Collateral Valuation in NC - PowerPoint Presentation

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Collateral Valuation in NC - PPT Presentation

AVMs Evaluations Appraisals Valuations Discussion Copyright 2019 AIMSdashboard LLC AVMs are computer generated value tools The algorithms and data sources may create varying degrees of accuracy ID: 782195

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Slide1

Collateral Valuation in NC

AVMs / Evaluations / Appraisals

Valuations Discussion

Slide2

AVMs are computer generated value tools. The algorithms and data sources may create varying degrees of accuracy.

Some offer data and statistics beyond just a value or value range.

An evaluation has many similarities to an appraisal except that it may be developed by a person who is not an appraiser.

A variety of value definitions may apply to the term “Evaluation”. The type of value is one element of a typical set of assignment conditions.

With limited exceptions, Appraisals are federally defined and characterized as being developed by a state licensed/certified appraiser and governed by USPAP.

A variety of value definitions may apply to the term “Appraisal”. The type of value is one element of a typical set of assignment conditions.

Valuation Methods – High Level Categories

Note:

Reg Z defines “Valuation”: an estimate of the value of the consumer's principal dwelling in written or electronic form, other than one produced solely by an automated model or system. But we are including AVMs in this topic because it is often considered a “valuation” in everyday discussions.

Slide3

Overview is

Shaped by Appraisal and Evaluation Regs

This overview is constrained to a subset of predominant regulations and requirements (Regs) related to appraisal operations and consists of Regs providing “Appraisal Requirements” and “Appraisal Independence Requirements”.Lending and Banking regulations (e.g. Safety and Soundness) may impose other requirements affecting Collateral Valuation Operations policies and procedures. Lending regulations are beyond the scope of this overview. Generally, because the appraisal regulations are so ubiquitous, the lending and banking specific regs yield overlay constraints.

Summarized Appraisal Regs Consist of the Following:

USPAP

FFIEC Interagency Appraisal and Evaluation Guidelines

Dodd Frank Subsection F

TILA & Reg Z – Appraisal Requirements and Appraisal Independence Sections

FHFA – Appraisal Independence Requirements

NC Appraiser Act

Slide4

What is an Appraisal? What is an Evaluation? Form?

What is an Appraisal? What is an Evaluation?Q: Is the 1004 an Appraisal?Q: Is a dollar figure on a napkin an appraisal?Q:

Is a “comp check” response from a Certified appraiser an appraisal?Q: Is an email with a value an appraisal?

Slide5

What is an Appraisal? What is an Evaluation? Form?

Ans:

The Opinion of Value is the appraisal.

Is the 1004 an Appraisal?

The 1004 is the form for the Appraisal Report.

Is a dollar figure on a napkin an appraisal?

The $ figure is the appraisal and the napkin is the “report”.

Is a “comp check” response from a Certified appraiser an appraisal?

Yes. Stating that a “property will appraise” is an opinion of value.

Is an email with a value an appraisal or an evaluation?

Yes. The email is the “report” and the stated value is the Appraisal/Evaluation.

Slide6

Evaluation Preparer (Source: Interagency Advisory)

An evaluation is not required to be completed by a state licensed or state-certified appraiser or to comply with USPAP.

The

evaluation preparer

should, however, be

knowledgeable, competent, and independent of the transaction and the loan production function of the institution.

Evaluations may be completed by a bank employee or by a third party.

Slide7

AVM Use (and Tax Assessment Values)

The Guidelines discuss the possible use of several analytical methods and technological tools, such as automated valuation models and tax assessment values.

To use one of these methods, an institution should be able to demonstrate that the valuation method is consistent with safe-and sound banking practices and the Guidelines. The Guidelines detail expectations for selecting, using, and validating an analytical method or technological tool.

Institutions should establish policies and procedures that specify the supplemental information that is required to develop an evaluation.

Slide8

AVM Use (and Tax Assessment Values)

The Guidelines discuss the possible use of several analytical methods and technological tools, such as automated valuation models and tax assessment values.

Institutions should establish policies and procedures that specify the supplemental information that is required to develop an evaluation.

Slide9

Summary

General Discussion

Slide10

AVMs are computer generated valuation tools.

There is no verification of the condition nor existence of improvements.

an AVM or TAV is not itself, an alternative to an evaluation.

An evaluation is developed by an employee of the lending institution.

Has a transaction value equal to or

less than the appraisal threshold of

R: $250,000 / C: $500,000 / QBL: $1,000,000

A variety of value definitions may apply to the term “Evaluation”. The type of value is one element of a typical set of assignment conditions.

With limited exceptions, Appraisals are federally required.

They are characterized as being developed by a state licensed / certified appraiser and governed by USPAP.

A variety of value definitions may apply to the term “Appraisal”. The type of value is one element of a typical set of assignment conditions.Valuation Methods in NC

Note: Reg Z defines “Valuation”: an estimate of the value of the consumer's principal dwelling in written or electronic form, other than one produced solely by an automated model or system. But we are including AVMs in this topic because it is often considered a “valuation” in everyday discussions.

Slide11

Valuation Characteristics

These are simply some examples of cases and the likely applicability of a valuation source.

The IAEG offers a consolidation of agency expectations with extensive examples.GSE programs may incorporate investor risk analysis with prescribed collateral analysis.

Characteristic

AVM

Eval

Appr

Macro Statistics Used

Yes

Micro Statistics UsedMaybe

YesYes

Local Market ExpertiseNoYesYes

Human Interaction and ConclusionNoYesYes

Current Subject Property ConditionNo

YesYes

Work File to Support the Valuation

Yes

Licensed or Certified Appraiser

Yes

Formalized Regulated Profession

Yes

Slide12

Loan Categories, Types; Property Types, Uses

Different loan programs create a spectrum of scenarios regarding risk, regulations, and borrower.

This overview will oversimplify the spectrum into broad loan categories and types as well as into gross property types and uses.

Loan Categories: Business Loan; Commercial Loan; Personal Loan; etc.Types:

Closed Ended; Open Ended; First Mortgages (Senior); Second Liens (Junior); etc.

Property Types:

Dwellings; Vacant Land; Agricultural; Industrial; Commercial; Retail; Income Producing;

etc

Uses: Primary Residence; Second Home; Investment Property; Business Utility; Agricultural Production;

etc

Slide13

Loan Categories, Types; Property Types, Uses

Different loan programs create a spectrum of scenarios regarding risk, regulations, and borrower.

This overview will oversimplify the spectrum into broad loan categories and types as well as into gross property types and uses.

Loan Categories: Business Loan; Commercial Loan; Personal Loan; etc.Types:

Closed Ended; Open Ended; First Mortgages (Senior); Second Liens (Junior); etc.

Property Types:

Dwellings; Vacant Land; Agricultural; Industrial; Commercial; Retail; Income Producing;

etc

Uses: Primary Residence; Second Home; Investment Property; Business Utility; Agricultural Production;

etc

Residential Property is treated differently than non-residential

Slide14

Collateral Valuation Credibility

The intent behind most of the appraisal and evaluation standards and regulations is to promote the development of credible collateral valuations to support loans made by lenders. Though securitization, regulation, investors paths, and the like have created a lot of interests, the basis of appraisal operations is to secure credible valuations.

Competency and independence contribute greatly to valuation credibility. A lender’s selection SOPs demonstrate how the lender ensure competent valuators are selected for a given assignment.

Complementary, the way a lender manages disputes and monitors quality demonstrate respective procedures to validate competency without jeopardizing independence.

Slide15

Operating Constraints

Many constraints are common across the various oversight interests.

In contrast, each interest may have unique constraints.

Identifying the constraints enable an organization to operationalize people, policies, and processes to efficiently navigate the greater set of constraints.

Regs and Programs

Slide16

Requirements – Regulation Cross Reference

This chart shows the interrelated regulation references.

“Yes” in the row indicates a reference requirement in the column reg (indicated in the column header)

Requirement

GSE

USPAP

Reg Z

IAEG

Dodd Frank

FHA AI

NC AA

GSE

Yes

USPAP

Yes

Reg Z

Yes

IAEG

Yes

Dodd-Frank

Yes

FHA AI

NC AA

Yes

“Yes” in the column indicates the row’s Reg/Guidelines are in the column’s Regs/Guidelines (indicated in the column header)

Example:

USPAP (row) is referenced as a basis regulation for GSE Programs, Reg Z, IAEG, Dodd-Frank, and NC Appraiser Act

Slide17

Table of Use Cases

These are simply some examples of cases and the likely applicability of a valuation source.

The IAEG offers a consolidation of agency expectations with extensive examples.GSE programs may incorporate investor risk analysis with prescribed collateral analysis.

Use Case

AVM

Eval

Appr

Portfolio Monitoring

Maybe

Yes

PMI Relief – After OriginationMaybe

YesYes

Prequalifying (Today’s “Comp Check”); YesYesYes

Quality ControlYesYes

YesHELOC < Combined LTVNo

YesYes

Res < $250K / Biz < $1000K Low Risk

Yes

Res < $250K / Biz < $1000K Change or High Risk; HELOC > Combined LTV

Yes

Res > $250K / Biz > $1000K

Yes

Slide18

Regulations / Guidelines

Actionable Regulations & Guidelines

Slide19

Dodd-Frank – Interim Final Rule

- Appraisal Independence Requirements

Regulations and GuidelinesUSPAP – Uniform Standards of Professional Appraisal Practice – Promulgated by Appraisal FoundationFFIEC/Interagency

– Interagency Appraisal and Evaluation GuidelinesTILA Reg Z –

Appraisal Independence Requirements

FHFA GSEs

– Appraisal Independence Requirements (AIR), and Appraisal Requirements

Regs within the Scope of this Overview

State Regulations

– Primarily NC: Appraisal Act & Mortgage Lending Act.

Slide20

Stacking of Regs – The basis for Collateral Valuation Ops

USPAP is the basis

for all of the Appraisal Requirements and Appraisal Independence regulations and guidelines (Regs). Therefore, the lending organization is responsible for creating and monitoring appraisal policies to ensure appraisals are developed in conformance with USPAP

.Dodd-Frank extended the predominant

regulations to include

both closed and open end loans secured by the borrower’s primary residence. Therefore

most HELOCs

fall under DF related Regs.

FFIEC examiners will follow the Interagency Appraisal and Evaluation Guidelines (IAEG) with respect to loans failing IAEG Exemptions.

Though the IAEGs allow the use of “Evaluations”, in NC “Evaluations” are considered “Appraisals”

Slide21

Stacking of Regs – The basis for Collateral Valuation Ops

FHFA

Appraisal Requirements and Appraisal Independence Requirements (AIR) provide the foundation Regs for loans to be sold on the GSE driven secondary market. Lenders and appraisers (if appraiser is informed that the loan is destined for GSEs) are accountable to GSE requirements:

UAD, UCDP Acceptance (XML formatting), competency, etc.The correspondent lender is responsible for FHFA’s Appraisal Independence Requirements (AIR). Correspondents are also responsible for all overlays promulgated by respective investors and aggregators.

Note: this overview does not include the review of correspondent guides for lender’s investors.

Finally, the

GSE requirements defer to federal and state regulations

whenever there is a

conflict of requirements, and whenever there is a

deficit in topic coverage within their requirements.

Conclusion: All of the Regs are intertwined and symbiotic.

Slide22

NC Appraiser Act

In NC, only a lender’s employed staff can render an evaluation (analysis, opinion, or conclusion as to the value of identified real estate) without being a NC registered, licensed, or certified appraiser.

https://ncleg.net/EnactedLegislation/Statutes/PDF/ByChapter/Chapter_93E.pdf

Slide23

Operating Constraints

Many constraints are common across the various oversight interests.

In contrast, each interest may have unique constraints. Identifying the constraints enable an organization to operationalize people, policies, and processes to efficiently navigate the greater set of constraints.

Slide24

Requirements – Regulation Cross Reference

This chart shows the interrelated regulation references.

“Yes” in the row indicates a reference requirement in the column reg (indicated in the column header)

Requirement

GSE

USPAP

Reg Z

IAEG

Dodd Frank

FHA AI

NC AA

GSE

Yes

USPAP

Yes

Reg Z

Yes

IAEG

Yes

Dodd-Frank

Yes

FHA AI

NC AA

Yes

“Yes” in the column indicates the row’s Reg/Guidelines are in the column’s Regs/Guidelines (indicated in the column header)

Example:

USPAP (row) is referenced as a basis regulation for GSE Programs, Reg Z, IAEG, Dodd-Frank, and NC Appraiser Act

Slide25

USPAP

The Appraisal Standards Board (ASB) of The Appraisal Foundation develops, interprets, and amends the

Uniform Standards of Professional Appraisal Practice (USPAP) on behalf of appraisers and users of appraisal services. The 2012-2013 Edition of USPAP (2012-2013 USPAP) is effective January 1, 2012 throughDecember 31, 2013.The purpose of the …USPAP… is to promote and maintain a high level of public trust in appraisal practice by establishing requirements for appraisers…develop and communicate their analyses, opinions, and conclusions to intended users …in a manner that is meaningful and not misleading.

State and federal regulatory authorities enforce the content of the current or applicable edition of USPAP.

Slide26

Dodd Frank Interim & Final

Rule

The interim final rule applies to appraisals for any consumer credit transaction secured by the consumer’s principal dwelling. Covering consumer credit transactions is consistent with the scope of TILA generally, which only applies to credit extended for personal, family or household purposes. However, the scope of the interim final rule is broader than the 2008 Appraisal Independence Rules; those rules apply to closed-end loans but not to home-equity lines of credit (HELOCs). The broader scope is required by Section 1472 of

the Dodd-Frank Act, which does not limit coverage to closed-end loans and also covers HELOCs.

The interim final rule would

apply to any creditor

or person who provides settlement services

in connection with an extension of consumer credit secured by the principal dwelling

of the consumer.

Slide27

Interagency Appraisal and Evaluation Guidelines (IAEG)

“The Agencies are issuing final Interagency Appraisal and Evaluation Guidelines (Guidelines) to provide further clarification of the Agencies’ appraisal regulations and supervisory guidance to institutions and examiners about prudent appraisal and evaluation

programs.”“The Guidelines clarify the Agencies’ longstanding expectations for an institution’s appraisal and evaluation program to conduct real estate lending in a safe and sound manner.”The Agencies’ appraisal regulations implementing Title XI of the …FIRREA… set forth…minimum standards for the performanceof real estate appraisals in connection with ‘‘federally related transactions,’’ ….These regulations also specify the requirement for evaluations of real estate collateral in certain transactions that do not require an appraisal.”

Slide28

IAEG Appraisal Exemptions

If the transaction value equal to or less than the appraisal threshold of $250,000?

If…a renewal, refinancing, or other subsequent transaction to an existing extension of credit at the institution

and either

…no obvious and material change in market conditions or physical aspects …even with the advancement of new monies

…no advancement of new monies…even when …material change in market conditions or the physical aspects of the property…

If…a loan workout, debt restructuring, loan assumption, or similar transaction involving the addition …of borrowers …to an existing …credit at the institution and are

both of the following true

…no obvious and material change in market conditions or physical aspects… …no advancement of new monies…

Note: There are exceptions to the Exemptions (see next slide).

Slide29

IAEG Appraisal Exemption Exceptions

If …combined loan-to-value (CLTV) ratio is in excess of [the supervisory loan to-value limits]

“If … atypical property (examples)> XXXXX sq ft

> XX stories>

acre lot

Waterfront

Mixed Use Area

Golf Course ResidenceResort ResidenceHome Owners Assn

Historic HomeSale of Recently purchased (<

XX mths)…outside the institution’s traditional lending market.

….involving existing ….credit with significant risk...Borrowers with high risk characteristics

Slide30

IAEG Exceptions

The following are Exemptions, but are more like a deference than an exemption.

Transactions that are wholly or partially Insured or Guaranteed by a U.S. Government Agency or U.S. Government-Sponsored AgencyTransactions that either (i) qualify for sale to a U.S. government agency or U.S. government-sponsored agency, or (ii) involve a residential real estate transaction in which the appraisal conforms to Fannie Mae or Freddie Mac appraisal standards applicable to that category of real estate.

Though exempted from IAEG appraisal requirements, the requirements set by the related program must be met. Further, FHFA requirements reference back to the IAEG, Reg Z, RESPA, etc culminating with ~“consistent with lending practices.”

Slide31

NC Appraiser Act

Appraisal"…means an analysis, opinion, or conclusion as to the value of identified real estate …performed for compensation... "Appraisal assignment

”…an engagement for which an appraiser is…to act…as a disinterested third party in rendering an unbiased appraisal.

…"appraiser" means

a person who …gives an opinion of the value of real estate or any interest therein

§ 93E-1-2.1.

… It is also unlawful…for any person to perform any of the acts listed above without first being registered, licensed, or certified

by the Appraisal Board …

Exception: A trainee registration, license, or certificate is not required…for…any person employed by a lender in the performance of appraisals with respect to which federal regulations do not require a licensed or certified appraiser

;

Slide32

NC Appraiser Act

So in NC, the federally defined “Evaluation” is an Appraisal.

"Appraisal assignment”…an engagement for which an appraiser is…to act…as a disinterested third party in rendering an unbiased appraisal

. § 93E-1-2.1. … It is also unlawful…for any person

to perform any of the acts

listed above

without first being registered, licensed, or certified

by the Appraisal Board …

Exception: A trainee registration, license, or certificate is not required…for…Any

person employed by a lender in the performance of appraisals

with respect to which federal regulations do not require a licensed or certified appraiser;

Slide33

NC Appraiser Act

So in NC, the federally defined “Evaluation” is an Appraisal.

Therefore, an engagement for which an appraiser is…to act…as a disinterested third party in rendering an unbiased [federal definition of] “Evaluation”, is an “Appraisal Assignment” in NC. § 93E-1-2.1. … It is also unlawful

…for any person to perform any of the acts listed above without first being registered, licensed, or certified by the Appraisal Board …

Exception: A trainee registration, license, or certificate is not required…for…Any

person employed by a lender in the performance of appraisals

with respect

to which federal regulations do not require a licensed or certified appraiser;

Slide34

NC Appraiser Act

So in NC, the federally defined “Evaluation” is an Appraisal.

And since, an engagement for which a person is to act as a disinterested third party in rendering an unbiased [federal definition of] “Evaluation”, is an “Appraisal Assignment” in NC; it is unlawful for any person to perform an [federal definition of] “Evaluation” in NC without first being registered, licensed, or certified by the NC Appraisal Board.

Exception: A trainee registration, license, or certificate is not required…for…Any

person employed by a lender in the performance of appraisals

with respect

to which federal regulations do not require a licensed or certified appraiser;

Slide35

NC Appraiser Act

So in NC, the federally defined “Evaluation” is an Appraisal.

Unless the person is a person employed by a lender in the performance of appraisals with respect to which federal regulations do not require a licensed or certified appraiser.

Slide36

NC Appraiser Act

So in NC, the federally defined “Evaluation” is an Appraisal.

And since, an engagement for which a person is to act as a disinterested third party in rendering an unbiased [federally defined] “Evaluation”, is an “Appraisal Assignment” in NC; it is unlawful for any person to perform an [federally defined] “Evaluation” in NC without first being registered, licensed, or certified by the NC Appraisal Board unless the person is a person employed by a lender in the performance of appraisals with respect to which federal regulations do not require a licensed or certified appraiser.

Slide37

NC Appraiser Act

Conclusion:

In NC, only a lender’s employed staff can render an analysis, opinion, or conclusion as to the value of identified real estate without being a NC registered, licensed, or certified appraiser.

https://ncleg.net/EnactedLegislation/Statutes/PDF/ByChapter/Chapter_93E.pdf

Slide38

Home Equity Regulation

Section 226.5b Requirements for Home-Equity Plans

Section 1472 of the Dodd-Frank Act adds to TILA a new Section 129E that establishes appraiser independence requirements for a consumer credit transaction secured by the consumer’s principal dwelling. 15 U.S.C. 1639e.TILA Section 129E applies to both open and closed-end consumer credit transactions secured by the consumer’s principal dwelling, as discussed in detail below in the section-by-section analysis of § 226.42. Accordingly, new comment 5b–7 is being adopted to clarify that home-equity plans subject to § 226.5b that are secured by the

consumer’s principal dwelling also are subject to the requirements of new TILA Section 129E and § 226.42.

Slide39

Broad Regulatory Requirements

Administration of Policies and Procedures

Compliance with Respective Regs and GuidelinesDemonstration of Active PoliciesRegulatory Referral of NoncomplianceCollateral Valuation Credibility“Valuator” Competency and Selection

Valuation IndependenceDispute ResolutionCollateral Valuation Reliability

Valuation Validity and Quality

Validity Determinations

Valuation Review Procedures

Requirements include the following Topics:

Slide40

Regulatory Requirements - Overview

The Board

of the Lender, or a Board Committee, is responsible for the lender’s Valuation Operations Policies and Procedures.Valuation Operations must be independent of mortgage loan production in function and in reporting structure.

Loan Production staff are prohibited from performing all material

valuation administration activities

The

lender must monitor and revise

valuation operations policies and procedures (SOPs) to ensure compliance, quality, and active controls. Evidence that demonstrates contemporary Valuation Operations

should be written and logged to facilitate oversight, both within the organization and external to the organization (investors, examiners, enforcement actions, etc).

Slide41

Reporting to Management/Board

Proposed Policy Changes and Change Approvals

Actions taken Against an Appraiser or EvaluatorOrganization Reporting Structure ChangesResults of Policy Monitoring ActivitiesResults of Appraisal Reviews (in Aggregate)

Changes in the Market and/or Regulatory Environment Relating to Appraisal Operations

The Lender’s Board or Designated Committee should refine the format and content of reporting. The following are items to consider:

Slide42

Credibility

Collateral Valuation Credibility

Slide43

Collateral Valuation Credibility

Competency and independence contribute greatly to valuation credibility. A lender’s selection SOPs demonstrate how the lender ensure competent valuators are selected for a given assignment.

Complementary, the way a lender manages disputes and monitors quality demonstrate respective procedures to validate competency without jeopardizing independence.

Slide44

Approved Valuators

– Procedure for appraiser approval with frequency for Grooming. Even Hand is the key characteristic of act.

Valuator Credentials and ApprovalsMarket Identification – Identify Core Market, New Market, and 1-off Market (can be “else”)

Capacity Management – Document a policy indicating a desired minimum count for a given multiplet, and a ratio for the multiplet using appraisals ordered for a managed unit (zip, city, county, multiplet, etc)

One-off

– Policy based valuator selection for areas or property types not adequately covered by approved valuators. Predecessor to approval?

Excluded valuators

– Procedure for Excluding valuators: investor lists, for cause, and for business operations. Document!

Operationalize Valuation Pro Approval

Removal

– This includes removing approved competencies, general approval, and/or adding to an exclusionary list

Slide45

Maintain Credentials/Qualifications

Evidence of Appropriate State Licensing

Resume, Base Education, CE WorkValuator/Appraiser Attestment of Competency E&O Coverage EvidenceSample Valuations, Appraisals, & Sample Work Reviews

Artifacts Relating to Performance (esp. if Grading)Log of Credential Review or File ReviewAny other Qualifications Considered For Previous or Future Assignments

Valuator File – The lender’s Collateral Valuation Operations should include the maintenance of the institution’s Valuator File (Similar to an Employee’s HR File) to aggregate Credentials, Renewals, and other related performance records.

Note:

At a minimum, a file should be kept for valuators who have been assigned and accepted Appraisal Assignments.

Slide46

Classes of Fee Appraisers

It is incumbent upon the lender to determine whether an appraiser’s qualifications, as evidenced by educational training and actual field experience, are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to them.

This graphic demonstrates “Classes” of appraisers respective to structures exercised by a given lender.

Slide47

Reliability

Collateral Valuation Reliability

Slide48

Collateral Valuation Reliability

The measure of reliability address

how accurate a valuator’s opinion may be as well as the ability for the lender to leverage the report demonstrating the valuator’s methodologies supporting their findings. The use of valuations in supporting lending activities should be done in a manner that can be

demonstrated as valid and defended under close scrutiny.Therefore it is important to develop and exercise ways to ensure valid valuations are produced to support the lending activities including

policies determining the

valuation method, validity of a given valuation

, and also to

“test” sample valuations

through peer review.

Slide49

AVMs are computer generated value tools. The algorithms and data sources may create varying degrees of accuracy. Some offer data and statistics beyond just a value or value range.

An evaluation has many similarities to an appraisal except that it may be developed by a person who is not an appraiser.

A variety of value definitions may apply to the term “Evaluation”. The type of value is one element of a typical set of assignment conditions.

With limited exceptions, Appraisals are federally defined and characterized as being developed by a state licensed/certified appraiser and governed by USPAP.

A variety of value definitions may apply to the term “Appraisal”. The type of value is one element of a typical set of assignment conditions.

Valuation Methods

Note:

Slide50

Validity of Valuations

- Age is One Factor

The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction … if continues to reflect the market value of the property…if there has been no material change affecting the value of the property… and the documentation in the credit file …provide[s] the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction. The use of a prior valuation for lending purposes is policy driven by the investor. If the loan is a portfolio loan (i.e. the bank is the investor) and will not have to meet requirements imposed by another investor’s program (or other lending regulations), then the

bank can determine policies regarding the use of an existing valuation developed for the bank.

Note: This is not to say and appraisal can be forward dated, or amended, to meet a loan program’s requirement for a particular “effective date”.

Slide51

Validity of Valuations

– Example Factors

Passage of time Market Volatility Changes in terms and availability of financing Changes in underlying economic and market assumptions

Changes in zoning, building materials, or technology Environmental contamination Improvements to the subject property or competing properties

Lack of maintenance of the subject or competing properties

Limited or over supply of competing properties

Natural disasters

Slide52

Validity Test

Though market dynamics may change the respective threshold for a tests, the framework should persist.

Event affecting the validity of a valuation

Has more than

XXX

months past since the latest valuation?

Have loan programs for the subject property type tightened credit significantly?

Unk

Changes in terms and availability of financing.

Have lease terms changed dramatically (

INSERT TEST METRIC

)

Have cap rates changed more than

Have there been changes in zoning for the property, or that creates greater competition?

Has there been any negative aspect relating to the building materials used for the subject property, or new trends dominating interest in the market?

Has there been an changes in technology impacts the attractiveness of the subject?

Are there any known external or environmental conditions that have changed since the effective date of the valuation.

Have there been any improvements to the subject property or competing properties?

Does the subject lack in maintenance or have competing properties fallen into disrepair?

Is there limited supply of competing properties?

Is there an over supply of competing properties?

Have any natural disasters affected the local market?

Has the local market experienced any volatility?.

Note: If any answers are not "No", then the prior valuation can not be concluded as valid.

New Valuation Needed; Validity is Not Supported.

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