In light of the new appraisal guidelines issued back in December, what are your banks doing in terms of appraisals and evaluations? What decisions has your bank made regarding the following questions:

1) Do you allow anyone in-house to still do evaluations (i.e. loan officers)? If yes, how do you determine they are experienced enough to do them? Who are you allowing to do them?

2) Are you going to be using an appraisal management company? If yes, what exactly will they be doing for you?

3) What about your small and/or rural branches if you are a larger bank - who is doing the evaluation?

4) Who is reviewing the appraisals and evaluations?

5) Who do you have ordering appraisals?

6) Are you having any issues in the more rural areas (i.e. bigger bank, small rural branch with only one loan officer)?

7) Do you use AVMs? How have you changed how you use them in light of the new guidance? Same thing with tax valuations.


THANK YOU VERY MUCH for any input you might have.

We've never done any in-house evaluations. One department orders all appraisals. Loan officers are not allowed to order.

You are reading my mind! I feel like the Lorax trying to start a conversation about this. I have a newly-marked up copy of our appraisal policy and a heavily read and highlighted copy of the guidelines - - - yet no one that wants to discuss.

1. Pre-guidelines we have an in-house guy doing evals. They are good and meet guidelines. Problem: He’s in collections and the evals are reviewed at loan committee. I hate to lose these evals, but I don’t see how we can keep them. We are fortunate to have someone experienced.
2. No.
3. Same eval…they come thru the main bank. If we move to a third party eval, don’t know what they will do. I’m looking for our policy/procedures to outline when we will do what level of inspection. Now, in our small/rural branches, who will do that? Pre-guidelines, it may have been the loan officer that did the “drive-by” to get photos for our eval guy. Now?
4. Residential appraisals are reviewed by underwriting in that department. Commercial appraisals are reviewed by risk management. Although I have never thought that made sense (we’ve always done it that way!) I think it is in the spirit of the new guidelines and should not be changed. However, we are in the process of finally moving the commercial reviews back to credit admin. (I think we should halt that, but I’m just the Lorax.) Another bank in our area is keeping the reviews in credit and splitting credit from lending. As it stands now for us, the head of credit admin works for the head of commercial lending.
The review of the eval is much less than the review of a commercial appraisal. We do not use the big checklist, etc. I think that given the risk-based nature of the guidelines, this should still be OK. As an auditor, I’m looking for a more thorough review of 1-4 res appraisals and increasingly complicated reviews of the commercial RE. But again, pre-guidelines, we had these going to loan committee (read room full of people in the loan production process.)
5. They are all ordered by someone in credit admin that is distinct from the loan. Residential is still following the HVCC and having someone completely removed from the loan process order those appraisals. It’s working for them.
6. They all come thru our larger/metro branches for ordering and review. So far that works well.
7. Yes. And I don’t know. They are always used as the basis for an eval. I’m more comfortable with the evals based on tax value as I think we have enough correlation to sales rice right there on the screen print.

Other questions: What about “prudent portfolio monitoring?”

Piggy back question:

Is anyone starting now to provide the appraisal at least 3 days before closing?

The recent BOL webinar encourages compliance early.

We have credit analysts who both order and review appraisals. They will now be reviewing evaluations as well. We are sending them to a one day TBA seminar (I think San Antonio) in March that covers how to appropriately review an appraisal report.

Not here. Waiting for that to be in a Reg. There's already too much change going on that's disrupting our lending staffs comfort levels with processes. I'm not going to push an issue that isn't yet required.

Our residential ones are going out three days prior. The procedure is in place for secondary markets and it's easier to have just the one procedure.

Any others out there wtih firm decisions made yet to address the guidance?

We currently have lenders doing evaluations. Previously, a lender could do it even on his/her deal, but only if a policy exception officer (SVP or higher) signed off on it with that loan officer. We've since told loan officers they can't do their own even with that sign off. It's making it VERY difficult for our small/rural branches. Often, they did evaluations using the tax valuation only since they don't have access to comp data. We do have one market (our main one) where one person has been doing the majority of the evaluations and he was an appraiser before he came to the bank quite a few years ago. But, he is a lender and he reports to the Chief Credit Officer.

Loan officers also did their own appraisal reviews (reviewing appraisal done by 3rd party).

The processors order the appraisal from a rotating list. Can they still be the ones to do that?

Concerns with the new guidance - who is really qualified to do evalutions and reviews, who can even do them now, who can really order appraisals, ordering, what supporting docs (other than just picture of property) should go with the AVM, etc. We have two camps - one camp taking very strict reading of the guidelines, and the other taking a more liberal reading. Trying to come to a happy middle road.

We order appraisals through an independent Appraisal Management Company. The Loan Originators are allowed to submit the request through an automated system to the company. then the AMC chooses the appraiser, reviews the final result and delivers it to the LO. The Appraisal is reviewed for investor quality by the Underwriter.

Will the HVCC notice go away or change name? Also,will the words "may recieve" change to "Will recieve"?

Small Bank here, $225-250 million in assets. Lenders perform commercial evaluations, branch managers perform residential evaluations. All are reviewed/signed-off by the Sr. Credit Admn. Officer (who reports to the Board) prior to closing. Retail appraisals are ordered by an underwritier, based upon a revolving list. Commercial appraisals are ordered by a Lending assistant, determined by bidding process. Not sure if the regulators will have a problem with this, we've been doing it this way for many years and frankly don't have the staff to achieve any additional independence. No plans to change what we are doing.

"Lenders perform commercial evaluations, branch managers perform residential evaluations."

You need to read the new guidelines as evaluations have the same independence requirements as appraisals.

I would also be concerned with the expertise of those individuals.

Randy, their being a small bank, so long as those folks are not involved in that particular loan, would you still question their independence? The guidance seems clear to me on this. Or, perhaps you are simply cautioning them that they make sure they are doing it this way (according to the guidelines)

On the same topic, I received an industry publication yesterday that worded the independence section (large bank) differently than I recalled, and I have to go back and research (Reg Z rules), but they said the following under conflicts of interest:

The preson preparing a valuation or performing valuation management functions reports to a person who is part of the creditor's loan production function AND whose compensations is based on the closing of the transaction to which the valuation relates.

This says to me that an uninvolved loan officer could do a valuation and it not be a conflict. I didn't read it this way when I first read the Z rules.

Comment?

It's in 226.42(d)(2) where it talks about conflicts of interest:
(2) Employees and affiliates of creditors with assets of more than $250 million for both of the past two calendar years. For any covered transaction in which the creditor had assets of more than $250 million as of December 31st for both of the past two calendar years, a person subject to paragraph (d)(1)(i) of this section who is employed by or affiliated with the creditor does not have a conflict of interest in violation of paragraph (d)(1)(i) of this section based on the person’s employment or affiliate relationship with the creditor if:

(i) The compensation of the person preparing a valuation or performing valuation management functions is not based on the value arrived at in any valuation;

(ii) The person preparing a valuation or performing valuation management functions reports to a person who is not part of the creditor’s loan production function, as defined in paragraph (d)(5)(i) of this section, and whose compensation is not based on the closing of the transaction to which the valuation relates; and

(iii) No employee, officer or director in the creditor’s loan production function, as defined in paragraph (d)(5)(i) of this section, is directly or indirectly involved in selecting, retaining, recommending or influencing the selection of the person to prepare a valuation or perform valuation management functions, or to be included in or excluded from a list of approved persons who prepare valuations or perform valuation management functions

Thanks RL but I have read the update, and maybe you should read the second paragraph under section 'V. Independence of the Appraisal and Evaluation Program'. It clearly states that absolute lines of independence cannot always be achieved, and that safeguards should be in place. Our safeguard is that all evaluations need to be approved/signed-off by the Sr. Credit Admn Officer, who reports to the Board. Also, branch managers have no approval authority and Lenders performing evaluations cannot approve the subject transaction. This has always been acceptable to the OCC in the past, and I don't see a reasonable alternative for our size Bank.

Thanks, Flamingogal..you just saved me some "hunt and peck" time!

I see what's happened. The newsletter changed the context and in doing so, lost the value of the meaning of the second piece of criteria.

I guess I need to point that out to them...it's misleading.

We are a small bank in a rural area and are rarely required to use certified appraisals. We have been using a Brokers Opinion as our evaluation. The guidelines state repeatedly that a Brokers Opinion is not adequate as an evaluation. Our Brokers Opinion has list and sales prices, limiting factors on pricing, market conditions, pictures and an as is sales price. I believe (hope) that what we are calling a Brokers Opinion contains more information that a standard brokers opinion. Any help is always appreciated.

Do your credit analysts report to someone outside of lending?
We have a credit analyst in our business loan dept who could review the appraisals for the mortgage dept but she ultimately still reports to the VP of Lending as do the Underwriters and Loan Processors. I guess that wouldn't work for us since there is still no independance. If I can get the Underwriters (to move out from under the VP of Lending and have them order and review the appraisals and approve the loans - is that satisfactory? OR does it have to go so far that Another person - completly outside the chain of the VP of Lending orders and reviews the appraisal - then what? How does the loan get approved by the Underwriter if they don't look at the appraisal? Do they just take the word of this new independent person? I'm SOOOO confused

I've spent quite a bit of time on this lately and we are comfortable with the policy we have in place. I'll start off by saying for the writing of the policy I took the guidance from December, copied/pasted into word and just starting working it into a policy.

Here's my answers to your q's:
1) Do you allow anyone in-house to still do evaluations (i.e. loan officers)? If yes, how do you determine they are experienced enough to do them? Who are you allowing to do them? Yes. We have a group of board-approved individuals that serve both as reviewers and as evaluation preparers. Their titles vary from credit analyst, banking assistant and banker (8 total). Experience comes from training we provide, one on one mentoring and past experience with real estate - overall competence.

2) Are you going to be using an appraisal management company? If yes, what exactly will they be doing for you? No. We only use an AMC for the occasional loan out of our market area where we don't have an approved appraiser in that area. We will likely be discontinuing that practice and just calling other community banks for recommendations when we're out of area.

3) What about your small and/or rural branches if you are a larger bank - who is doing the evaluation? No different, it's a collaborative effort - we use staff from other branches to help.

4) Who is reviewing the appraisals and evaluations? A board approved list of select individuals.

5) Who do you have ordering appraisals? We have 1 designated person who orders all appraisals. She's an admin person isolated from all loan production activities.

6) Are you having any issues in the more rural areas (i.e. bigger bank, small rural branch with only one loan officer)? Not really. We e-mail, scan - do everything electronically.

7) Do you use AVMs? How have you changed how you use them in light of the new guidance? Same thing with tax valuations. No AVMs. Tax statements are supporting doc within evaluation but are unreliable and not given any weight.

Also - I'll add that most of our offices are small and only have 1 lender. We allow the lender to gather the details for the evaluation (photo, property details, size, condition & room counts), but the lender can't input any type of value on the form and they don't get to select the person that prepares the actual evaluation report and determines our value. It still requires 2 other people to involved, both of which are board selected/approved. One to prepare the evaluation and the other to review the final report.

I hope that helps!

I thought this was in Reg Z rules now.