Banking

The Federal Reserve Board of Governors, along with other federal financial regulators, released new guidelines on prudent real estate appraisal and evaluation practices on December 2.

The guidelines, which replace an earlier version released in 1994, incorporate recent supervisory issuances on appraisal practices as well as changes in the information technology used to value collateral. They also clarify standards for how financial institutions should use analytical methods and technological tools to develop evaluations.

Separating valuation from lending practices
The guidelines emphasize that the valuation process should be independent from loan-making and that financial institutions are required to demonstrate the independence of their appraisal and evaluation programs. Further, the guidelines specify that the appraisers or people performing evaluations should be independent, competent, and knowledgeable about the market and the type of property being valued.

Appraisals should support conclusions
"As part of the credit approval process and prior to a final credit decision, an institution should review appraisals and evaluations to ensure that they comply with the [federal financial regulatory] Agencies' appraisal regulations and are consistent with supervisory guidance and its own internal policies," the regulators said in a statement. "This review should also ensure that an appraisal or evaluation contains sufficient information and analysis to support the decision to engage in the transaction."

The new guidelines were issued by the Board of Governors, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision, and National Credit Union Administration.

December 15, 2010