Our underwriters are independent from our loan officers. The underwriters make the credit decision for all loans. My question is based on the indepence issue, can the underwriter making a credit decision be the same one who reviews the appraisal.

Your underwriters approve the loan therefore they are part of the loan production staff.

http://www.fdic.gov/news/news/financial/2005/fil2005a.html

See question #3.

Dan,

You answer relates to the ordering of appraisals, not the review. I think I understand Opie's question in a different light. Look at number 19 of the same FRB Supervisory Letter and it mentions a "compliance review" of every appraisal obtained. In many FIs, it is the lender or underwriter doing this compliance review. I think that is what Opie is alluding to in his question: Is it okay if the approving underwriter review the appraisal?

At my last employer, we worked very hard to get our appraisal process in compliance with the Fed and a review by the loan officer was part of this process. We did not utilize underwriters, the loan officer was the approving party.

Thoughts or comments?

Opie, did I understand it right?

MJ

Question #3:

3. Who should be considered the loan production staff for purposes of achieving appraiser independence? Could loan production staff select an appraiser?

Answer: The loan production staff consists of those responsible for generating loan volume or approving loans, as well as their subordinates. This would include any employee whose compensation is based on loan volume. Employees responsible for the credit administration function or credit risk management are not considered loan production staff.

Loan production staff should not select appraisers. However, in a small or rural institution or branch, the only individual qualified to analyze the real estate collateral may also be a loan officer, other officer, or director of the institution. To ensure their independence, such lending officials, officers, and directors should abstain from any vote or approval involving loans for which they engaged the appraiser, reviewed the appraisal, or performed an evaluation.


Review can mean a couple of different things. I would hope that any loan officer, underwriter or any person making the credit decision would "review" the appraisal to become familiar with their collateral and its value.

However from the following question in the original post:

. . . can the underwriter making a credit decision be the same one who reviews the appraisal.

That does not appear to be asking the question if it's OK for a review as I just mentioned but rather the compliance review as you mentioned. And IMO they cannot do the compliance review.

From FRB Supervisory Letter SR 94-55, first paragraph under the heading "Program Compliance":

"Loan administration filed should document this compliance review, although a detailed analysis or comprehensive analytical procedures are not required for every appraisal or evaluation. For some loans, the compliance review may be part of the loan officer's overall credit analysis and may take the form of either a narrative or a checklist."

We used a checklist. The procedure was blessed by our Fed contact in Atlanta.

The review I am talking about is more of the checklist variety. It is there to verify the appraisal has all the required information to form a valid decision as to the value. My worry is they are also using this value in underwriting the loan. I guess it would be similar to the underwriter verifying the applicants income.

Shouldn't they be using the value in their credit decision? They will want to limit the loan amount to a percentage of the appraised value based on the property type. It is not uncommon in commercial lending for a RM to seek credit approval for a deal that is "the lesser of $XX or 85% of the appraised value" or something to that effect.