Risk Management Manual of Examination Policies - FDIC

LOANS Section 3.2
• The transaction is wholly or partially insured or
guaranteed by a United States government agency or
United States government sponsored agency;
• The transaction either; (i) Qualifies for sale to a
United States government agency or United States
government sponsored agency; or (ii) Involves a
residential real estate transaction in which the
appraisal conforms to the Federal National Mortgage
Association or Federal Home Loan Mortgage
Corporation appraisal standards applicable to that
category of real estate;
• The regulated institution is acting in a fiduciary
capacity and is not required to obtain an appraisal
under other law; or
• The FDIC determines that the services of an appraiser
are not necessary in order to protect Federal financial
and public policy interests in real estate-related
financial transaction or to protect the safety and
soundness of the institution.
Section 323.4 establishes minimum standards for all
appraisals in connection with federally related transactions.
Appraisals performed in conformance with the regulation
must conform to the requirements of the USPAP and
certain other listed standards. The applicable sections of
USPAP are the Preamble (ethics and competency),
Standard 1 (appraisal techniques), Standard 2 (report
content), and Standard 3 (review procedures). USPAP
Standards 4 through 10 concerning appraisal services and
appraising personal property do not apply to federally
related transactions.
An appraisal satisfies the regulation if it is performed in
accordance with all of its provisions and it is still current
and meaningful. In other words, a new appraisal does not
necessarily have to be done every time there is a
transaction, provided the institution has an acceptable
process in place to review existing appraisals.
Adherence to the appraisal regulation and appraisal
guidelines should be part of the examiner's overall review
of the lending function. An institution's written appraisal
program should contain specific administrative review
procedures that provide some evidence, such as a staff
member's signature on an appraisal checklist that indicates
the appraisal was reviewed and that all standards were met.
In addition, the regulation requires that the appraisal
contain the appraiser's certification that it was prepared in
conformance with USPAP. When analyzing individual
transactions, examiners should review appraisal reports to
determine the institution's conformity to its own internal
appraisal policies and for compliance with the regulation.
Examiners may need to conduct a more detailed review if
the appraisal does not have sufficient information, does not
explain assumptions, is not logical, or has other major
deficiencies that cast doubt as to the validity of its opinion
of value. Examination procedures regarding appraisal
reviews are included in the Examination Documentation
Modules.
Loans in a pool such as an investment in mortgage- backed
securities or collateralized mortgage obligations should
have some documented assurance that each loan in the pool
has an appraisal in accordance with the regulation.
Appropriate evidence could include an issuer's certification
of compliance.
All apparent violations of Part 323 should be listed in the
examination report in the usual manner. Significant
systemic failures to meet standards and procedures could
call for formal corrective measures.
Interagency Appraisal and Evaluation Guidelines
These Interagency Appraisal and Evaluation Guidelines
dated October 27, 1994 address supervisory matters
relating to real estate-related financial transactions and
provide guidance to examining personnel and federally
regulated institutions about prudent appraisal and
evaluation policies, procedures, practices, and standards.
The guidelines were reiterated and clarified in a Statement
issued by the regulatory agencies on October 27, 2003.
An institution's real estate appraisal and evaluation policies
and procedures will be reviewed as part of the examination
of the institution's overall real estate-related activities. An
institution's policies and procedures should be incorporated
into an effective appraisal and evaluation program.
Examiners will consider the institution's size and the nature
of its real estate-related activities when assessing the
appropriateness of its program.
When analyzing individual transactions, examiners should
review an appraisal or evaluation to determine whether the
methods, assumptions, and findings are reasonable and in
compliance with the agencies' appraisal regulations,
policies, supervisory guidelines, and internal policies.
Examiners also will review the steps taken by an institution
to ensure that the individuals who perform its appraisals
and evaluations are qualified and are not subject to
conflicts of interest. Institutions that fail to maintain a
sound appraisal or evaluation program or to comply with
the agencies' appraisal regulations, policies, or these
supervisory guidelines will be cited in examination reports
and may be criticized for unsafe and unsound banking
practices. Deficiencies will require corrective action.
Appraisal and Evaluation Program - An institution's board
of directors is responsible for reviewing and adopting
Loans (12-04) 3.2-28 DSC Risk Management Manual of Examination Policies
Federal Deposit Insurance Corporation