The 2010 Inter-Agency Appraisal and Evaluation Guidelines
New Regulations were announced in 2010. These regulations are called the 2010 Inter-Agency Appraisal & Evaluation Guidelines or ‘IAG’. These new regulations don’t just reaffirm the separation of the appraisal order management from the Loan Production staff, but emphasize the importance of an Appraisal Review Process.
Dodd-Frank Act, Federal Reserve Interim Final Rule
Since July of 2010, when the Dodd-Frank Act was signed by the President into law, appraisal management companies have been more in the news. Many community bankers really hadn’t heard of Appraisal Management Companies (AMC). These companies have a low profile to the general public due to only working for financial institutions.
The Dodd-Frank Act and the Federal Reserve Interim Final Rule set up a Consumer Complaint Hotline, which includes complaints made against the mortgage lending process. In addition paying the local appraiser the ‘customary and reasonable’ appraisal fee has become law, with the community lender responsible if their vendor (AMC) does not comply.
1. Recent Regulatory Changes
- Home Valuation Code of Conduct (HVCC) (October 2010 Sunset)
- HUD FHA Mortgagee Letter 2009-28
- Dodd-Frank Act
- Fannie Mae Announcement SEL-2010-14
- Freddie Mac Bulletin 2010-23 New Guide Exhibit 35
- Federal Reserve Board Interim Final Rule
- 2010 Interagency Appraisal and Evaluation Guidelines (IAG)
The most important regulation to the Community Bank is the 2010 Interagency Appraisal Guidelines.
These guidelines radically change how a bank:
- manages their appraisal and evaluation ordering process.
- makes the bank responsible for the quality of the appraisal and evaluation.
- and directs examination teams to specifically review appraisals to ensure Appraisal Standards are met.
(For a complete discussion of all the above laws and regulations, go to the "New Regulatory Guidelines" tab above).
2. How will the 2010 Interagency Appraisal Guidelines (IAG) affect me?
Here are excerpts from the IAG that are clear to its intent and purpose:
IV. Appraisal and Evaluation Program (Pages 2 & 3)
The program should:
- Provide for the independence of the persons ordering, performing, and reviewing appraisals or evaluations.
- Establish selection criteria and procedures to evaluate and monitor the ongoing performance of appraisers and persons who perform evaluations.
- Ensure that appraisals comply with the Agencies' appraisal regulations and are consistent with supervisory guidance.
- Ensure that appraisals and evaluations contain sufficient information to support the credit decision.
- Provide for the receipt and review of the appraisal or evaluation report in a timely manner to facilitate the credit decision.
V. Independence of the Appraisal and Evaluation Program (Page 3)
For both appraisal and evaluation functions, an institution should maintain standards of independence...for all of its real estate lending activity. The collateral valuation program...should be isolated from influence by the institution's loan production staff. An institution should establish reporting lines independent of loan production for staff who administer the institution's collateral valuation program, including the ordering, reviewing, and acceptance of appraisals and evaluations.
VIII. Minimum Appraisal Standards (Pages 7 & 8)
The Agencies' appraisal regulations include minimum standards for the preparation of an appraisal....The appraisal must:
Conform to generally accepted appraisal standards as evidenced by the USPAP promulgated by the Appraisal Standards Board of the Appraisal Foundation unless principles of safe and sound banking require compliance with stricter standards....Further, the appraisal must contain an opinion of market value as defined in the Agencies’ appraisal regulations.
Be written and contain sufficient information and analysis to support the institution's decision to engage in the transaction.
IX. Appraisal Development (Page 10)
The Agencies’ appraisal regulations require appraisals for federally related transactions to comply with the requirements in USPAP...
While an appraiser must comply with USPAP and establish the scope of work in an appraisal assignment, an institution is responsible for obtaining an appraisal that contains sufficient information and analysis to support its decision to engage in the transaction.
XV. Reviewing Appraisals and Evaluations (Page 15)
As part of the credit approval process and prior to a final credit decision, an institution should review appraisals and evaluations to ensure that they comply with the Agencies’ appraisal regulations and are consistent with supervisory guidance and its own internal policies. This review also should ensure that an appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction.
An institution may use the review findings to monitor and evaluate the competency and ongoing performance of appraisers and persons who perform evaluations.