Good Morning,

Sometimes our loan officers perform the in house valuation. Is this permitted? I've been reading the 2010 interagency appraisal guidelines and I'm thinking it is not.

From the guidelines:
"The person selected is independent and has no direct, indirect or prospective interest, financial or otherwise, in the property or the transaction.

And later, "persons providing evaluation services should be independent from the loan production area."

Just wanted to see what other institutions do and what the consensus is. Thanks for your input.

If they have the proper credentials (expertise) to perform evaluations and they are not the loan officer and they have no vote in the approval process they can perform an evaluation.

The key is, outside of the independence issue you cite, are they qualified and can you document they are qualified to perform evaluations?

You are correct. A lender cannot perform appraisal duties on a loan for which he will be the lender. Neither can someone that works for the lender or someone that approved the loan.

Depending on the size of your institution the Guidance also says:

For a small or rural institution or branch, it may not always be possible or practical to separate the collateral valuation program from the loan production process. If absolute lines of independence cannot be achieved, an institution should be able to demonstrate clearly that it has prudent safeguards to isolate its collateral valuation program from influence or interference from the loan production process. In such cases, another loan officer, other officer, or director of the institution may be the only person qualified to analyze the real estate collateral. To ensure their independence, such lending officials, officers, or directors must abstain from any vote or approval involving loans on which they ordered, performed, or reviewed the appraisal or evaluation.

Your institution should have polices/procedures in place that takes all of that into consideration to put the process in place to use what you have to achieve independence.

Edit to add: Too many interuptions. Dan answered before I could "submit".

Thank you both, very helpful. Have a great weekend.

It doesn't say so in the Guidance, but internal auditors should and examiners do look for any evidence of any "you scratch my back and I'll scratch yours" patterns in evaluations or appraisal reviews. The smaller the institution, the harder it may be to avoid the appearance of such reciprocal arrangements. That's when board members may have to be part of the solution.

Is there a reference to which I can point that says what expertise or traning a loan officer (or other staff member) has to have to be considered 'qualified' to perform an evaluation?

My experience has been that it is up to the bank to determine how much training is needed for staff conducting various appraisal and evaluation related tasks (conducting evaluation, reviewing appraisals, etc.) The banks look for appropriate courses and assign based upon job duties.

And then of course your regulator will tell you if you got it right! Of course any effort to do something is better than doing nothing at all.