requested comments on all aspects of the proposed guidance. Comments are due to the agencies sixty daysafter publication in the Federal Register, which is expected shortly.