Board Memo Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations (PDF).docx

Da1.e:June20.2024To:BoardOfGovernorsFrom:StaffiSubject:InteragencyGuidanceonReconsiderationsofVa1.ueOfResidentiaIRea1.EstateVa1.uationsACTIONSREQUESTED:Approva1.oftheattacheddraftfina1.InteragencyGuidanceonReconsiderationsofVa1.ueofResidentia1.Rea1.EstateVa1.uations(interagencyguidance).Staffa1.soseekauthoritytomaketechnica1.non-substantivechangestotheinteragencyguidancepriortopub1.icationintheF>dem1.Register.EXECUTIVESUMMARY: Areconsiderationofva1.ue(ROV)isarequestfromafinancia1.institutionto(heappraiserorotherprepareroftheva1.uationreporttore-assessthereportbaseduponpotentia1.deficienciesorotherinfomationthatmayaffecttheva1.ueconc1.usion.Va1.uationsthataredeficientmayposeriskstothefinancia1.conditionandoperationsofafinancia1.institution. TheinteragencyguidanceMidue1.Gibson.An1.indo.AiuirewWi1.hs.DevynJeffetviandMauhewMcQueeney.DivisionofSupervisionandRegu1.ation:EricBe1.sky.BenO1.sotuDrewKohan.SusanTorzi1.1.i.MandteAubrey.KatrinaB1.odgeit.andKeshiaKing.DivisionofConsumerandCommunityAffairs:MarkVanDerWekfe.JaySchwarz.TrevorFe!cM>n.Ma1.tSuntag.Deia1.dSeid.andDavidImhoff.1.ega1.Division.Theintcrugcncyguidancewou1.dbejoint1.yissuedbytheBoardofGovernorsoftheFedera1.ReserveSystemhigh1.ightsthoserisks,describeshowfinancia1.institutionsmayincorporateROVprocessesintoestab1.ishedriskmanagementfunctions,andprovidesexamp1.esofpo1.iciesandprocedures(hatfinancia1.institutionsmaychoosetoinp1.emen1.tohe1.pidentify,address,andmitigatetheriskOfdiscriininationimpactingresidentia1.rea1.estateva1.uations. Theinteragencyguidancewou1.dfina1.izethePrOPoSedguidanceonROVsissuedonJu1.y21,2023andwou1.dinc1.udesevera1.c1.arifyingeditsinresponsetocomments,inc1.udinga(Board),(heConsumerFinaiwiu1.ProtectionBureau(CFPB)JbcFedera1.DepositInuracCOrPOnHiOn(FDIC),theNationa1.CreditUnionAdministration(NCUA).and(heOfficeoftheComptro1.1.eroftheCurrency(OCC)(together,theagencitf).c1.arification(hattheinteragencyguidanceapp1.iestofinaia1.transactionsthataresecuredby1.-to-4fami1.yresidentia1.rea1.estate.DISCUSSION:A. BackgroundCo1.1.atera1.va1.uations,inc1.udingappraisa1.s,arcimportanttotheintegrityoftheresidentia1.rea1.estate1.endingprocess.Co1.1.atera1.va1.uationsthataredeficientmayposerisks(suchas1.oan1.osses,vio1.ationsOf1.aw.andcivi1.1.itigation)tothefinancia1.conditionandoperationsofafinancia1.institution.'TheBoard,FDIC.NCUA.andOCChaveprevious1.yissuedguidancethatdescribesactionsafinancia1.institutionmaytaketocorrectdeficienciesidentifiedinco1.1.atera1.va1.uations.Deficientco1.1.atera1.Va1.Ua1.iOnScancontaininaccuraciesduetoerrors,omissions,ordiscriminationhataffecttheva1.ueconc1.usion.SeeIntcragcncyApPraka1.undEva1.uationGuide1.ines,75FR77450(D<x.10,2010).TheagencieshavereceivedfeedbackIYOmawiderangeofpartiesonR0V$,high1.ightingUncer1.ain1.yabouthowROVsinterec1.withappraisa1.independencerequiremen1.sandconp1.iarwcwithapp1.icab1.e1.awsand111.cs.OnJu1.y21,2023,theagenciespub1.ishedforCOm1.nCmproposedguidanceonROVsofresidentia1.rea1.estateva1.uations(rox>sa1.).iProposedIntcragcncyGuidanceonReconsiderationsofVa1.ueofResidentia1.Rea1.EstateVa1.uations.88FR47071(Ju1.y21.2023).ThePrOPOSaIdescribedhowinatwia1.institutionsmaycreateorenhatweROVprocessesconsistentWi1.hsafe1.yandsoundnessrequirements,whi1.ecomp1.yingWithapp1.icab1.e1.awsandregu1.ations,preservingappraiserindependence,andremainingresponsivetoconsumers.he60-daycommentperiodendedonSeptember19.2023.B. CommentsReceivedTheagenciesco1.1.ective1.yreceivedapproximate1.y45uniquecomment1.ettersfrombankingorganizations,rea1.estatecompanies,tradeassociations,nonprofits.TheAppraisa1.Foundation(TAF),anautomatedva1.uationmode1.(AVM)deve1.oper,1.oanofficers,appraisers,andotherindividua1.s.Thecommentsinc1.udedComn1.enISontheproposa1.genera1.1.y,Iennino1.ogyaiH1.scope,aprescriptiveversusprincip1.es-basedapproachtotheguidance,andtheburdenoftheproposa1.Specifica1.1.y,somecommentersrequestedaddingmoreprescriptivee1.ementsto(heguidance.Comnientersa1.sonotedIha1.1.hCguidancecou1.dbeover1.yburdensomeforins1.itutionsorp1.aceuru1.uepressureonappraiserswhichcou1.d1.eadIooverva1.uation.C. InteragencyCuidanceTheinteragencyguidancedescribestherisksOfdeficientco1.1.atera1.va1.uationsandout1.inesapp1.icab1.e1.aws,regu1.ations,andexistingguidancere1.atingtotheappraisa1.reviewprocessandthecorrectionOfva1.uationdeficiencies.Theinteragencyguidancea1.soexp1.ainshowfinancia1.institutionsmayincorporateROVprocessesintoexistingriskmanagcmen1.Iunc1.ionssuchasappraisa1.reviewandcomp1.aintmanagement.Fina1.1.y,theinteragencyguidanceprovidesexamp1.esofpo1.icies,procedures,andcontro1.systemsthatfinancia1.institutionsmayChoOSetoadoptwhendeve1.opingrisk-basedROV-rc1.atcdpo1.icies,procedures,contro1.systems,andcomp1.aintprocessesthatidentify,address,andmitigatetheriskofdeficientva1.uations.AgencyS1.affhavcreviewedthecommentsreceivedontheproposa1.andarcrecommendingfina1.izingtheinteragencyguidance1.arge1.yasproposed,withtheadditionofsevera1.c1.arifyingedits.Thein