Appraisal Review Reminders
Appraisal Review Reminders
Since the Real Estate crisis of 2008, examiners and regulators focused on the real estate appraisal process of financial institutions. The focus was more on the transaction. They established qualification criteria for individuals who were eligible to review real estate appraisals and evaluations; they looked for independence within the transaction. Independence was defined as no direct or indirect interest, financial or otherwise, in the property or transaction. In an ideal situation, this person would receive a request for an appraisal from the loan officer, select an appraiser off the Board of Director approved appraisal list (in rotation order), order the appraisal and review when complete. Only after their review, would they provide the appraisal to the loan officer to be used for the underwriting process. This scenario wasn’t always the easiest for smaller institutions with limited staff but most Banks adjusted; however, now the emphasis is on the quality of the review.
The OCC has set guidelines they will be looking for in their upcoming exams. Regardless of an institution’s regulating agency, they may want to consider the guidelines since they all attempt to follow the same requirements. Banks should ask themselves:
- Does our policies require that every CRE appraisal be reviewed and is this policy followed?
- Does the Bank have procedures to evaluate and address the competence of the reviewers?
- Are appraisal reviewed and approved before funds are advanced?
- Are any reviews outsourced? If so, does the Bank state when such outsourcing is to occur? Are procedures in place to test the quality of the outsourced reviews? Does the reviewer use bank-developed review documentation and specification? Does the Bank have a quality control procedure in place for these reviews?
- For internally performed reviews, is the employee independent of the loan production and collection functions?
- Are all appraisals reviewed and each review documented?
In summary, the institution’s policies and procedures for reviewing appraisals should address the independence, educational and training qualifications, and role of the reviewer, reflect a risk-based approach for determining the depth of review as well as the process for resolving any deficiencies. They should also consider implementing a Quality Control Program before their next exam. If feasible, Banks may want to consider the services of a third-party vendor. Regardless of who performs these reviews, they should have substantial review experience and knowledge of both FIRREA and USPAP.