Regulators propose revised appraisal guidelines

Nov. 17, 2008 – Growing concerns about appraisals and credit quality are behind regulators’ proposal last week of revised interagency appraisal and evaluation guidelines for credit unions, banks and thrifts.

The proposed guidance, in which NCUA is participating for the first time, is intended to clarify risk management principles and internal controls for ensuring that institutions’ real estate collateral valuations – appraisals and evaluations – are reliable and support their real estate transactions.

The proposal would replace the 1994 guidelines. It would incorporate recent supervisory issuances and reflect changes in industry practice, uniform appraisal standards and available technologies.

The guidelines would continue to apply to all real estate lending functions within a federal financial institution, including commercial and residential lending departments, capital market groups and asset securitization and sales units, the agencies said.

The revisions include:

• more detail on the agencies’ expectations for an independent appraisal and evaluation function;
  
  
• greater explanation of the agencies’ minimum appraisal standards, including clarification of requirements for appraisals of residential tract developments;
  
  
• revisions to the Uniform Standards of Professional Appraisal Practice, which are incorporated by reference in the agencies’ appraisal regulations;
  
  
• risk-focused appraisal and evaluation reviews separate and apart from an institution’s compliance function;
  
  
• a new Appendix A to further clarify exempt transactions, Appendix B on acceptable evaluation alternatives and use of automated valuation models and Appendix C containing a new glossary of terms.

Comments will be due 60 days following publication in the Federal Register.