General Demonstration Capstone

Report
Reviewing Another Institution’s
Appraisal Report
Presenter
Craig Benton, MAI
Director, Valuation Services
Synovus Bank
Reviewing Another Institution’s Appraisal Report
 When would you need to consider
accepting an appraisal from another
institution for review?
 Customer changing banks
 Customer applying for 2nd mortgage or HELOC
 Syndication/Participation
Slide 2
Reviewing Another Institution’s Appraisal Report
 What do the Guidelines say?
 You can accept appraisals from other financial and
financial services institutions.
• You must “subject such appraisals to at least the same level of
review that [you] perform on appraisals [you] obtain directly for
similar properties”
• You must ensure:
– The appraiser was engaged directly by the other financial services institution
» Engagement letter
– The appraiser had no direct, indirect, or prospective interest, financial or
otherwise, in the property or transaction
– The financial services institution (not the borrower) ordered the appraisal
– The appraiser has the requisite education, expertise, and experience
Slide 3
Reviewing Another Institution’s Appraisal Report
 What do the Guidelines say?
 An institution’s use of a borrower-ordered or borrower-provided
appraisal violates the Agencies’ appraisal regulations. However, a
borrower can inform an institution that a current appraisal exists, and
the institution may request it directly from the other financial services
institution
 Other options:
• Reliance/permission letter from other institution (#1)
• Permission to speak with appraiser directly (#2)
• Contact appraiser directly for confirmation or to order new appraisal
assignment as of same date, etc. as re-addressing is not allowed (#3)
 You must verify that you have a “true and accurate” copy of
the appraisal delivered to the original institution
Slide 4
Reviewing Another Institution’s Appraisal Report
 Now that you have the appraisal…
 How do you decide if you will use it?
• Appraiser
– Are they on your approved list?
– Or at least have they not been removed from your approved list?
– Is the appraiser competent? How do you make that determination?
• Property Type/Loan Size
– Specialty property, smaller loan
• Age of Report
– How long is the appraisal “good” before the value becomes suspect?
• Original lender
– Was the original lender involved in the ordering process or was it an AMC on
behalf of the lender? Do you trust their process to have selected the best
appraiser?
Slide 5
Reviewing Another Institution’s Appraisal Report
 Now that you have the appraisal and
you’ve decided to review it for
acceptance…(Scope of Review)
 Guidelines require that you review it at least to the same
level as you would an appraisal you ordered
• Technical/Compliance Review
– Compliance review may be adequate for very small loans, but technical review is
advised to better document the file and satisfy the regulators
• Additional Research
– Do you investigate the market for additional information and/or interview market
participants?
• Inspection
– Do you inspect the property? If so, to what level?
Slide 6
Reviewing Another Institution’s Appraisal Report
 Now that you have the appraisal…
 How do reconcile issues if you cannot go back to the
original appraiser?
• Without permission to discuss with the appraiser, you have only
two options:
– Accept as is or reject outright
• In practice, this leads to heavy reliance on what is written in the
appraisal report
– This effectively leads to a much more robust review than would likely typically be
done/required as your appraiser can be asked to enhance the report if you
ordered it
 Rejection is the typical answer for me for many reasons:
• Inadequate comps, lack of support for adjustments/conclusions,
unacceptability of assumptions or conditions, other information we
require that many institutions do not (insurable value, etc)
Slide 7
Reviewing Another Institution’s Appraisal Report
 New Assignment
 Option 3 mentioned earlier was to order a new appraisal
from the appraiser
• As of same appraisal date?
– If so, this should be able to be accomplished for a very small fee
• USPAP FAQ 202 states: “A new assignment does not mean [the
appraiser has] to start from scratch.”
– Client/Appraiser can decide what is needed/required for scope of work
– Most of the data can likely be used again
» Be mindful of confidentiality
– In practice, if customer/borrower provided the property data, it will be the same
information again
• New appraisal date?
– Likely higher cost, but depending on time between existing appraisal and new
assignment, could also be a small fee
– Remember that FDIC allows banks to decide how long appraisals are valid, within
reason
Slide 8
Reviewing Another Institution’s Appraisal Report
 Syndications/Participations
 All of the same rules described above apply
• In a Syndication, all banks work together from the beginning of the
process, which usually facilitates getting the appraisal issues
handled before funding, passive role if not lead bank
• In a Participation, agent banks sell to participants. There is more
risk to the participants as there is less flexibility in loan terms and
the appraisals have already been ordered and accepted by the
lead bank.
• Review process:
– In a syndication, limited direct review is needed as the banks are
buying shares of a loan, but not directly taking collateral, reducing risk
– In a participation, lenders are likely collateralizing the loan, requiring
appraisal review just as discussed above
Slide 9
Reviewing Another Institution’s Appraisal Report
 Syndications/Participations
 Syndication Review
• Items to consider:
– Do you trust the processes at the lead bank?
– Do you trust the original appraiser(s)?
– Do you have experience with the reviewer at the lead bank?
» At my institution, when we enter into our first syndication with a particular
bank, we will review some appraisals and reviews, to ensure we are
comfortable with the reviewer’s experience and documentation
» For subsequent transactions with that bank, we review the reviews
performed by the lead bank for all properties in the Syndication
» If we have issues with a particular property based on what we see in the
review, we will ask for that appraisal so we can review it directly
» We will also, from time to time, monitor the reviewer’s work by comparing
reviews and appraisals, to ensure work product remains consistent
– If we cannot get the reviews from the lead bank, we will directly review a sample
of the appraisals, generally focusing on the most complex or largest property (by
value conclusion) in the portfolio
Slide 10
Reviewing Another Institution’s Appraisal Report
 Syndications/Participations
 Participation Review
• Your bank has much more responsibility in a participation situation
• Items to consider:
– Do you trust the processes at the lead bank?
– We review all appraisals directly for a participation following same rules as
discussed earlier
– We ask for permission to speak to appraiser directly if we have problems with the
appraisals
Slide 11
Reviewing Another Institution’s Appraisal Report
 Final thoughts
 How long is the appraisal valid?
• FDIC allows you to “establish criteria for assessing whether an
existing appraisal or evaluation continues to reflect the market
value of the property (that is, remains valid).”
– Assuming you have accepted the appraisal for use in your bank’s transaction, how
would you go about determining how long it remains valid?
– At our bank, an appraisal from another institution cannot be used for more than
one loan renewal
» If the appraisal is used for a one year renewal, that appraisal is only good
for one year at which time we will perform an evaluation or get a new
appraisal
– Regulations allow you to make this determination
Slide 12
Reviewing Another Institution’s Appraisal Report
 References
 FDIC
• 2010 Interagency Appraisal and Evaluation
Guidelines, various pages
• 2014-2015 USPAP, FAQ 202, page F-92
Slide 13
Reviewing Another Institution’s Appraisal Report
 Questions/Thoughts?
 Craig Benton, MAI
• [email protected]
• 770-343-6409
Slide 14

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