Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Office of the Comptroller of the Currency</SUBAGY> <CFR>12 CFR Part 34</CFR> <DEPDOC>[Docket ID OCC-2023-0007]</DEPDOC> FEDERAL RESERVE SYSTEM <CFR>12 CFR Part 225</CFR> <DEPDOC>[Docket No. OP-1809]</DEPDOC> FEDERAL DEPOSIT INSURANCE CORPORATION <CFR>12 CFR Part 323</CFR> <RIN>RIN 3064-ZA36</RIN> NATIONAL CREDIT UNION ADMINISTRATION <CFR>12 CFR Part 722</CFR> <DEPDOC>[Docket ID NCUA-2023-0061]</DEPDOC> CONSUMER FINANCIAL PROTECTION BUREAU <CFR>12 CFR Chapter X</CFR> <DEPDOC>[Docket No. CFPB-2023-0033]</DEPDOC> <SUBJECT>Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Board of Governors of the Federal Reserve System (Board); Consumer Financial Protection Bureau (CFPB); Federal Deposit Insurance Corporation (FDIC); National Credit Union Administration (NCUA); and Office of the Comptroller of the Currency (OCC), Treasury. <HD SOURCE="HED">ACTION:</HD> Final interagency guidance. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Board, CFPB, FDIC, NCUA, and OCC (together, the agencies) are issuing final guidance that highlights risks associated with deficient residential real estate valuations and describes how financial institutions may incorporate reconsiderations of value (ROV) processes and controls into established risk management functions. The final guidance also provides examples of policies and procedures that a financial institution may choose to implement to help identify, address, and mitigate the risk of discrimination impacting residential real estate valuations. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> The guidance is final as of July 26, 2024. </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> <E T="03">OCC:</E> Siddarth Rao, Fair Lending Compliance Policy Specialist, (732) 635-2070; Olutoyin Falade, Fair Lending Compliance Policy Specialist, (972) 277-9551; James B. Rives, Retail Credit Risk Specialist, (202) 649-6594; Joanne Phillips, Counsel, or Marta Stewart-Bates, Counsel, Chief Counsel's Office, (202) 649-5490; Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services. <E T="03">Board:</E> Devyn Jeffereis, Senior Financial Institution Policy Analyst II, Division of Supervision and Regulation, (202) 452-2729; Keshia King, Lead Supervisory Policy Analyst, Division of Consumer and Community Affairs, (202) 452-2496; Trevor Feigleson, Senior Counsel, (202) 452-3274, or Derald Seid, Senior Counsel, (202) 452-2246, Legal Division. For users of telephone systems via text telephone (TTY) or any TTY-based Telecommunications Relay Services, please call 711 from any telephone, anywhere in the United States; Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. <E T="03">FDIC:</E> Patrick J. Mancoske, Senior Examination Specialist, Division of Risk Management Supervision, (202) 898-7032; Stuart Hoff, Senior Policy Analyst, Division of Depositor and Consumer Protection, (202) 898-3852; Legal Division: Navid Choudhury, Counsel, (202) 898-6526, <E T="03">nchoudhury@fdic.gov,</E> Lauren Whitaker, Counsel, (202) 898-3872, <E T="03">lwhitaker@fdic.gov,</E> or Mark Mellon, Counsel, (202) 898-3884, <E T="03">mmellon@fdic.gov.</E> Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. <E T="03">NCUA:</E> Naghi Khaled, Director of Credit Markets, or Walonda Hollins, Senior Credit Specialist, Office of Examination and Insurance, (703) 216-5136; Ernestine Ward, Director, Division of Consumer Compliance Policy & Outreach, Office of Consumer Financial Protection, (703) 518-6524; National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314. <E T="03">CFPB:</E> George Karithanom, Office of Regulations, at (202) 435-7700 or <E T="03">https://reginquiries.consumerfinance.gov/.</E> If you require this document in an alternative electronic format, please contact <E T="03">CFPB_Accessibility@cfpb.gov.</E> </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Table of Contents</HD> <EXTRACT> <FP SOURCE="FP-2">I. Introduction</FP> <FP SOURCE="FP-2">II. Discussion of Comments on the Proposed Guidance</FP> <FP SOURCE="FP1-2">A. General Comments</FP> <FP SOURCE="FP1-2">B. Terminology & Scope</FP> <FP SOURCE="FP1-2">i. Description of the Term “ROV”</FP> <FP SOURCE="FP1-2">ii. Description of the Terms “Comparable Sale” and “Specific and Verifiable Information”</FP> <FP SOURCE="FP1-2">ii. Scope of Transactions Covered by the Guidance</FP> <FP SOURCE="FP1-2">C. Comments on Prescriptive Versus Principles-Based Approach</FP> <FP SOURCE="FP1-2">i. Specific Suggestions for Added Prescriptiveness</FP> <FP SOURCE="FP1-2">ii. Uniformity & Standardization of ROV Processes</FP> <FP SOURCE="FP1-2">iii. Model Forms, Checklists, & Policies</FP> <FP SOURCE="FP1-2">D. Comments on Burden on Institutions</FP> <FP SOURCE="FP1-2">E. Other Comments Submitted</FP> <FP SOURCE="FP-2">III. Paperwork Reduction Act</FP> <FP SOURCE="FP-2">IV. Text of Final Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations</FP> </EXTRACT> <HD SOURCE="HD1">I. Introduction</HD> The agencies are issuing final interagency guidance (final guidance) on ROVs of residential real estate valuations. <SU>1</SU> <FTREF/> The agencies considered the comments received on the proposed guidance, and as a result, made several edits to the final guidance, including clarifying the guidance's scope. The agencies are finalizing the guidance largely as proposed. This guidance is intended to highlight risks associated with deficient residential real estate valuations, describe how financial institutions may incorporate ROV processes and controls into risk management functions, and provide examples of ROV policies and procedures that institutions may choose to implement. Collateral valuations, including appraisals, <SU>2</SU> <FTREF/> are important to the integrity of the residential real estate lending process. Deficient collateral valuations can contain inaccuracies due to errors, omissions, or discrimination  <SU>3</SU> <FTREF/> that affect the value conclusion and can result in either overvaluing or undervaluing real estate collateral. The Board, FDIC, NCUA, and OCC have previously issued guidance that describes actions a financial institution may take to correct deficiencies identified in collateral valuations. <SU>4</SU> <FTREF/> These actions include ordering a second appraisal or evaluation or resolving the deficiency through the original appraiser or preparer of the evaluation. <SU>5</SU> <FTREF/> <FTNT> <SU>1</SU>  This final guidance is supervisory guidance that does not have the force and effect of law or regulation and does not impose any new requirements on supervised institutions. <E T="03">See</E> 12 CFR part 4, subpart F, appendix A (OCC); 12 CFR part 262, appendix A (Board); 12 CFR part 302, appendix A (FDIC); 12 CFR part 1074, appendix A (CFPB); 12 CFR part 791, subpart D, appendix A (NCUA). </FTNT> <FTNT> <SU>2</SU>  Appraisal means “a written statement independently and impartially prepared by a qualified appraiser setting forth an opinion as to the market value of an adequately described property as of a specific date(s), supported by the presentation and analysis of relevant market information.” 12 CFR 34.42(a) (OCC); 12 CFR 323.2(a) (FDIC); 12 CFR 225.62(a) (Board); 12 CFR 722.2 (NCUA). </FTNT> <FTNT> <SU>3</SU>  For the purposes of this guidance, “discrimination” is prohibited discrimination based on protected characteristics in the residential property valuation process. For these purposes, “valuation” includes appraisals, evaluations, and other means to determine the value of residential property. </FTNT> <FTNT> <SU>4</SU>   <E T="03">See</E> Interagency Appraisal and Evaluation Guidelines, 75 FR 77450 (December 10, 2010). </FTNT> <FTNT> <SU>5</SU>  The NCUA uses the term “written estimate of market value” in place of the term “evaluation.” <E T="03">See</E> 12 CFR 722.3. </FTNT> Prior to the efforts to adopt this joint guidance, the agencies had not, collectively, issued guidance specific to ROV processes. The agencies had received questions and comments from financial institutions and other industry stakeholders on ROVs. Stakeholders highlighted the uncertainty in the industry on how ROVs intersect with appraisal independence requirements and compliance with Federal consumer protection laws, including those related to nondiscrimination. As such, the final guidance addresses some of the questions raised by stakeholders. For purposes of the final guidance, an ROV is a request from the financial institution to the appraiser or other preparer of the valuation report to reassess the report based upon potential deficiencies or other information that may affect the value conclusion. <SU>6</SU> <FTREF/> <FTNT> <SU>6</SU>  ROVs may arise from a consumer requesting a financial institution to reexamine a valuation. </FTNT> <HD SOURCE="HD1">II. Discussion of Comments on the Proposed Guidance</HD> On July 21, 2023, the agencies published for comment proposed guidance on ROVs of residential real estate valuations (proposal). <SU>7</SU> <FTREF/> The 60-day comment period ended on September 19, 2023. The agencies invited comment on all aspects of the proposed guidance from all interested parties. In particular, the agencies requested comment on the following: (1) to what extent the proposed guidance describes suitable considerations for a financial institution to take into account in assessing and potentially modifying its current ROV polic ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 72k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━