Topic: Appraisals and Valuations
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For our commercial loans, we often receive appraisals with one of the approaches to value excluded because the appraiser deemed in inapplicable (for example, due to the age of the building, the cost approach is deemed inapplicable). Is that permissible?
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In our view, an appraisal that excludes one of the approaches to value should be acceptable, provided that the appraisal includes an explanation of why that approach is inapplicable. In general, all appraisals should comply with the Uniform Standards of Professional Appraisal Practice (USPAP). 12 CFR 323.4(a). The Interagency Appraisal and Evaluation Guidelines explain that…
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We are renewing (without extending new money) a commercial loan that is secured by a multi-family residential property with nine units. The owner occupies one of the units. Do we need to do a full appraisal, or would an appraisal of just one of the units suffice?
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First, we note that the federal banking agencies’ appraisal regulations (for your institution, the FDIC appraisal regulations) do not require an appraisal for renewals of loans, unless there have been material changes in circumstances requiring a new appraisal. 12 CFR 323.3(a)(7). However, you still must obtain “an appropriate evaluation of real property collateral that is…
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Can you provide guidance on using broker opinions for loan renewals?
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Broker price opinions (BPOs) may be used to support an appraisal or evaluation, but not in lieu of an appraisal or evaluation. The Interagency Appraisal and Evaluation Guidelines (“Guidelines”) specifically state that a BPO should not be used instead of an evaluation: “For example, a valuation method that provides a sales or list price, such…
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During the ABA’s recent Mortgage Compliance Q&A call with the CFPB, the CFPB responded to a question by telling us to “check state law.” The question was how to define a “business day” for purposes of the 3-day requirement in Regulation B.
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The new Regulation B appraisal rule requires banks to provide a copy of an appraisal or valuation “promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier.” 12 CFR 1002.14(a)(1). The CFPB also acknowledged the lack of a definition of…
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Do Regulation Z’s valuation independence requirements (12 CFR 1026.42) apply to commercial real estate loans secured by a dwelling?
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The applicability of Regulation Z’s valuation independence requirements depends on the purpose of the loan — Regulation Z does not apply to an extension of credit primarily for a business, commercial or agricultural purpose. 12 CFR 1026.3(a). Additionally, Regulation Z does not apply to a loan made to anyone other than a natural person. 12…
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Our institution recently grew to over $250 million in assets. Since we have crossed that threshold, do we have to make changes to our appraisal process? We currently use a third party company to prepare our appraisals.
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After crossing the $250 million asset threshold, your institution is subject to heightened requirements to avoid conflicts of interest when your institution’s employees perform or review property valuations. 12 CFR 1026.42(d)(2). Even though your institution’s valuations are produced by a third party, the employees who review those valuations are subject to Regulation Z’s conflict of…
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If we have a loan closing on Friday, April 4, the new ECOA appraisal rules require us to provide a copy of the appraisal by Tuesday, April 1 (per the example in the CFPB’s Small Entity Compliance Guide). If we are mailing the appraisal, does that mean we have to mail the appraisal by March 28 so that it arrives by April 1?
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We agree with your analysis, but with the proviso that for higher-priced mortgage loans, a different definition of “business day” will apply which may require a different mailing date. Based on the ECOA appraisal regulation and staff commentary, if you are mailing an appraisal to a borrower, it must be placed in the mail six…