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
Copyright 2019 AIMSdashboard, LLC
Slide2AVMs 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.
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Slide3Overview 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
Copyright 2019 Triangle Appraisal School
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Slide4What is an Appraisal? What is an Evaluation? Form?
Q:
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?
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Slide5What is an Appraisal? What is an Evaluation? Form?
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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.
Slide6Evaluation Preparer (Source: Interagency Advisory)
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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.
Slide7AVM 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.
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Slide8AVM 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.
.
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Institutions should establish policies and procedures that specify the supplemental information that is required to develop an evaluation.
Institutions should establish policies and procedures that specify the supplemental information that is required to develop an evaluation.
Slide9Summary
General Discussion
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Slide10AVMs 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.
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Slide11Valuation 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
Yes
Yes
Micro Statistics UsedMaybe
YesYes
Local Market ExpertiseNoYesYes
Human Interaction and ConclusionNoYesYes
Current Subject Property ConditionNo
YesYes
Work File to Support the Valuation
No
Yes
Yes
Licensed or Certified Appraiser
No
No
Yes
Formalized Regulated Profession
No
No
Yes
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Slide12Loan 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
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Slide13Loan 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
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Residential Property is treated differently than non-residential
Slide14Collateral 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.
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Slide15Operating 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.
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Regs and Programs
Slide16Requirements – 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
Yes
Yes
Yes
Yes
Yes
Reg Z
Yes
Yes
Yes
Yes
IAEG
Yes
Yes
Yes
Dodd-Frank
Yes
Yes
Yes
Yes
FHA AI
NC AA
Yes
Yes
Yes
Yes
Yes
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
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Slide17Table 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
Yes
PMI Relief – After OriginationMaybe
YesYes
Prequalifying (Today’s “Comp Check”); YesYesYes
Quality ControlYesYes
YesHELOC < Combined LTVNo
YesYes
1
st
Res < $250K / Biz < $1000K Low Risk
No
Yes
Yes
1
st
Res < $250K / Biz < $1000K Change or High Risk; HELOC > Combined LTV
No
No
Yes
1
st
Res > $250K / Biz > $1000K
No
No
Yes
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Slide18Regulations / Guidelines
Actionable Regulations & Guidelines
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Slide19Dodd-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.
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Slide20Stacking 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”
; and therefore only a NC licensed or certified appraiser, or a lender’s competent staff can perform “Evaluations”. Copyright 2019 AIMSdashboard, LLC
Slide21Stacking 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.
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Slide22NC 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
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Slide23Operating 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.
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Slide24Requirements – 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
Yes
Yes
Yes
Yes
Yes
Reg Z
Yes
Yes
Yes
Yes
IAEG
Yes
Yes
Yes
Dodd-Frank
Yes
Yes
Yes
Yes
FHA AI
NC AA
Yes
Yes
Yes
Yes
Yes
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
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Slide25USPAP
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.
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Slide26Dodd 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.
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Slide27Interagency 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.”
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Slide28IAEG 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).
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Slide29IAEG 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>
XX
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
.
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Slide30IAEG 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.”
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Slide31NC 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
;
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Slide32NC 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;
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Slide33NC 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;
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Slide34NC 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;
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Slide35NC 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.
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.
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Slide36NC 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.
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Slide37NC 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
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Slide38Home 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.
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Slide39Broad 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:
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Slide40Regulatory 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).
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Slide41Reporting 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:
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Slide42Credibility
Collateral Valuation Credibility
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Slide43Collateral 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.
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Slide44Approved 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
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Slide45Maintain 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.
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Slide46Classes 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.
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Slide47Reliability
Collateral Valuation Reliability
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Slide48Collateral 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.
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Slide49AVMs 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
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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.
Slide50Validity 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”.
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Slide51Validity 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
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Slide52Validity Test
Though market dynamics may change the respective threshold for a tests, the framework should persist.
Event affecting the validity of a valuation
No
Has more than
XXX
months past since the latest valuation?
No
Have loan programs for the subject property type tightened credit significantly?
Unk
Changes in terms and availability of financing.
No
Have lease terms changed dramatically (
INSERT TEST METRIC
)
No
Have cap rates changed more than
XX
?
No
Have there been changes in zoning for the property, or that creates greater competition?
No
Has there been any negative aspect relating to the building materials used for the subject property, or new trends dominating interest in the market?
No
Has there been an changes in technology impacts the attractiveness of the subject?
No
Are there any known external or environmental conditions that have changed since the effective date of the valuation.
No
Have there been any improvements to the subject property or competing properties?
No
Does the subject lack in maintenance or have competing properties fallen into disrepair?
No
Is there limited supply of competing properties?
No
Is there an over supply of competing properties?
No
Have any natural disasters affected the local market?
No
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.
Copyright 2019 AIMSdashboard, LLC