The Office of the Comptroller
of the Currency (OCC), the Board of Governors of the Federal Reserve
System (Board), and the Federal Deposit Insurance Corporation (FDIC)
(collectively, “the agencies”) are issuing these frequently
asked questions (FAQs) in response to questions raised regarding the
agencies’ appraisal regulations and guidance. These FAQs do
not introduce new policy or guidance but assemble previously communicated
policy and interpretations. The FAQs focus on, and
should
be reviewed in conjunction with, the agencies’ appraisal regulations
issued under title XI of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (title XI),
1 the real estate
lending standards,
2 the December 2010
Interagency Appraisal
and Evaluation Guidelines (valuation guidelines),
3 and the March 2016
Interagency
Advisory on the Use of Evaluations in Real Estate-Related Financial
Transactions (evaluations advisory).
4 Institutions should also be
aware of other regulations and guidance related to appraisals, which
these FAQs do not address.
5These FAQs incorporate some of the FAQs issued
by the agencies in 2005 (
see questions 14 through 23).
6 Many of the questions in
the 2005 FAQs are directly addressed in the valuation guidelines and,
therefore, have not been included in this FAQ document. These FAQs
supersede the 2005 FAQs.
7Q1. Why does a financial institution need a program for establishing
the market value of real property?
A1. Financial
institutions should have a program for valuing real property to ensure
they are engaging in real estate-related lending in a safe and sound
manner and in compliance with title XI and the agencies’ appraisal
regulations.
8Lending secured by real estate is a large part of many
financial institutions’ business plans and is important to the
communities served by those institutions. Lessons learned from past
crises have shown that poorly managed real estate lending programs,
including the failure to properly value real estate that secures transactions,
can result in higher loan losses, reduced profitability, and bank
failures.
In light of these problems, Congress adopted title XI,
9 requiring financial institutions
to obtain appraisals prepared by state-certified or state-licensed
appraisers for all federally related transactions (FRTs)
10 and requiring
the agencies to issue regulations relating to such appraisals.
11 Congress expanded title XI and adopted new
provisions relating to appraisals in the Dodd-Frank Act after the
2008 financial crisis.
Q2. What regulations are applicable to appraisal and evaluation programs?
A2. The agencies have issued appraisal
regulations as required by title XI for the performance of real estate
appraisals in connection with FRTs. These regulations prescribe which
real estate-related financial transactions require the services of
an appraiser, identify which categories of FRTs must be appraised
by a state-certified appraiser and which by a state-licensed appraiser,
and prescribe minimum standards for the performance of real estate
appraisals in connection with FRTs.
12Financial institutions should also be aware of and comply
with two additional rules that apply specifically to residential mortgage
loans secured by a consumer’s principal dwelling—the HPML
appraisal rule and the IFR on valuation independence.
13 In addition, the agencies adopted
regulations regarding real estate lending standards pursuant to section
304 of the Federal Deposit Improvement Act of 1991, which requires
banks and federal savings associations to adopt and maintain written
policies that establish appropriate limits and standards for extensions
of credit that are secured by real estate.
14The
Interagency Guidelines for Real Estate Lending
Policies,
15 which were
promulgated as an appendix to the real estate lending standards, were
issued to assist financial institutions in formulating and maintaining
appropriate real estate lending policies in accordance with the regulations.
The agencies’ real estate lending standards provide that each
financial institution’s written policies must be consistent
with safe and sound lending practices, and must ensure that the financial
institution operates within limits and according to standards that
are reviewed and approved by the financial institution’s board
of directors.
Q3. What types of transactions
require an appraisal?
A3. The agencies’
title XI appraisal regulations require an appraisal performed by a
state-certified or state-licensed appraiser for all FRTs.
16 All real estate-related financial transactions engaged in by
financial institutions are FRTs unless the transactions are exempt
from the appraisal requirements of the appraisal regulations.
17The agencies’ title XI appraisal regulations require
an evaluation that is consistent with safe and sound banking practices
for certain exempt transactions.
18 The title XI appraisal regulations apply to both commercial
and residential transactions; however, for financial institutions
the threshold above which an appraisal is required is different for
residential transactions, commercial real estate transactions, and
qualifying business loans.
19As discussed in the valuation guidelines, a financial
institution’s appraisal policy and practices may differ by transaction
type. The financial institution should consider the type and complexity
of the transaction when ordering appraisals, selecting appraisers,
and reviewing appraisals.
20 Moreover,
for all lending activity, a financial institution should ensure that
independence is maintained when ordering appraisals, selecting appraisers,
and reviewing appraisals.
21Q4. What is the purpose of the valuation guidelines, and
do all financial institutions’ valuation programs have to meet
every aspect of the valuation guidelines?
A4. The valuation guidelines are not regulations
and do not prescribe a set of requirements that financial institutions
must meet, nor do they represent a checklist or a “one size
fits all” approach to supervising financial institutions. Instead,
the valuation guidelines describe a framework to assist financial
institutions in complying with the agencies’ appraisal regulations
and real estate lending standards.
A financial institution’s valuation program should
be commensurate with the complexity and nature of its real estate
lending activities, risk profile, and business model, and must comply
with applicable laws and regulations. For example, a financial institution
that engages primarily in owner-occupied real estate lending in its
local market area should tailor its valuation program to reflect the
size and nature of the loans and collateral. In contrast, a financial
institution that engages in significant commercial real estate lending
or large acquisition, development, and construction (ADC) projects
should tailor its valuation program for these types of higher risk
transactions.
Q5. Should a financial institution
review all appraisals and evaluations?
A5. As
part of the credit approval process and prior to making a final credit
decision, a financial institution should review appraisals and evaluations
to confirm that they comply with the agencies’ appraisal regulations
and the financial institution’s internal policies.
Reviewers should be independent
of the transaction and have no direct or indirect interest in the
property or transaction, and be independent of and insulated from
any influence by loan production staff. Additionally, as reflected
in supervisory guidance, the reviews should confirm that an appraisal
or evaluation contains sufficient information and analysis to support
the market value conclusion and the decision to engage in the transaction.
The depth of the review should be commensurate with the
risk of the transaction. Valuations supporting lower risk transactions
may warrant a less robust review, while valuations supporting higher
risk transactions with complex or specialized collateral, such as
large ADC projects, may warrant a more robust review.
22Q6. What cost-effective actions can a smaller financial institution take
to implement an appraisal and evaluation review program that meets
the standards for independence in the agencies’ appraisal regulations?
A6. A small financial institution with limited
staff should implement practical safeguards for reviewing appraisals
and evaluations when absolute lines of separation between the collateral
valuation program and loan production process cannot be achieved.
23 Small financial institutions could have loan
officers, other employees, or directors review an appraisal or evaluation,
but those individuals should be appropriately qualified, independent
of the transaction, and should abstain from any vote or approval related
to such loans.
To the extent that a financial institution is involved
in real estate transactions that are complex, out of market, or otherwise
exhibit elevated risk, management should assess the level of in-house
expertise available to review appraisals or evaluations associated
with these types of transactions. If the expertise is not available
in-house, the financial institution may find it appropriate to evaluate
alternatives, such as outsourcing of the review process, for ensuring
that effective and independent reviews are performed.
For transactions subject to the
IFR on valuation independence, institutions must comply with the provisions
of that rule.
24Q7. When is it appropriate for
financial institutions to use the “abundance of caution”
exemption?
A7. The abundance of caution
exemption
25 may
only be used in those transactions where a borrower qualifies for
an extension of credit based on the strength of the associated cash
flow or non-real estate collateral, and knowledge of the market value
of the real estate collateral taken as security for the transaction
is unnecessary in making the credit decision. The financial institution’s
credit analysis should clearly document and verify that the credit
decision was well supported by repayment sources other than real estate
collateral. For transactions that meet the abundance of caution exemption,
neither an appraisal nor an evaluation is required.
26 Refer to the following
examples.
Example
1: Commercial and Industrial Cash Flow Loan. A financial
institution extends a commercial business line of credit to a heating
and cooling repair business. The financial institution holds the owner’s
personal guaranty and has taken a security interest in an investment
property owned by the guarantor. The financial institution’s
credit analysis determines that cash flow from business operations
has generated sufficient debt service coverage. The guarantor’s
global cash flow also reflects sufficient debt service coverage, and
the guarantor maintains a strong liquid asset position. All of the
borrower’s other credit attributes are satisfactory. The financial
institution’s credit analysis has verified and documented that
the financial institution would have made the loan without knowledge
of the market value of the real estate. Based on the borrower’s
overall creditworthiness and the sufficiency of cash flow generated
by the business to cover the debt service on the loan, the security
interest in the real estate can be considered an abundance of caution.
Example 2: Loan
Secured by Other Collateral. A financial institution extends a
term loan to a construction company to purchase equipment used in
the construction business and secures the loan with a lien on the
equipment and the borrower’s headquarters building.
27 The real estate lien can be considered an abundance
of caution if, for example, the value of the equipment adequately
secures the outstanding balance of the loan and the borrower’s
global cash flow provides for repayment of the loan. In such a case,
the cash flow from the operation of the business is the primary source
of repayment for the loan and the equipment is the secondary source
of repayment. All of the borrower’s other credit attributes
are satisfactory. The financial institution’s credit analysis
verified and documented that the financial institution would have
made the loan without knowledge of the market value of the real estate.
Prior to making a final commitment to the borrower, the
financial institution should document and retain in the credit file
the analysis performed to verify that the abundance of caution exemption
has been appropriately applied. If the operating performance or financial
condition of the borrower subsequently deteriorates and the financial
institution determines that the real estate will be relied upon as
a repayment source, an appraisal should then be obtained, unless another
exemption applies.
Q8. Does a financial
institution always need to obtain a new appraisal or evaluation for
a renewal of an existing loan at the financial institution, particularly
where the property is located in a market that has not changed materially?
A8. No. A financial institution may use
an existing appraisal or evaluation to support the renewal of an existing
loan at the financial institution when the market value conclusion
within the appraisal or evaluation remains valid.
Validating the market value conclusion of the
real property is a fact-specific determination, based on market conditions,
property condition, and nature of the transaction. As described in
the valuation guidelines,
28 a financial
institution should establish criteria for
validating an existing appraisal
or evaluation in its written valuation policies. The criteria should
consider factors that could impact the market value conclusion in
the existing appraisal or evaluation, such as: the volatility of the
local market; changes in terms and availability of financing; natural
disasters; supply of competing properties; improvements to the subject
or competing properties; lack of maintenance on the subject or competing
properties; changes in underlying economic and market assumptions,
such as capitalization rates and lease terms; changes in zoning, building
materials, or technology; environmental contamination; and the passage
of time.
29 Regarding this last factor,
there is no provision in the agencies’ appraisal regulations
specifying the useful life of an appraisal or evaluation.
The financial institution must also
consider whether an appraisal or an evaluation is required for the
transaction. The agencies’ appraisal regulations require an
evaluation for transactions involving an existing extension of credit
at the financial institution when either (1) there has been no obvious
and material change in market conditions or physical aspects of the
property that threatens the adequacy of the real estate collateral
protection after the transaction, even with the advancement of new
money, or (2) there is no advancement of new money, other than funds
necessary to cover reasonable closing costs.
30 Alternatively,
a financial institution could choose to obtain an appraisal, although
only an evaluation is required. For example, an institution may choose
to obtain an appraisal to achieve a higher level of risk management
or to conform to internal policies.
In the context of renewal transactions, whether there
has been a material change in market conditions may affect both whether
an appraisal or evaluation is required and whether an existing appraisal
or evaluation remains valid. A financial institution can assess whether
there has been a “material change” in market conditions
by considering the factors detailed above for validating an existing
appraisal or evaluation. When there has been an obvious and material
change in market conditions or physical aspects of the property that
threatens the adequacy of the real estate collateral protection, the
existing appraisal or evaluation is no longer valid. In such situations,
if no new money is advanced, a financial institution must obtain a
new evaluation, or may choose to satisfy the agencies’ appraisal
regulations by obtaining a new appraisal.
However, if new money is advanced, a financial institution
must obtain a new appraisal unless another exemption from the appraisal
requirement applies. Refer to the following examples.
31 Example 1. A financial institution originated a revolving line
of credit for a specified term, and at the end of the term, renews
the line for another specified term with no new money advanced. The
financial institution’s credit analysis concluded that there
had been a material change in market conditions or the physical aspects
of the property that threatened the adequacy of the real estate collateral
protection. Based on this conclusion, the financial institution could
not validate an existing appraisal or evaluation to support the transaction.
The agencies’ appraisal regulations would require an evaluation,
rather than an appraisal, because no new money was advanced, even
though the financial institution concluded there is a threat to the
adequacy of the collateral protection. Alternatively, the financial
institution could choose to obtain a new appraisal, although only
an evaluation would be required.
Example 2. A financial institution originated an ADC loan and,
at maturity, renewed the loan and advanced new money that exceeded
the original credit commitment. The financial institution’s
credit analysis concluded that a material change in market conditions
or the physical aspects of the property threatened the adequacy
of the real estate collateral protection. Based on this conclusion,
the financial institution could not validate an existing appraisal
or evaluation to support the transaction. The agencies’ appraisal
regulations would require an appraisal to support the transaction,
because the financial institution advanced new money and concluded
there is a threat to the adequacy of the real estate collateral protection.
Example 3. Consider
the same scenario in example 2 above; however, the financial institution’s
credit analysis concluded that there had not been a material change
in market conditions or physical aspects of the property that threatened
the adequacy of the real estate collateral protection. Based on this
conclusion, the agencies’ appraisal regulations would require
an appropriate evaluation to support the transaction. The financial
institution could use a valid existing evaluation or appraisal, or
could choose to obtain a new evaluation to support the transaction.
Alternatively, a financial institution could choose to obtain a new
appraisal, but a new appraisal would not be required.
Example 4. A financial
institution originated a balloon mortgage secured by a single-family
residential property. At the end of the term, the financial institution
renews the balance of the mortgage for another term, with no new money
advanced. The financial institution’s credit analysis concluded
that there had not been a material change in market conditions or
the physical aspects of the property that threatened the adequacy
of the real estate collateral protection. Based on this conclusion,
the agencies’ appraisal regulations would require the financial
institution to obtain an appropriate evaluation to support the transaction.
The financial institution could use a valid existing evaluation or
appraisal, or could choose to obtain a new evaluation to support the
transaction. Alternatively, the financial institution could choose
to obtain a new appraisal, although a new appraisal would not be required.
Financial institutions should consider the risk posed
by transactions that do not require new appraisals or evaluations
and may consider obtaining a new appraisal or evaluation based on
the financial institution’s risk assessment.
32 In addition, financial institutions making HPMLs must ensure compliance
with the HPML appraisal rule.
33Q9. When engaging
in a renewal transaction, how can a financial institution document
the validity of an existing appraisal or evaluation?
A9. A financial institution should document the assessment
of the validity of an existing appraisal or evaluation in the credit
file. The documentation should detail the facts and analysis to support
the financial institution’s determination that the market value
conclusion of the collateral can be used to support the subsequent
transaction. The level of detail for the assessment of the validity
of appraisals or evaluations in the credit file could vary in accordance
with the transaction type. For example, documentation for a renewal
of a residential mortgage loan may be less detailed than for a residential
tract development loan or commercial property.
Q10. Are real estate transactions secured by farmland eligible
for the $1 million exemption for certain business loans?
A10. Yes, real estate transactions secured by farmland
are eligible for the $1 million exemption if they meet the regulatory
requirements. The agencies appraisal regulations establish a $1 million
threshold above which appraisals are required for business loans that
are not dependent on the sale of, or rental income derived from, real
estate as the primary source of repayment (qualifying business loans).
34 A loan secured by farmland could be treated
as a qualifying business loan and be eligible for the corresponding
$1 million threshold if repayment is primarily from the proceeds from
the farm business (for example, sale of crops and related payments).
However, a loan secured by farmland whose repayment is
primarily from rental income from renting or leasing the farmland
to a non-affiliated entity would not be eligible for the qualifying
business loan threshold.
35 Transactions secured by multiple
farmland properties that are owned by one or more affiliated limited
liability companies could meet the qualifying business loan exemption,
if they meet the source of repayment requirements provided in the
appraisal regulations.
36Q11. What information
should be contained in an evaluation?
A11. The
agencies’ appraisal regulations require evaluations to be appropriate
for the transaction and consistent with safe and sound banking practices,
but do not specifically define the content to support the evaluation.
37 As explained in the valuation guidelines,
38 an evaluation
should contain sufficient information detailing the analysis, assumptions,
and conclusions to support the credit decision. An evaluation’s
content should be documented in the credit file or reproducible. An
evaluation should include sufficient information to identify the property,
address the property’s actual physical condition, and detail
the analysis, assumptions, and conclusions that support the market
value conclusion. The level of detail documented in the evaluation
should reflect the risk in the transaction. For example, in general,
an evaluation for most residential properties could be less detailed
than evaluations for commercial properties.
When developing policies and procedures regarding supplemental
information that a financial institution will require to develop an
evaluation, the financial institution should be aware that some valuation
assignments, such as for properties in rural areas or non-disclosure
states
39 or properties that
are not sufficiently similar to other properties in the local market,
may be more challenging to value due to a lack of comparable sales
data. Although the sales comparison approach is the most used valuation
method, in areas where there have been few, if any, recent comparable
sales of similar properties in reasonable proximity to the subject
property, the person who performs an evaluation may consider alternative
valuation methods and other information for developing an evaluation
and supporting a market value conclusion.
For example, the cost approach to valuing real property
might be an appropriate valuation approach, particularly if the property
is newer construction. Similarly, for an income producing or rental
property, the income approach could be appropriate to support a market
value conclusion in an evaluation.
40Q12. When would a financial
institution be able to use a tax assessment valuation (TAV) in the
development of an evaluation?
A12. A
financial institution could use a TAV as a component in the development
of an evaluation when it demonstrates a valid correlation between
the TAV and the market value of the property by:
- Determining and documenting how the tax jurisdiction
calculates the TAV and how frequently property revaluations occur;
- Performing an analysis to determine the relationship
between the TAV and market values for properties within a tax jurisdiction;
and
- Testing and documenting how TAVs correlate to market
value based on contemporaneous sales at the time of assessment and
revalidating whether the correlation remains stable as of the effective
date of the evaluation.
A TAV with a valid correlation analysis could be used,
along with other supporting information appropriate to the type of
transaction, to prepare an evaluation and develop a market value conclusion.
A TAV is not, in and of itself, an alternative to an evaluation. As
with all evaluations, transactions that rely heavily on a TAV as part
of the evaluation process should describe and document the method(s)
the financial institution used to confirm the property’s
actual physical condition and the extent to which an inspection was
performed.
Financial institutions should establish policies and procedures
that specify the supplemental information that is required to develop
an evaluation supported by a TAV.
41 A financial
institution should be able to demonstrate that such an evaluation
provides a credible market value conclusion and supports the financial
institution’s decision to enter into a transaction.
Q13. If a financial institution engages in a FRT
with an intermediate lender, such as a warehouse lender, in which
the financial institution extends credit to the intermediate lender
collateralized by the intermediate lender’s real estate-related
transactions with third parties, can the financial institution accept
appraisals ordered by the intermediate lender to support the value
of the underlying real estate collateral?
A13. Yes,
the financial institution may accept the appraisals from the intermediate
lender, provided the intermediate lender is a financial services institution,
42 the appraiser
has no direct or indirect interest in the property or the transaction,
and the other requirements of the appraisal regulations are fulfilled.
43Q14. Can a financial institution
approve a residential or commercial real estate loan subject to receipt
and review of an appraisal or evaluation, or must the appraisal or
evaluation be obtained and reviewed prior to making the final decision?
A14. A financial institution may grant
conditional approvals to prospective borrowers before obtaining an
appraisal or evaluation. However, a final credit decision or action
should only occur after the financial institution receives, reviews,
and accepts the appraisal or evaluation.
Q15. The work-out plan on a problem loan calls for a financial institution
to receive an assignment of a note secured by a deed of trust on a
different property. Is this transaction considered a real-estate-related
financial transaction and is an appraisal required on the collateral
property?
A15. Yes, this transaction is
considered a real-estate-related financial transaction. The agencies’
appraisal regulations require an evaluation in certain loan workout
situations.
44 In such situations, although only an evaluation would be required,
the financial institution could choose to obtain a new appraisal.
Q16.
A financial institution plans to make a
construction loan to a tract developer to build multiple homes.45 Is it permissible for the developer to order appraisals
on the properties to support the construction loan request? Could
the developer select an appraiser from the lender’s approved
appraiser list and in turn submit the appraiser’s name to potential
permanent lenders?A16. No, the financial
institution may not accept a borrower-ordered appraisal and may not
allow the borrower to select an appraiser from its approved appraiser
list.
46Q17. Are appraisers required to
disclose whether they have been engaged to appraise a given property
in the past?
A17. The agencies’
appraisal regulations do not specifically require that the financial
institution obtain information from appraisers as to whether an appraiser
has previously appraised a given property. However, the regulations
do require that all appraisals conform to Uniform Standards of Professional
Appraisal Practice
(USPAP), and USPAP requires that an appraiser
disclose any services regarding a given property performed by the
appraiser within the three-year period immediately preceding acceptance
of an assignment, as an appraiser or in any other capacity.
47 The agencies’
appraisal regulations also require a financial institution, when engaging
a fee appraiser, to confirm that the appraiser has no direct or indirect
interest, financial or otherwise, in the property or the transaction.
The financial institution should ask relevant questions of an appraiser
to confirm that the appraiser is independent of the transaction and
capable of rendering an unbiased opinion.
48Q18. Can a staff appraiser or an appraisal company affiliated with the
financial institution be considered independent, since the financial
institution compensates them?
A18. Yes,
if a staff appraiser prepares an appraisal, that appraiser must be
independent of the loan production function and not involved in the
approval of the transaction.
49 Staff appraisers must not have any direct or indirect interest
in the property or transaction.
50 Likewise, when fee appraisers from an affiliated
appraisal company prepare appraisals, such fee appraisers must not
have any direct or indirect interest in the property or transaction.
51 For transactions subject to the IFR on valuation
independence, institutions must refer to that rule for the circumstances
under which a staff appraiser or appraisal company affiliated with
the creditor would not be considered to have a conflict of interest
based on the person’s employment or affiliate relationship with
the creditor.
52Q19. May a financial institution
accept an appraisal prepared by an appraiser who was engaged by the
loan broker for the transaction?
A19. The
agencies’ appraisal regulations allow a financial institution
to accept an appraisal prepared by an appraiser engaged by another
financial services institution, including a loan broker,
53 as long as the appraiser
has no direct or indirect interest, financial or otherwise, in the
property or transaction and the appraisal conforms to the requirements
of the regulations and is otherwise acceptable. Financial institutions
should review broker-ordered appraisals thoroughly to confirm that
the appraisal complies with the regulations and meets the quality
standards required by the financial institution’s appraisal
policies. For transactions subject to the IFR on valuation independence,
institutions must refer to that rule for the circumstances under which
the loan broker ordering the appraisal would not be considered to
have a conflict of interest as a result of performing multiple settlement
services for the transaction.
54Q20. May an appraisal be routed from
one financial institution to another financial institution via the
borrower?
A20. A financial institution
should not accept an appraisal from the borrower. However, the borrower
can inform the financial institution that there is an existing appraisal.
Prior to accepting an appraisal from another financial institution,
the institution should confirm that the appraiser is independent of
the transaction, the appraiser was engaged directly by the other financial
institution, and the appraisal conforms to the agencies’ appraisal
regulations and is otherwise acceptable.
55Q21. May an appraiser
deliver an appraisal report to more than one lender assuming the appraisal
has been ordered by one of the lenders?
A21. The
agencies’ appraisal regulations do not address whether an appraiser
can deliver an appraisal report to more than one lender. The case
may depend upon the provisions of the engagement letter. For example,
the lender may specify in the engagement letter that the appraisal
may be provided to another financial institution if the lender decides
not to go for
ward on the loan. In the case of a syndicated
loan, a lead lender is usually responsible for engaging the appraiser
and providing copies of the appraisal to the other participating financial
institutions. With regard to standards of confidentiality, USPAP directs
an appraiser to be aware of, and comply with, all confidentiality
and privacy laws and regulations applicable in an assignment.
56Q22. May a financial institution
accept a transferred appraisal prepared by an appraiser who had an
affiliated business relationship with the financial services institution
that originally ordered the appraisal?
A22. The
affiliated business relationship between the financial services institution
and the fee appraiser does not violate the independence requirement
of the agencies’ appraisal regulations, provided the fee appraiser
has no direct or indirect interest, financial or otherwise, in the
property or the transaction. The financial institution receiving the
appraisal should confirm that the appraiser is independent of the
transaction and that the appraisal conforms to the agencies’
appraisal regulations and is otherwise acceptable.
57 For transactions subject to the IFR on valuation
independence or the HPML appraisal rule, institutions should confirm
that the appraisal complies with those rules.
Q23. How can a financial institution confirm appraiser independence
when accepting an appraisal prepared for another financial services
institution?
A23. Documentation (such
as an engagement letter) should be available to indicate that the
financial services institution (not the borrower) ordered the appraisal
and that the appraiser has no direct or indirect interest, financial
or otherwise, in the property or the transaction. The original lender’s
engagement letter to the appraiser should be included in the credit
file.
58 For transactions subject
to the IFR on valuation independence, an institution’s documentation
should be available to indicate that the requirements of that rule
are met.
Frequently asked questions of October
16, 2018 (SR-18-9).
