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Subject: Sound Practices for Appraisals and Evaluations
Date: December 10, 2010
To: Chief Executive Officers of all National Banks, Department and Division Heads, and All Examining Personnel
Description: Interagency Appraisal and Evaluation Guidelines
The guidance attached to this bulletin continues to apply to federal savings associations.
The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and the National Credit Union Administration have adopted the attached Interagency Appraisal and Evaluation Guidelines (guidelines), which replace the 1994 guidelines. These guidelines describe the elements of a sound program for conducting appraisals and evaluations and address supervisory matters related to real estate appraisals and evaluations used to support real estate-related financial transactions. The guidelines also provide guidance to OCC examining personnel and national banks on prudent appraisal and evaluation policies, procedures, practices, and standards.
Reliable appraisals and evaluations, which national banks use to determine the market value of collateral for mortgages and other loans, are an integral part of banks’ real estate lending activities. A bank bases credit decisions primarily on the borrower’s ability to repay the loan, but a bank also considers the value of real estate collateral as a secondary source of repayment.
The guidelines build on the existing federal regulatory framework and reaffirm longstanding supervisory expectations. They also incorporate the agencies’ recent supervisory issuances and, in response to advances in information technology, clarify standards for the industry’s appropriate use of analytical methods and technological tools in developing evaluations.
The guidelines emphasize that national banks are responsible for selecting appraisers and people performing evaluations based on their competence, experience, and knowledge of the market and type of property being valued. Banks should have independent programs for obtaining property values, as well as standards for appropriate communications and information-sharing with appraisers and people performing evaluations.
In promoting sound credit decisions, the guidelines emphasize the importance of banks maintaining strong internal controls to ensure reliable appraisals and evaluations. Banks are also responsible for monitoring and periodically updating valuations of collateral for existing real estate loans and for transactions, such as modifications and workouts, according to the guidelines.
The Dodd–Frank Wall Street Financial Reform and Consumer Protection Act of 2010 underscores the importance of sound real estate lending decisions; revisions to the guidelines may be necessary after regulations are adopted to implement the act.
National banks should review their appraisal and evaluation programs to ensure they are consistent with the guidelines.
For further information, contact Robert Parson, Real Estate Specialist, at (202) 874-5411 or Darrin Benhart, Director for Credit and Market Risk, at (202) 874-4564.