Five agencies today issued final guidance to highlight what they said are the risks associated with deficient residential real estate valuations, and to describe how financial institutions may incorporate reconsiderations of value processes and controls into their risk management functions. The guidance also provides examples of policies and procedures that financial institutions may choose to implement to identify and mitigate the risk of discrimination in valuations.
A reconsideration of value is a request that a financial institution may make to the appraiser or other entity that developed a valuation report for a property being used as collateral for a loan to re-assess the report based on potential deficiencies or information that may affect the value. The guidance was first proposed last year by the FDIC, Federal Reserve, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and National Credit Union Administration. The final guidance is largely unchanged from what was proposed.
“Valuations are important to the integrity of the residential real estate lending process,” the FDIC said in a financial institution letter about the guidance. “Deficient valuations, including those that are deficient due to prohibited discrimination, can keep individuals, families and neighborhoods from building wealth through homeownership, and may pose risks to an institution’s financial condition and operations.”
Among other things, the guidance describes actions that financial institutions may take to resolve valuation deficiencies, according to the FDIC. It also states that the use of third parties in the appraisal review process “does not diminish [a bank’s] responsibility to oversee those activities in the same manner as if they were conducted by the institution itself.”
