Interagency Guidelines, FDIC and AS IS Values

[Meandering]

Actually, I had a good friend of mine do some additional research.

If the Bank sells to Fannie, Freddie, FHA or VA, they are then exempt from the Interagency Guidelines.

Cool!

Where do we find that information?

.

 

[Meandering]

Appendix C to Part 208—Interagency Guidelines for Real Estate Lending Policies

The agencies' regulations require that each insured depository institution adopt and maintain a written policy that establishes appropriate limits and standards for all extensions of credit that are secured by liens on or interests in real estate or made for the purpose of financing the construction of a building or other improvements.1 These guidelines are intended to assist institutions in the formulation and maintenance of a real estate lending policy that is appropriate to the size of the institution and the nature and scope of its individual operations, as well as satisfies the requirements of the regulation.


1The agencies have adopted a uniform rule on real estate lending. See 12 CFR part 365 (FDIC); 12 CFR part 208, subpart E (FRB); 12 CFR part 34, subpart D (OCC); and 12 CFR 563.100-101 (OTS).

Each institution's policies must be comprehensive, and consistent with safe and sound lending practices, and must ensure that the institution operates within limits and according to standards that are reviewed and approved at least annually by the board of directors. Real estate lending is an integral part of many institutions' business plans and, when undertaken in a prudent manner, will not be subject to examiner criticism.

http://www.ecfr.gov/cgi-bin/text-id...view=text&node=12:2.0.1.1.9.10.3.3.17&idno=12

Sorry,

Did not find any exclusions for GSE's.

.

 

[Terrel L. Shields]

In theory they used to teach that Fannie mae should fall within the guidelines of FHA...and they in turn should be similar to the regulated banks in handling "safe and sound" banking practices.

As a practical matter, it is a Chinese Fire Drill...

 

[alex gilbert]

Actually, I had a good friend of mine do some additional research.

If the Bank sells to Fannie, Freddie, FHA or VA, they are then exempt from the Interagency Guidelines.

The lender doesn't have to sell to F/F, the Interagency Guidelines say that only that the transaction has to qualify for sale to a gov't agency or GSE. (Appendix A - Appraisal Exemptions #10). Even if the transaction doesn't conform to all F/F underwriting standards, if the appraisal meets the GSE appraisal standards it's technically exempt from the Interagency Guidelines (10ii).

Nonetheless, the bank I work for requires the as-is value be reported in all appraisals, including proposed construction. There would only be a few with only very rare cases where this is not part of the sow.

 

[Mike P]

Alex, you have a home 50% complete new construction. How do you arrive at the As Is value? Do you think your As Is value is even remotely credible? Would it stand up in a courtroom?

 

[Mike P]

Also, I started in 1994. I am baffled as to why would a Bank want an AS IS value of a home under construction, when they are not going to release any funds, or in other words will not fund the mortgage, until the subject is 100% complete and the CO has been issued, and we have issued a Final Inspection.

It is my belief that if you really read in to these Guidelines, they pertain to Commercial projects, tract developments and have absolutely no impact on a single appraisal of one home under construction, none at all.

I truly believe there needs to be clarification of this so called guideline by Fannie, Freddie, HUD and the VA.

Or even better, clear language from the FDIC if they truly mean this to apply to a single family home being built in a subdivision. Even if you are doing a true construction loan, funds will be released by individual draws....

 

[Adios]

Actually, I had a good friend of mine do some additional research.

If the Bank sells to Fannie, Freddie, FHA or VA, they are then exempt from the Interagency Guidelines.

No, no. Every federally regulated bank is subject to IAEG.

 

[Meandering]

Alex, you have a home 50% complete new construction. How do you arrive at the As Is value? Do you think your As Is value is even remotely credible? Would it stand up in a courtroom?

After the collapse of the subprimes, we had sales like this. Lots of mid construction that went belly up.

Standing partial structure Frame Work had zero contribution to the MARKET value of the INTERESTS in the REAL PROPERTY.

Best reason was that the BLUEPRINTS to complete the construction were PERSONAL PROPERTY and did not convey with the partial structure.

So, to have blueprints created to finish the partial structure was found to be MORE EXPENSIVE than to have fresh blueprints for a brand new structure utilizing any foundation in place.

That's how it was here. Lots of framework and sheeting was bulldozed. Some where finished if there was an electrician or similar in a family, but from nothing to not much above land value was what we found. Of course it depends upon how much interior and mechanicals were completed. Those with electric in place and at least some sheet rock were generally finished.

.

 

[Terrel L. Shields]

the bank I work for requires the as-is value be reported in all appraisals

If the bank directors have adopted a policy to value all property "as is" then they are bound by their own policy and FDIC et al will enforce it even if they did not require that in the IAG. If they adopt a policy to use only certified general appraisers on all property over $35...again, that is a policy decision that the regulators and examiners do make them stick to even though they don't require they have such a policy.

Alex, you have a home 50% complete new construction. How do you arrive at the As Is value? Do you think your As Is value is even remotely credible? Would it stand up in a courtroom?

It will stand up in court because no one will have evidence that will support that it won't be that value.

You may just say it is land value as if vacant and cost to date. Who can prove it wrong?
You can say it is land value + expense to day less 50% for functional inadequacy. Who can prove you wrong? Can you think of one that sold half done? I can think of maybe 10 over the past 15 years or so and only 1 was NOT a bank REO...the other sit exposed to the elements for 3 years before being finished by the buyer and they had to replace some sheathing before completing it. It was framed and roofed but not even fully enclosed nor was the plumbing and electrical roughed in.

Also, I started in 1994. I am baffled as to why would a Bank want an AS IS value of a home under construction,

That requirement was true in 1994. It is nothing new for an FRT. The fact few enforced it..well, blame the examiners. And they do explain why they want the as is value in letters to the banks.

They want the context of the "as is" value. They want to make sure that some subdivision isn't being constructed based on total inane assumptions, that the appraiser not merely report the as is value but "analyze and consider" the impact thereof....

deductions and discounts for proposed
construction or renovation, partially
leased buildings, non-market lease
terms, and tract developments with
unsold units.
This standard is designed to avoid
having appraisals prepared using
unrealistic assumptions and
inappropriate methods. An appraisal
must include the market value of the
property and should reflect the
property’s condition in its actual
physical condition, use, and zoning
designation, as of the effective date of
the appraisal.

 

[mark hurlock]

The original guideline as Mike posted, did not “require” an as is value for all assignments. It allowed lenders to determine when it would and would not be necessary for their purpose. The guideline was changed because of controversy over when an institution would generally request an as is value from the appraiser.

For example, “as proposed” before construction begins. “As is value” would typically be the unimproved site value. Since this value is already provided in the cost approach, no additional request for as is value would generally be necessary. However, there would be certain circumstances when this would not be the case, for lots not yet subdivided or ready to build on for example.

An institution preparing for settlement upon completion of construction and having no involvement in the construction proses might have no need for it's as is value.

An institution preparing for a renovation loan on an existing dwelling would generally have need for an as is value.

The controversy was likely a result of institutions who failed to recognize when it would be appropriate. Therefore, the guideline was change in the appendix to “require” an institution to request an as is value along with proposed value.


Whether or not an appraiser is “required” to provide an as is value when the client has not requested it, appears to remain controversial.