Interagency Guidelines, FDIC and AS IS Values

[Terrel L. Shields]

I only know I have been providing as is and as proposed values since the mid 90s. And when a poultry farm was adding more barns, it can be a real PITA because often they were already in the process of not only building new barns but updating the old barns.

OTOH, if work suddenly stopped, what pickle would this put the bank in?

There would be a real risk in an investment should work stop in mid-stride. And I don't see how any bank, investor, or lender is simply going to avoid accepting the risk that from the time work commences until it is finished there is that potential exposure. Once finished, the risk is greatly reduced.

But we've all seen it. A half done house sitting in the weeds. That vacant building with the crane parked nearby....somebody somewhere took a hit.

 

[PropertyEconomics]

But we've all seen it. A half done house sitting in the weeds. That vacant building with the crane parked nearby....somebody somewhere took a hit.

In many instances it has been the taxpayer ... funding the bank that took the property back .... and yes we have seen it in nearly every market.

They may be labeled as "too big to fail" .. but they are not too big to realize losses.

 

[George Hatch]

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.

There's a difference between an appraiser opining site value in a cost approach and developing an opinion of the as is value, so simply leaving it to the reader to make the assumption is unprofessional at the very least. It's bad enough that 95% of residential appraisers do that with the Cost Approach and Insurable Value, or that 90% of you develop your site value opinions by backing into them and without ever bothering to look for sales data involving vacant sites.

An "As Is" can easily be worth more than site value as vacant when there are entitlements and/or approved plans in place and/or utility meters and/or a well and cistern and/or an approved septic layout and/or a half dozen other variables that can and do occur in real life. We don't appraise properties, we appraise property rights.

As for "changes", I daresay you are grossly underinformed on this one.

I distinctly recall getting instruction in a live seminar conducted in person by 4 federal banking regulators in 1990 about the *requirement* at that time to include an as is on all appraisals - including SFRs - that were using an HC of any type. They must have spent 1/2 hour on the subject.

This predates the involvement of many of you in the appraisal profession, so if any of you think you have what it takes to rewrite history then feel free to knock yourselves out.

 

[Ken B]

http://www.FDIC.gov/regulations/laws/rules/5000-4800.html


Interagency Appraisal and Evaluation Guidelines, Appendix A, Appraisal Exemptions

Under Title XI of FIRREA, the Agencies were granted the authority to identify categories of real estate-related financial transactions that do not require the services of an appraiser to protect federal financial and public policy interests or to satisfy principles of safe and sound lending. Therefore, in their appraisal regulations, the Agencies identified certain real estate-related financial transactions that do not require the services of an appraiser and that are exempt from the appraisal requirement. This appendix provides further clarification on the application of these regulatory exemptions and should be read in the context of each Agency’s appraisal regulation.

9. Transactions Insured or Guaranteed by a U.S. Government Agency or U.S. Government-sponsored Agency
This exemption applies to transactions that are wholly or partially insured or guaranteed by a U.S. government agency or U.S. government-sponsored agency. The Agencies expect these transactions to meet all the underwriting requirements of the federal insurer or guarantor, including its appraisal requirements, in order to receive the insurance or guarantee.

10. Transactions that Qualify for Sale to, or Meet the Appraisal Standards of, a U.S. Government Agency or U.S. Government-sponsored Agency
This exemption applies to transactions that either (i) qualify for sale to a U.S. government agency or U.S. government-sponsored agency,58 or (ii) involve a residential real estate transaction in which the appraisal conforms to Fannie Mae or Freddie Mac appraisal standards applicable to that category of real estate. An institution may engage in these transactions without obtaining a separate appraisal conforming to the Agencies’ appraisal regulations. Given the risk to the institution that it may have to repurchase a loan that does not comply with the appraisal standards of the U.S. government agency or U.S. government-sponsored agency, the institution should have appropriate policies to confirm its compliance with the underwriting and appraisal standards of the U.S. government agency or U.S. government-sponsored agency.
10(i) An institution that relies on exemption 10(i) should maintain adequate documentation that confirms that the transaction qualifies for sale to a U.S. government agency or U.S. government-sponsored agency. If the qualification for sale is not adequately documented, the transaction should be supported by an appraisal that conforms to the Agencies’ appraisal regulations, unless another exemption applies.

58 These government-sponsored agencies include Banks for Cooperatives; Federal Agriculture Mortgage Corporation; Federal Farm Credit Banks; Federal Home Loan Banks; Freddie Mac; Fannie Mae; and Tennessee Valley Authority.
10(ii) To qualify for this exemption, transactions that do not conform to all of Fannie Mae or Freddie Mac underwriting standards, such as jumbo or other residential real estate loans, must be supported by an appraisal that meets these government-sponsored agencies’ appraisal standards for the applicable property type and is documented in the credit file or reproducible.

 

[Ken B]

If at first you don't succeed, read the instructions.

To paraphrase the previous post, the rules apply only to whom the rules apply.

 

[Meandering]

http://www.FDIC.gov/regulations/laws/rules/5000-4800.html


Interagency Appraisal and Evaluation Guidelines, Appendix A, Appraisal Exemptions

Under Title XI of FIRREA, the Agencies were granted the authority to identify categories of real estate-related financial transactions that do not require the services of an appraiser to protect federal financial and public policy interests or to satisfy principles of safe and sound lending. Therefore, in their appraisal regulations, the Agencies identified certain real estate-related financial transactions that do not require the services of an appraiser and that are exempt from the appraisal requirement. This appendix provides further clarification on the application of these regulatory exemptions and should be read in the context of each Agency’s appraisal regulation.

9. Transactions Insured or Guaranteed by a U.S. Government Agency or U.S. Government-sponsored Agency
This exemption applies to transactions that are wholly or partially insured or guaranteed by a U.S. government agency or U.S. government-sponsored agency. The Agencies expect these transactions to meet all the underwriting requirements of the federal insurer or guarantor, including its appraisal requirements, in order to receive the insurance or guarantee.

10. Transactions that Qualify for Sale to, or Meet the Appraisal Standards of, a U.S. Government Agency or U.S. Government-sponsored Agency
This exemption applies to transactions that either (i) qualify for sale to a U.S. government agency or U.S. government-sponsored agency,58 or (ii) involve a residential real estate transaction in which the appraisal conforms to Fannie Mae or Freddie Mac appraisal standards applicable to that category of real estate. An institution may engage in these transactions without obtaining a separate appraisal conforming to the Agencies’ appraisal regulations. Given the risk to the institution that it may have to repurchase a loan that does not comply with the appraisal standards of the U.S. government agency or U.S. government-sponsored agency, the institution should have appropriate policies to confirm its compliance with the underwriting and appraisal standards of the U.S. government agency or U.S. government-sponsored agency.
10(i) An institution that relies on exemption 10(i) should maintain adequate documentation that confirms that the transaction qualifies for sale to a U.S. government agency or U.S. government-sponsored agency. If the qualification for sale is not adequately documented, the transaction should be supported by an appraisal that conforms to the Agencies’ appraisal regulations, unless another exemption applies.

58 These government-sponsored agencies include Banks for Cooperatives; Federal Agriculture Mortgage Corporation; Federal Farm Credit Banks; Federal Home Loan Banks; Freddie Mac; Fannie Mae; and Tennessee Valley Authority.
10(ii) To qualify for this exemption, transactions that do not conform to all of Fannie Mae or Freddie Mac underwriting standards, such as jumbo or other residential real estate loans, must be supported by an appraisal that meets these government-sponsored agencies’ appraisal standards for the applicable property type and is documented in the credit file or reproducible.

Were is that evaluation, BPO, AVM, "other products" category?

Funny, they exempt: "do not require the services of an appraiser to protect federal financial and public policy interests or to satisfy principles of safe and sound lending." But did not exempt the use of USPAP?


.

 

[mark hurlock]

There's a difference between an appraiser opining site value in a cost approach and developing an opinion of the as is value, so simply leaving it to the reader to make the assumption is unprofessional at the very least. It's bad enough that 95% of residential appraisers do that with the Cost Approach and Insurable Value, or that 90% of you develop your site value opinions by backing into them and without ever bothering to look for sales data involving vacant sites.

An "As Is" can easily be worth more than site value as vacant when there are entitlements and/or approved plans in place and/or utility meters and/or a well and cistern and/or an approved septic layout and/or a half dozen other variables that can and do occur in real life. We don't appraise properties, we appraise property rights.

As for "changes", I daresay you are grossly underinformed on this one.

I distinctly recall getting instruction in a live seminar conducted in person by 4 federal banking regulators in 1990 about the *requirement* at that time to include an as is on all appraisals - including SFRs - that were using an HC of any type. They must have spent 1/2 hour on the subject.

This predates the involvement of many of you in the appraisal profession, so if any of you think you have what it takes to rewrite history then feel free to knock yourselves out.

First of all, George, the examples were to illustrate when a lending institution “might” be expected to follow their guidelines, and it provided a basis for when an institution might not NEED to ask an appraiser for as is value. It was not an example of when an as is value would NEVER be needed. In fact, if you had actually read the comment you might have understood that.

Therefore, your assumption that “90% of you” inadequately develop the cost approach is just uncalled for in this thread and certainly inappropriate in response to my comments.

Lastly, we already had an exhaustive thread on what language is necessary to establish an enforceable “requirement” in any rule or regulation which the original guideline failed to establish. The resulting controversy of this failure was the addition of an appendix, making it an enforceable requirement.

I don't care what someone told you twenty years ago or what you think they know about regulation enforcement. And I certainly don't care if you disagree.

 

[alex gilbert]

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, do you a think a property that is 50% complete does not have a value? It has to be worth something and an appraiser should be able to determine it. Your question has to with methodology, not the requirement itself.

 

[CANative]

Mark, you sound a lot like SANDY and Joyce Potts.

 

[mark hurlock]

Mark, you sound a lot like SANDY and Joyce Potts.

I have never heard either, so i'll take you at your word. Do you want to know who I think you sound like?