Our loan portfolio is primarily Agricultural. We have a lot of customers with existing mortgages that we put in their collateral position each time we write up a loan. Sometimes these mortgages may be attached to the new loan, other times they may just be listed in an aggregate collateral position.

In the past, if we were listing real estate in the aggregate collateral position, we've made sure that the appraisal/evaluation is less than 12 months old. This means we basically have to do an appraisal once every year, for every single mortgage we have. This requires a lot of extra employee time.

The 10/16/18 FAQ on Appraisal Regulations and the Interagency Appraisal and Evaluation Guidelines makes it clear that the agencies don't specify a useful life of an appraisal or evaluation.

I'm curious how your institutions handle the "life" of appraisals/evals, or at least what best practice is. Can we avoid new evals as long as there have been no material changes that threaten the adequacy of the previous valuation? If so, how often are Appraisal Validations required? Should an appraisal/eval be validated every time it is listed in a collateral position? Or, is it more realistic to complete an Appraisal Validation about once a year?

Thanks in advance to anyone who takes the time to respond.

I'm in the midst of an exam right now and we asked the same question. Alas, the direction the field examiners are getting from DC is that new money OR a subsequent transaction greater than 12 months requires a new evaluation.

We agree fully that in a lot of agricultural (and other types of) property, it's an exercise in redundancy but that's what our industry is expected to do right now.

If the market is changing rapidly I wonder if an Appraisal Validation (at least every 12 months) would work in place of a new evaluation?

This is not rocket science and this should all already be thoroughly addressed in detail in your board approved appraisal policies. Please read Question and Answer 8. There is no magic to a setting a number of months, it all depends on whether the assumptions made in the original appraisal/evaluation are still legitimate regardless of how long ago the original appraisal/evaluation was conducted.

https://www.fdic.gov/news/financial-institution-letters/2018/fil18062a.pdf

Q&A #8 is exactly what I was referencing in my original post. Specifically, "Regarding this last factor, there is no provision in the agencies’ appraisal regulations specifying the useful life of an appraisal or evaluation."

You are correct in saying that it's not rocket science. And I am correct in saying that it's not clearly stated how often a prior RE valuation must be validated. That is the question I was hoping to have answered.

Appraisal and evaluation requirements are a transaction by transaction requirement. If you are doing a renewal of an existing loan, you have the option to follow the guidance in Question 8.

If you are dealing with a new transaction, even if it is the same property involved, you have to follow the guidance from scratch.

So, I am really not sure what your question actually is? I have no idea what you mean by an aggregate collateral position. The property either secures the transaction at hand or it does not.

Do you mean collateral, as in collateral supporting the loan and available to liquidate if required, or do you mean aggregate asset position, as in a listing of the borrower's assets supporting the financial position?

If the first, Randy has laid out the requirements.

If the second, and the property isn't really part of the collateral supporting the loan, then it's a bank policy matter.

Our security agreements and real estate mortgages have cross-collateralization clauses. So, when we write-up a new loan for a borrower, we include all loans that borrower has with out institution and all collateral securing those loans (aggregate) in our collateral analysis.

If a borrower gets an operating loan, and that loan only has UCC collateral tied to it (as is often the case), we still list the customer's REM's in the collateral position for that loan write-up because they are cross-collateralized to all loans.

Just an update - I did ask our examiner for clarification on this issue. He said that even though the REM is cross-collateralized, we don't have to come up with a new valuation, even though we are listing it in the customer's overall LTV position.