We have extensively over-hauled our appraisal policy and procedures in the past year. A couple of questions have now arisen after reviewing what has been put in place. I should point out that we are a $400M community back with 4 offices so achieving complete independence can sometimes prove challenging.

1)If we come upon an instance where we want to use an appraiser not on our approved list (i.e. an appraisal was just done for another bank and they are willing to assign it to us), our policy states that this is acceptable at the approval of our Chief Credit Office (CCO). If the CCO approves the use of an appraiser not on our approved list but is also a voting member on loan committee, should the CCO abstain from voting on the credit? I'm just wondering if allowing the CCO to approve the use of a non-listed appraiser AND vote at committee that this practice would create an independence issue. Not sure though, given our size.

2) We have a designated credit analyst staff at each office to order appraisals for the other offices (so they are not ordering for their own office). Is there an independence issue if these anaylsts report directly to the CCO who is a voting member at loan committee? Or is this enough independence? I believe, given our size, this is enough of a separation but I'm being asked to investigate.

In my opinion #1 is an issue... based on 226.42d(2)(iii) and the definition referred to in that section located at 226.42d(5)(i)... To me that says the CCO should not make ANY appraiser decisions...

See:
(d) Prohibition on conflicts of interest —(1)(i) In general. No person preparing a valuation or performing valuation management functions for a covered transaction may have a direct or indirect interest, financial or otherwise, in the property or transaction for which the valuation is or will be performed.

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:

(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

d(5) Definitions. For purposes of this paragraph, the following definitions apply:
(i) Loan production function. The term “loan production function” means an employee, officer, director, department, division, or other unit of a creditor with responsibility for generating covered transactions, approving covered transactions, or both.

I dont perceive an issue with #2 so long as you have a designated process for choosing the appraiser at the other location for example the "next up" system most banks use.

Cheers!

Thanks AF. This was very helpful.