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2 If you have any questions, please contact us: Andrew V. Mekjavich Vice President Client Services Manager The Property Sciences Group, Inc. 123 South Figueroa Street, Suite 230 Los Angeles, CA Direct Main Fax Stewart Heller Director of Financial Institution Services The Property Sciences Group, Inc. 123 South Figueroa Street, Suite 230 Los Angeles, CA Cell Main Fax Protecting the Future of America s Lenders

3 Introduction Stewart Heller Property Sciences Overview Preferred Written Formats for Comments Jerry Germanetti City National Bank A B C Interagency Proposal: Part 1 Home Valuation Code of Conduct Minimum Appraisal Standards Appraisal Development and Appraisal Reports Questions and Answers Joan Trice Douglas La Rocca Douglas La Rocca Appraisal Buzz Property Sciences Property Sciences D E F Interagency Proposal: Part 2 Evaluation Content Reviewing Appraisals and Evaluations Portfolio Monitoring and Updating Collateral Valuations Questions and Answers George Mann Chris Butcher Crispin Bennett Sun Trust Bank Manufacturers Bank MDA Lending Solutions Appendices Appendix A Appraisal Exemptions Patrick Jackson City National Bank Appendix B Evaluation Alternatives Paul Chandler Property Sciences Appendix C Glossary of Terms Questions and Answers Mitch Kreeger Affinity Bank Closing Remarks Stewart Heller Property Sciences

4 Overview of Proposed Guidelines Presented by Jerry Germanetti SVP, Chief Appraiser 555 S. Flower St., 10th floor Los Angeles, CA Tel: (213)

5 Agencies involved: Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (FRB); Federal Deposit Insurance Corporation (FDIC); Office of Thrift Supervision, Treasury (OTS); National Credit Union Administration (NCUA). Guidelines will Replace the 1994 Interagency Appraisal and Evaluation Guidelines to incorporate recent supervisory issuances Agencies are currently accepting comments Commenting Period Submission Deadline: January 20, 2009 Refer to Page 2 6 of the Proposed Guidelines for Instructions on submitting comments to each agency

6 Main issues to be addressed in these changes are: 1. Additional detail on the agencies' expectations for an independent appraisal and evaluation function. 2. Greater explanation of the agencies' minimum appraisal standards, including clarification of requirements for appraisals of residential tract developments. 3. Recent revisions to the Uniform Standards of Professional Appraisal Practice (USPAP) 4. Risk focused appraisal and evaluation reviews separate and apart from an institution's compliance function. 5. New appendices Appendix A Appraisal Exemptions provides further clarification on real estate transactions that are exempt from the agencies' appraisal regulations; Appendix B Evaluation Alternatives Acceptable evaluation alternatives and use of Automated Valuation Models (AVMs) Appendix C New glossary of terms.

7 Items of change the OCC highlighted in their Dec. 5, 2008, webinar USPAP Technology Changes Independence Issues Compliance Section Appraisal Reviews 1 to 4 Low Risk Mortgages (AVM's) Other Low Risk Level Reviews Lack of Proper Due Diligence (Time vs. Quality) Compliance Portfolio Management Portfolio Monitoring Collateral Valuations "Market Value" (Hypothetical vs. P Appraisal Exemptions Prospective)

8 OCC list of item changes that are considered the most important: Independence Issues Appraisal Reviews Portfolio Management

9 Overview of Proposed Guidelines Presented by Jerry Germanetti SVP, Chief Appraiser 555 S. Flower St., 10th floor Los Angeles, CA Tel: (213)

10 Home Valuation Code of Conduct Presented by Joan Trice Publisher 7721 Five Mile Road, Suite 172 Cincinnati, OH Tel: (513)

11 I. Appraiser Independence Safeguards Home Valuation Code of Conduct A. An appraiser must be, at a minimum, licensed or certified by the state in which the property to be appraised is located. B. No employee, director, officer, or agent of the lender, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner including but not limited to: (1) withholding or threatening to withhold timely payment or partial payment for an appraisal report; (2) withholding or threatening to withhold future business for an appraiser, or demoting or terminating or threatening to demote or terminate an appraiser; (3) expressly or impliedly promising future business, promotions, or increased compensation for an appraiser; (4) conditioning the ordering of an appraisal report or the payment of an appraisal fee or salary or bonus on the opinion, conclusion, or valuation to be reached, or on a preliminary value estimate requested from an appraiser; (5) requesting that an appraiser provide an estimated, predetermined, or desired valuation in an appraisal report prior to the completion of the appraisal report, or requesting that an appraiser provide estimated values or comparable sales at any time prior to the appraiser s completion of an appraisal report; (6) providing to an appraiser an anticipated, estimated, encouraged, or desired value for a subject property or a proposed or target amount to be loaned to the borrower, except that a copy of the sales contract for purchase transactions may be provided; (7) providing to an appraiser, appraisal company, appraisal management company, or any entity or person related to the appraiser, appraisal company, or appraisal management company, stock or other financial or non-financial benefits; (8) allowing the removal of an appraiser from a list of qualified appraisers, or the addition of an appraiser to an exclusionary list of disapproved appraisers, used by any entity, without prompt written notice to such appraiser, which notice shall include written evidence of the appraiser s illegal conduct, a violation of the Uniform Standards of Professional Appraisal Practice (USPAP) or state licensing standards, substandard performance, improper or unprofessional behavior or other substantive reason for Home Valuation Code of Conduct December 2008 Page 1 of 6

12 removal (except that this prohibition will not preclude the management of appraiser lists for bona fide administrative reasons based on written, management-approved policies); (9) ordering, obtaining, using, or paying for a second or subsequent appraisal or automated valuation model (AVM) in connection with a mortgage financing transaction unless: (i) there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file, or (ii) unless such appraisal or automated valuation model is done pursuant to written, pre-established bona fide pre- or post-funding appraisal review or quality control process or underwriting guidelines, and so long as the lender adheres to a policy of selecting the most reliable appraisal, rather than the appraisal that states the highest value; or (10) any other act or practice that impairs or attempts to impair an appraiser s independence, objectivity, or impartiality or violates law or regulation, including, but not limited to, the Truth in Lending Act (TILA) and Regulation Z, or the USPAP. C. Nothing in this section shall be construed as prohibiting the lender (or any third party acting on behalf of the lender) from requesting that an appraiser (i) provide additional information or explanation about the basis for a valuation, or (ii) correct objective factual errors in an appraisal report. II. Borrower Receipt of Appraisal The lender shall ensure that the borrower is provided a copy of any appraisal report concerning the borrower s subject property promptly upon completion at no additional cost to the borrower, and in any event no less than three days prior to the closing of the loan. The borrower may waive this three-day requirement. The lender may require the borrower to reimburse the lender for the cost of the appraisal. III. Appraiser Engagement A. The lender or any third party specifically authorized by the lender (including, but not limited to, appraisal companies, appraisal management companies, and correspondent lenders) shall be responsible for selecting, retaining, and providing for payment of all compensation to the appraiser. The lender will not accept any appraisal report completed by an appraiser selected, retained, or compensated in any manner by any other third party (including mortgage brokers and real estate agents). The lender may accept an appraisal prepared by an appraiser for a different lender, including where a mortgage broker has facilitated the mortgage application (but not ordered the appraisal), provided the lender: (1) obtains written assurances that such other lender follows this Code of Conduct in connection with the loan being originated; and (2) determines that such appraisal conforms to its requirements for appraisals and is otherwise acceptable. Home Valuation Code of Conduct December 2008 Page 2 of 6

13 B. All members of the lender s loan production staff, as well as any person (i) who is compensated on a commission basis upon the successful completion of a loan or (ii) who reports, ultimately, to any officer of the lender not independent of the loan production staff and process, shall be forbidden from (1) selecting, retaining, recommending, or influencing the selection of any appraiser for a particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; and (2) having any substantive communications with an appraiser or appraisal management company relating to or having an impact on valuation, including ordering or managing an appraisal assignment. If absolute lines of independence cannot be achieved as a result of the lender s small size and limited staff, the lender must be able to clearly demonstrate that it has prudent safeguards to isolate its collateral evaluation process from influence or interference from its loan production process. C. Any employee of the lender (or if the lender retains an appraisal company or appraisal management company, any employee of that company) tasked with selecting appraisers for an approved panel or substantive appraisal review must be (1) appropriately trained and qualified in the area of real estate appraisals, and (2) in the case of an employee of the lender, wholly independent of the loan production staff and process. IV. Prevention of Improper Influences on Appraisers A. In underwriting a loan, the lender shall not utilize any appraisal report: (1) prepared by an appraiser employed by: (a) the lender; (b) an affiliate of the lender; (c) an entity that is owned, in whole or in part, by the lender; or (d) an entity that owns, in whole or in part, the lender. (2) prepared by an appraiser (a) employed, (b) engaged as an independent contractor, or (c) otherwise retained by any appraisal company or any appraisal management company affiliated with, or that owns or is owned, in whole or in part by, the lender or an affiliate of the lender. Home Valuation Code of Conduct December 2008 Page 3 of 6

14 B. Section IV.A. shall apply unless: (1) the appraiser or, if an affiliate, the company for which the appraiser works, reports to a function of the lender independent of sales or loan production; (2) employees in the sales or loan production functions of the lender have no involvement in the operations of the appraisal functions and play no role in selecting, retaining, recommending, or influencing the selection of any appraiser for any particular appraisal assignment or for inclusion on a list or panel of appraisers approved to perform appraisals for the lender or forbidden from performing such work; (3) employees in the sales or loan production functions of the lender are not allowed to have any substantive communications with an appraiser, appraisal company, or appraisal management company relating to or having an impact on valuation or to be provided information about which appraiser has been given a particular appraisal assignment before completion of that assignment; (4) the lender, or its agents, and any appraisal company or appraisal management company providing the appraisal to the lender do not provide the appraiser any estimated or target value of the property or the loan amount applied for (except that a copy of the sales contract for purchase transactions may be provided); (5) the appraiser's compensation does not depend in any way on the value arrived at in any appraisal or upon the closing of the loan for which the appraisal was completed; (6) the lender and any appraisal company or any appraisal management company providing the appraisal to the lender has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in Part I of this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures; (7) the lender s appraisal functions are either annually audited by an external auditor or are subject to federal or state regulatory examination, and, unless prohibited by law, the lender promptly provides to Fannie Mae or Freddie Mac the results of any adverse, negative, or irregular findings of such audits and examinations indicating non-compliance with any provision of this Code of Conduct, whether or not the examination was conducted for the purpose of determining compliance with this Code of Conduct; and (8) the lender and any entity described in section IV.A. providing the appraisal to the lender recognize that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of complaint reviews to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement. Home Valuation Code of Conduct December 2008 Page 4 of 6

15 C. In underwriting a loan, the lender shall not use an appraisal report prepared by an entity that is affiliated with, or that owns or is owned, in whole or in part by, another entity that is engaged by the lender to provide other settlement services, as that term is defined in the Real Estate Settlement Procedures Act, 12 U.S.C et seq., for the same transaction, unless the entity that provides the appraisal: (1) has adopted written policies and procedures implementing this Code of Conduct, including, but not limited to, adequate training and disciplinary rules on appraiser independence (including the principles detailed in this Code of Conduct) and has mechanisms in place to report and discipline anyone who violates these policies and procedures; (2) recognizes that, once the Independent Valuation Protection Institute is established, the Institute will receive complaints for review and referral regarding non-compliance with the Code of Conduct. Referrals and reports shall be made to Fannie Mae and/or Freddie Mac regarding such complaints and the Institute will provide information on the results of its review of such complaints to Fannie Mae and/or Freddie Mac and make them available to the other parties to the Home Value Protection Program and Cooperation Agreement. D. Notwithstanding the requirements herein, the lender also may use in-house staff appraisers to (i) order appraisals, (ii) conduct appraisal reviews or other quality control, whether pre-funding or post-funding, (iii) develop, deploy, or use internal automated valuation models, or (iv) prepare appraisals in connection with transactions other than mortgage origination transactions (e.g. loan workouts), if it complies with the terms of this Code of Conduct. E. The provisions of this section do not apply to institutions (including non-banking institutions) that meet the definition of a small bank as set forth in 12 U.S.C. 2908, and which Freddie Mae or Fannie Mae determines would suffer hardship due to the provisions, and which otherwise adhere to this Code of Conduct. V. The Independent Valuation Protection Institute An Independent Valuation Protection Institute (Institute) shall be created as approved by the parties. Subject to section IX, when the Institute is established, the lender will provide information to appraisers and borrowers regarding the availability of the Institute's services, which are expected to include: (1) a telephone hotline and address to receive any complaints of Code of Conduct non-compliance, including complaints from appraisers, individuals, or other entities concerning the improper influencing or attempted improper influencing of appraisers or the appraisal process, which the Institute will review and report as provided in IV.B(8) and IV.C(2) of this Code of Conduct; and (2) the publication and promotion of best practices for independent valuation. The lender shall not retaliate, in any manner or method, against the person or entity that makes a complaint to the Institute. Home Valuation Code of Conduct December 2008 Page 5 of 6

16 VI. Appraisal Quality Control Testing The lender agrees that it shall quality control test, by use of retroactive or additional appraisal reports or other appropriate method, a randomly selected 10 percent (or other bona fide statistically significant percentage) of the appraisals or valuations that are used by the lender, including the results of automated valuation models, broker s price opinions, or desktop evaluations. The lender shall provide to Fannie Mae or Freddie Mac a report of any adverse, negative, or irregular findings of such quality control testing, and any findings indicating noncompliance with any provision of this Code of Conduct, with respect to loans sold to Fannie Mae and Freddie Mac respectively, and the Enterprise may enforce all applicable rights and remedies, including requiring the lender to repurchase mortgages or the Enterprise s participation interest in mortgages. VII. Referrals of Appraisal Misconduct Reports Any lender that has a reasonable basis to believe an appraiser or appraisal management company is violating applicable laws, or is otherwise engaging in unethical conduct, shall promptly refer the matter to the applicable State appraiser certifying and licensing agency or other relevant regulatory bodies. VIII. Representations and Warranties A lender shall certify, warrant, and represent that the appraisal report was obtained in a manner in compliance with this Code of Conduct. If the Enterprise determines, on its own or from a referral made by the Institute, that a lender is in breach of a material aspect of this Code of Conduct or in violation of a provision of the Code by a complaint referred from the Institute, the Enterprise will enforce all applicable rights and remedies, including suspension or termination of the lender s eligibility to sell loans to the Enterprise, if the lender fails to remediate. IX. Scope of Code Nothing in this Code of Conduct shall be construed to establish new requirements or obligations that: (1) require a lender to obtain a property valuation, or to use any particular method for property valuation (such as an appraisal or automated valuation model) in connection with any mortgage loan or mortgage financing transaction; (2) affect the acceptable scope of work for an appraiser in connection with a particular assignment; or (3) require the lender or any third party acting on behalf of the lender to take any action prohibited by federal or state law or regulation. Home Valuation Code of Conduct December 2008 Page 6 of 6

17 Home Valuation Code of Conduct Presented by Joan Trice Publisher 7721 Five Mile Road, Suite 172 Cincinnati, OH Tel: (513)

18 Minimum Appraisal Standards & Appraisal Development and Appraisal Reports Presented by Douglas La Rocca Chief Appraiser 395 Taylor Boulevard, Suite 250 Pleasant Hill, CA Tel: (925)

19 1. Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) unless principles of safe and sound banking require compliance with stricter standards. 2. Be written and contain sufficient information and analysis to support the institutions decision to engage in the transaction. 3. Analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non market lease terms, and tract developments with unsold units. 4. Be based on a definition of market value set forth in the appraisal regulation. 5. Be performed by a state certified or licensed appraiser in accordance with the requirements set forth in the appraisal regulation.

20 Although allowed by USPAP the Agency guidelines do not allow: An appraiser to appraise a property in which the appraiser has an interest. (direct, indirect, or otherwise) Can refer to certification for evidence of appraiser s independence. Appraisal must contain an opinion of market value as defined in the Agencies Appraisal regulations. (Page 61 of guidelines) The result of an AVM, by itself is not an appraisal. Why? Because a state certified or licensed appraiser must perform an appraisal in conformance with USPAP and the agencies minimum appraisal standards.

21 Appraisal should be appropriate for the transaction and should be sufficient to consider the risk and complexity of the transaction. Scope of Work Considerations Appraiser responsible for developing the Scope of Work. Institution should ensure thatt the Scope of Work is appropriate for the assignment. The report should contain sufficient disclosures. Nature and extent of inspection and research performed to verify the property s condition and support the appraiser s opinion of market value.

22 Standard is designed for the following: Avoid having appraisals prepared with unrealistic assumptions and inappropriate methods. Market value should reflect the property s actual physical condition, use zoning, designation, as of the effective date. Categories: Proposed Construction or Renovation A prospective market value as completed and stabilized. Partially Leased Buildings Deductions and discounts should include items such as leasing commissions, rent losses, tenant improvements, and entrepreneurial profit. Non Market Lease Transactions (terms that do not reflect current market conditions) Deductions and discounts which should be based on stabilized occupancy at prevailing market terms Tract Developments: Raw Land As is Value of land discounts and deductions may included holding costs, marketing costs, and entrepreneurial profit. Developed Lots Appropriate discounts for deductions should reflect holding costs, marketing costs, and entrepreneurial profit during the sales and absorption period. Attached and Detached SFRs Appropriate discounts for deductions should reflect holding costs, marketing costs, and entrepreneurial profit during the sales and absorption period of the completed units. Condominiums Appropriate discounts for deductions should reflect holding costs, marketing costs, and entrepreneurial profit during the sales and absorption period of the completed units.

23 A key consideration is the consideration of the current physical condition, use, use and zoning as of the date of the appraisal. As Is Market Value Conditionn at time of inspection Prospective Stabilized Market Value Projected future date Based on current and reasonably expected market conditions

24 Considerations: Consider not only licensing status, but also appraiser s experience and education. Lender should convey to appraiserr that the Agencies minimum appraisal standards must be followed For the appraiser the Agencies minimum appraisal standards are considered assignment conditions under USPAP.

25 The Appraisal Must Conform with USPAP The Appraisal must be Consistent with USPAP Scope of Work Rule Appraisal must reflect an appropriate Scope of Work that provides for credible assignment results The institution is responsible for obtaining an appraisal that provides sufficient information to engage in the transaction Institution should discuss its needs and expectations of the appraisal with the appraiser Institution should be involved in assisting the appraiser in establishing the Scope of Work. If applicable the appraisal should include three approaches (cost, sales, and income) to analyze the value of a property and should reconcile the results. The appraisal should reflect the subject s sales history The appraisal should include an opinion as to the highest and best use of the property The Appraisal should disclose: Whether or not the property was inspected Whether anyone provided significant assistance to the appraiser signing the appraisal report.

26 The institution is responsible for identifying the appropriate appraisal reporting option to support its credit decisions. Consider: Risk of the transaction Size of the transaction Complexity of the transaction Real estate collateral Further, the discussion on appraisal reports no longer refers to specific USPAP reporting formats (that is, self contained, summary, and restricted appraisal reports). Rather, the discussion addresses the level and adequacy of information and analysis in the report that is necessary to comply with both USPAP and the regulatory appraisal requirement to provide sufficient information to support the institution s credit decision.

27 Minimum Appraisal Standards & Appraisal Development and Appraisal Reports Presented by Douglas La Rocca Chief Appraiser 395 Taylor Boulevard, Suite 250 Pleasant Hill, CA Tel: (925)

28 Evaluation Content Presented by George Mann Former Chief Appraiser of Sun Trust and Fifth Third Banks Co Founder, Managing Director of Collateral Evaluation Services, LLC 955 Country Club Drive Cincinnati, OH Tel: (513) wm.com

29 No changes in the Proposed Guidelines have been made as to when Evaluations are a permitted option Based on FIRREA, transactions that require Evaluations: Loan amount of $250,000 or less Business loan of $1 MM or less, and transaction is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. Involves an existing extensionn of credit (loan renewal or modification) Typical Evaluation products include tax assessments, AVMs, and BPOs No change in Proposed Guideline as to who is allowed to perform Evaluations. Evaluators must be: Independent of loan production & the specific transaction Have real estate related training & experience

30 All Evaluations, at minimum should: Identify the location of the property Provided a description of the property and its current and projected use Indicate the source(s) of information used to value the property Disclose the analysis that was performed and supporting information that used to value the property Provided an estimate of the property s market value in its actual physical condition, use and zoning designation as of an effective date Indicate the preparer s name and contact information Be documented in the credit file

31 Inspection criteria should be established by the institution A more detailed evaluation may be necessary for certain transactions such as: Loans with combined LTV in excess of the supervisory LTV limits Atypical properties Properties outside the institution s traditional lending market Properties in a transitional market or location Subsequent transactions with significant risk to the institution Borrowers with high risk characteristics

32 Proposed Guidelines are not intended to change any FIRREA requirements Proposed Guidelines are intendedd to clarify FIRREA (similar to Advisory Opinions in USPAP) Goals of the document are: Assimilate the information from prior bulletins into one document Answer the common questions asked by staff reviewers, fee appraisers, etc. since 1994 Account for USPAP terminology changes First time in 15 years that the Regulators have asked for comments on appraisal issues.

33 Evaluation Content Presented by George Mann Former Chief Appraiser of Sun Trust and Fifth Third Banks Co Founder, Managing Director of Collateral Evaluation Services, LLC 955 Country Club Drive Cincinnati, OH Tel: (513) wm.com

34 Reviewing Appraisals and Evaluations Presented by Chris Butcher VP, Chief Appraiser 515 South Figueroa Street, Suite 200 Los Angeles, CA Tel: (213)

35 New topical section.not in the 1994 Guidelines Most of the contents are not new, instead were based on the following: 1994 Guidelines, Program Compliance Section FIL dated March 22, 2005 addressing FAQs, Questions Interagency Statement datedd October 27, 2003, Appraisal and Evaluation Compliance Review Section For new contents, see Proposed Guidelines, Page 38

36 New contents address use of automated tools or sampling methods for reviews As proposed, requirements for use are: Prior approval from primary regulator Low risk SFR mortgages Sufficient data and appropriate screening parameters Appraiser s work periodically reviewed Agencies are seeking specific comments on two issues: Are automated tools appropriate for other low risk mortgage transactions Can appropriate constraints be placed on these tools to ensure overall integrity of appraisal process Other topics for comment: The terms automated tools and sampling methods are vague consider citing specific examples Define low risk How are sufficient data and appropriate screening parameters to be determined

37 Reviewing Appraisals and Evaluations Presented by Chris Butcher VP, Chief Appraiser 515 South Figueroa Street, Suite 200 Los Angeles, CA Tel: (213)

38 Portfolio Monitoring and Updating Collateral Valuations Presented by Crispin Bennett Chief Appraiser 8215 Forest Point Blvd, Suite 100 Charlotte, NC Tel: (704)

39 Criteria for a new appraisal Market conditions Credit deterioration Other considerations

40 Assurance that information is available to assess collateral risk based on Property type Current market conditions Current property use Age of original appraisal/valuation

41 Agency examiners can require an appraisal or evaluation Examiners will provide reasonable time to obtain

42 Refer appraisers to state authorities when violation of: 1. USPAP 2. State laws 3. Unethical or unprofessional conduct Findings should be forwarded to the institution s supervisory office The appraiser should be referred to the state as necessary

43 Portfolio Monitoring and Updating Collateral Valuations Presented by Crispin Bennett Chief Appraiser 8215 Forest Point Blvd, Suite 100 Charlotte, NC Tel: (704)

44 Appendix A Appraisal Exemptions Presented by Patrick Jackson Compliance Specialist 400 North Roxbury Drive Beverly Hills, CA Tel: (213) patrick.jackson@cnb.com

45 1. Appraisal Threshold 2. Abundance of Caution 3. Loans Not Secured by Real Estate 4. Liens for Purposes Other Than the Real Estate s Value 5. Real Estate Secured Business Loans 6. Leases 7. Renewals, Refinancing, and Other Subsequent Transactions 8. Transactions Involving Real Estate Notes 9. Transactions Insured or Guaranteed by a U.S. Government Agency or U.S. Government sponsored Agency 10. Transactions that Qualify for Sale to, or Meet the Appraisal Standards of, a U.S. Government Agency or U.S. Government sponsored Agency 11. Transactions by Regulated Institutions as Fiduciaries 12. Appraisals Not Necessary to Protect Federal Financial and Public Policy Interests or the Safety and Soundness of Financial Institutions 13. Transactions Involving Underwriting or Dealing in Mortgage backed Securities

46 Appendix A Appraisal Exemptions Presented by Patrick Jackson Compliance Specialist 400 North Roxbury Drive Beverly Hills, CA Tel: (213) patrick.jackson@cnb.com

47 Appendix B Evaluation Alternatives Presented by Paul Chandler President & CEO 395 Taylor Boulevard, Suite 250 Pleasant Hill, CA Tel: (925) paul.chandler@propsci.com

48 Transactions That Require Evaluations Equal to or Less than Threshold Existing Extension of Credit No Material Change in Market or Property, even with New Monies No Advancement of New Monies See Appendix A Appraisal Exemptions

49 Evaluation Policy and Procedures Address Risk Criteria Determine if Inspection is Necessary Address Use of Multiple Tools

50 Automated Valuation Models Selecting Obtain relevant information about the data Demonstrate an Understanding of modeling techniques Evaluate Model Provider s Confidence score Ascertain which model is best

51 AVM Model Types Hedonic The relationship between a dependent Value and one or more explanatory Variables, such as square feet, lot size, date of sale and location. Index Change in value over time based on ReSales of properties in a given market. Mixed Combines hedonic and Index features in one model

52 AVM Practices Address Qualifications of persons designated to select, validate and administer model Establish Standards and Procedures for Testing Maintain AVM Performance Criteria

53 Determination of Appropriateness of AVM for a Given Transaction Is property homogeneous such as in a typical neighborhood? Is Property in market with strong sales activity? Is Property s location typical, such as view surrounding the area? Is the area or neighborhood free of known Adverse conditions?

54 Validating AVM Results Value Insurance or Guarantees Independent Model Validation Process AVM values compared prior to being recorded in public records

55 Appendix B Evaluation Alternatives Presented by Paul Chandler President & CEO 395 Taylor Boulevard, Suite 250 Pleasant Hill, CA Tel: (925) paul.chandler@propsci.com

56 Appendix C Glossary of Terms Presented by Mitch Kreeger Chief Appraiser 625 East Santa Clara Street, Suite 100 Ventura, CA Tel: (805)

57 Agent Approved Appraiser List Exposure Time & Marketing Time Federally Related Transaction + Real Estate Related Financial Transaction Loan Production Staff Prospective Market Value Sales History and Pending Sales Sum of Retail Sales

58 higher risk real estate related financial transactions (p. 13 Evaluation Content) portfolio risk increases (p. 13 Evaluation Content) prior approval from primary regulator (p. 14 Reviewing Appraisals and Evaluations) other low risk mortgage transactions (p. 16 Request for Comment)

59 Need a list of terms reflective of Workout and OREO situations Need better terms (and guidelines) for the various subdivision situations Terms do not generally reflect adverse or declining lifecycle issues, but rather focus on the more common stable to improving value situations. Regulators may find it useful to expand terms to include all cycle possibilities.

60 Appendix C Glossary of Terms Presented by Mitch Kreeger Chief Appraiser 625 East Santa Clara Street, Suite 100 Ventura, CA Tel: (805)

61 Introduction Stewart Heller Property Sciences Overview Preferred Written Formats for Comments Jerry Germanetti City National Bank A B C Interagency Proposal: Part 1 Home Valuation Code of Conduct Minimum Appraisal Standards Appraisal Development and Appraisal Reports Questions and Answers Joan Trice Douglas La Rocca Douglas La Rocca Appraisal Buzz Property Sciences Property Sciences D E F Interagency Proposal: Part 2 Evaluation Content Reviewing Appraisals and Evaluations Portfolio Monitoring and Updating Collateral Valuations Questions and Answers George Mann Chris Butcher Crispin Bennett Sun Trust Bank Manufacturers Bank MDA Lending Solutions Appendices Appendix A Appraisal Exemptions Patrick Jackson City National Bank Appendix B Evaluation Alternatives Paul Chandler Property Sciences Appendix C Glossary of Terms Questions and Answers Mitch Kreeger Affinity Bank Closing Remarks Stewart Heller Property Sciences

62 The slides for this event will be available online at /Slides