When we extend our in-house balloon mortgage loans, we reevaluate the property. The evaluations usually consist of driving by the property and concluding either that the property value is consistent with our original appraisal or that it has deteriorated. We document the evaluations and retain the documentation in our loan files. Are we required to provide a copy of these evaluations to the applicants and obtain their signatures of receipt?

Yes, we believe that your bank should provide copies of these evaluations to applicants requesting renewals of loans secured by a first lien on a dwelling. While the applicants’ signatures are not required, obtaining their signatures would be a prudent step for documenting your compliance with this requirement.

Regulation B requires creditors to provide applicants with copies of evaluations developed in connection with applications for credit secured by a first lien on a dwelling, including credit renewals. This requirement applies only when a creditor “develops a new appraisal or other written valuation.” For example, Regulation B states that an evaluation includes a “document prepared by the creditor’s staff that assigns value to the property,” but it excludes “reports reflecting property inspections that do not provide an estimate of the value of the property and are not used to develop an estimate of the property.”

Here, it appears that your bank is producing evaluations that must be provided to these applicants; in other words, your bank is visually inspecting properties and estimating their current values for purposes of determining whether a property’s current value matches its originally appraised value when extending the balloon dates on these loans. Consequently, we believe that Regulation B requires your bank to share these evaluations with the applicants who are requesting renewals of their loans (when they are secured by a first lien on their dwelling).

For resources related to our guidance, please see:

ECOA Regulation B, 12 CFR 1002.14(a)(1) (“A creditor shall provide an applicant a copy of all appraisals and other written valuations developed in connection with an application for credit that is to be secured by a first lien on a dwelling.”)
Official Interpretations, 12 CFR 1002, Paragraph 14(a)(1), Comment 2 (“Section 1002.14(a)(1) applies when an applicant requests the renewal of an existing extension of credit and the creditor develops a new appraisal or other written valuation. Section 1002.14(a)(1) does not apply to the extent a creditor uses the appraisals and other written valuations that were previously developed in connection with the prior extension of credit to evaluate the renewal request.”)
ECOA Regulation B, 12 CFR 1002.14(b)(3) (“The term ‘valuation’ means any estimate of the value of a dwelling developed in connection with an application for credit.”)
Official Interpretations, 12 CFR 1002, Paragraph 14(b)(3), Comment 1 (“Examples of valuations include but are not limited to: . . . (ii) A document prepared by the creditor’s staff that assigns value to the property. . . .”)
Official Interpretations, 12 CFR 1002, Paragraph 14(b)(3), Comment 3 (“Not all documents that discuss or restate a valuation of an applicant’s property constitute a ‘valuation’ for purposes of § 1002.14(b)(3). Examples of documents that discuss the valuation of the applicant’s property or may reflect its value but nonetheless are not ‘valuations’ include but are not limited to: . . . (v) Reports reflecting property inspections that do not provide an estimate of the value of the property and are not used to develop an estimate of the property. . . .”)