Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations
Proposed interagency guidance with request for comment.
CFR Part: "12 CFR Part 34"; "12 CFR Chapter II"; "12 CFR Part 323"; "12 CFR Part 722"; "12 CFR Chapter X"
RIN Number: "RIN 3064-ZA36"
Citation: "88 FR 47071"
Document Number: "Docket ID OCC-2023-0007"; "Docket No. OP-1809"; "Docket ID NCUA-2023-0061"; "Docket No.
Page Number: "47071"
"Proposed Rules"
Agency: "
SUMMARY: The Board,
DATES:
Comments must be submitted on or before
ADDRESSES: Interested parties are encouraged to submit written comments to any and all agencies listed below. Comments submitted to the Federal eRulemaking Portal will be shared with all agencies for consideration. Comments should be directed to:
OCC: Commenters are encouraged to submit comments through the Federal eRulemaking Portal. Please use the title "Joint Guidance on Reconsiderations of Value of Residential Real Estate Valuations" to facilitate the organization and distribution of the comments. You may submit comments by any of the following methods:
* Federal eRulemaking Portal--Regulations.gov: go to https://regulations.gov/. Enter "Docket ID OCC-2023-0007" in the Search Box and click "Search." Public comments can be submitted via the "Comment" box below the displayed document information or by clicking on the document title and then clicking the "Comment" box on the top-left side of the screen. For help with submitting effective comments please click on "Commenter's Checklist." For assistance with the Regulations.gov site, please call 1-866-498-2945 (toll free) Monday-Friday,
* Mail: Chief Counsel's Office, Attention: Comment Processing,
* Hand Delivery/Courier:
Instructions: You must include "OCC" as the agency name and "Docket ID OCC-2023-2007" in your comment. In general, the OCC will enter all comments received into the docket and publish the comments on the Regulations.gov website without change, including any business or personal information provided such as name and address information, email addresses, or phone numbers. Comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. Do not include any information in your comment or supporting materials that you consider confidential or inappropriate for public disclosure.
You may review comments and other related materials that pertain to this action by the following method:
* Viewing Comments Electronically--Regulations.gov: Go to https://regulations.gov/. Enter "Docket ID OCC-2023-0007" in the Search Box and click "Search." Click on the "Documents" tab and then the document's title. After clicking the document's title, click the "Browse Comments" tab. Comments can be viewed and filtered by clicking on the "Sort By" drop-down on the right side of the screen or the "Refine Results" options on the left side of the screen. Supporting materials can be viewed by clicking on the "Documents" tab and filtered by clicking on the "Sort By" drop-down on the right side of the screen or the "Refine Documents Results" options on the left side of the screen. For assistance with the Regulations.gov site, please call 1-866-498-2945 (toll free) Monday-Friday,
The docket may be viewed after the close of the comment period in the same manner as during the comment period.
Board: You may submit comments, identified by Docket No. OP-1809, by any of the following methods:
* Agency Website: https://www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/apps/foia/proposedregs.aspx.
* Email: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message.
* Fax: (202) 452-3819 or (202) 452-3102.
* Mail:
In general, all public comments will be made available on the Board's website at www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, and will not be modified to remove confidential, contact or any identifiable information. Public comments may also be viewed electronically or in paper in Room M-4365A,
* FDIC Website: https://www.fdic.gov/resources/regulations/federal-register-publications/. Follow the instructions for submitting comments on the
* Mail:
* Hand Delivery/Courier: Comments may be hand delivered to the guard station at the rear of the
* Email: comments@fdic.gov. Comments submitted must include "RIN 3064-ZA36" in the subject line of the message.
Public Inspection: Comments received, including any personal information provided, may be posted without change to https://www.fdic.gov/resources/regulations/federal-register-publications/. Commenters should submit only information that the commenter wishes to make available publicly. The
NCUA: You may submit written comments, identified by "Docket No. NCUA-2023-0061" by any of the following methods (please send comments by one method only):
* Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments for "Docket No. NCUA-2023-0061."
* Email: PRAcomments@ncua.gov.
* Mail: Address to
You may view all public comments on the Federal eRulemaking Portal at https://www.regulations.gov as submitted, except for those we cannot post for technical reasons. The NCUA will not edit or remove any identifying or contact information from the public comments submitted. If you are unable to access public comments on the internet, you may contact NCUA for alternative access by calling (703) 518-6540 or emailing OGCMail@ncua.gov.
* Federal eRulemaking Portal: https://www.regulations.gov. Follow the instructions for submitting comments.
* Email: 2023-IAA-ResidentialROV@cfpb.gov.
* Mail/Hand Delivery/Courier: Comment Intake--Interagency ROV,
Instructions: The
The
FOR FURTHER INFORMATION CONTACT:
OCC:
Board:
NCUA:
SUPPLEMENTARY INFORMATION:
I. Introduction The Board, the
FOOTNOTE 1 If finalized, this guidance would be supervisory guidance that does not have the force and effect of law and does not impose any new requirements on supervised institutions. See 12 CFR 4, subpart F, appendix A (OCC); 12 CFR 262, appendix A (Board); 12 CFR 302, appendix A (FDIC); 12 CFR 1074, appendix A (CFPB); 12 CFR 791, subpart D, appendix A (NCUA). The agencies understand that the
FOOTNOTE 2 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). END FOOTNOTE
FOOTNOTE 3 See Interagency Appraisal and Evaluation Guidelines, 75 FR 77450 (
FOOTNOTE 4 The NCUA uses the term "written estimate of market value" in place of the term "evaluation." See 12 CFR 722.3. END FOOTNOTE
The agencies, collectively, do not have existing guidance specific to ROV processes. For purposes of the proposed guidance, an ROV is a request from the financial institution to the appraiser or other preparer of the valuation report to re-assess the report based upon potential deficiencies or other information that may affect the value conclusion. /5/ The agencies have received questions and comments from financial institutions and other industry stakeholders on ROVs, highlighting 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.
FOOTNOTE 5 ROVs may arise from a consumer requesting a financial institution to reexamine a valuation. END FOOTNOTE
II. Description of Proposed Joint ROV Guidance
The proposed guidance describes how financial institutions may create or enhance ROV processes that are consistent with safety and soundness standards, comply with applicable laws and regulations, preserve appraiser independence, and remain responsive to consumers. The proposed guidance (1) describes the risks of deficient collateral valuations, (2) outlines applicable statutes, regulations, and existing guidance that govern ROVs and collateral valuations, (3) explains how ROV processes and controls can be incorporated into existing risk management functions such as appraisal review and complaint management, and (4) provides examples of ROV policies, procedures, and controls that financial institutions may choose to adopt.
III. Request for Comment
The agencies seek comment, from all interested parties, on all aspects of the proposed guidance, and in particular request comment on the following:
(1) To what extent does the proposed guidance describe suitable considerations for a financial institution to take into account in assessing and potentially modifying its current policies and procedures for addressing ROVs?
(a) What, if any, additional examples of policies and procedures related to ROVs should be included in the guidance?
(b) Which, if any, of the policies and procedures described in the proposed guidance could present challenges?
(2) What model forms, or model policies and procedures, if any, related to ROVs would be helpful for the agencies to recommend?
(3) What other guidance may be helpful to financial institutions regarding the development of ROV processes?
(4) To what extent, if any, does the proposed ROV guidance conflict, duplicate, or complement the existing Interagency Appraisal and Evaluation Guidelines or a financial institution's policies and procedures to implement those Guidelines?
IV. Paperwork Reduction Act Analysis
In accordance with the Paperwork Reduction Act (PRA) of 1995, /6/ the OCC, Board,
FOOTNOTE 6 44 U.S.C. 3506. END FOOTNOTE
Abstract: The proposed guidance encourages financial institutions to implement ROV policies, procedures, and control systems to allow consumers to provide the financial institution with relevant information that may not have been considered during an appraisal or evaluation. Such policies and procedures create a recordkeeping requirement.
Frequency of Response: Annual.
Affected Public: Businesses, other for-profit institutions, and other not-for-profit institutions.
Respondents
OCC: National banks, Federal savings associations.
Board: State member banks (SMBs), bank holding companies (BHCs) and nonbank subsidiaries of BHCs.
NCUA: Private Sector: Not-for-profit institutions.
Burden
OCC
Table 1-Summary of Estimated Annual Burden
Requirement Citations Number of Burden hours per respondent Total number
respondents of hours
annually
Recordkeeping: [Sec.] 7.1024(d) 6 5 30
Resolution stating plans for use of
property
Recordkeeping: [Sec.] 34.22(a); [Sec.] 160.35(b) 164 6 984
ARM loan documentation must specify
indices to which changes in the
interest rate will be linked
Recordkeeping: [Sec.] 34.44 976 1,465 responses per respondent @5 119,072
Appraisals must be written and contain minutes per response
sufficient information and analysis to
support engaging in the transaction
Recordkeeping: [Sec.] 34.62; appendix A to subpart D to 1,413 30 42,390
Written policies (reviewed annually) part 34; [Sec.] 160.101; appendix A to
for extensions of credit secured by or [Sec.] 160.101
used to improve real estate
Recordkeeping: [Sec.] 34.85 9 5 45
Real estate evaluation policy to
monitor OREO
Recordkeeping: N/A 930 40 37,200
New IC 1-ROV Guidance-Policies and
Procedures (Implementation: Applies to
first year only)
Recordkeeping: N/A 930 2 1,860
New IC 2-ROV Guidance-Policies and
Procedures (Ongoing)
Recordkeeping: N/A 976 10 9,760
New IC 3-Interagency Appraisal and
Evaluation Guidelines-Policies and
Procedures
Reporting: [Sec.] 34.22(b); [Sec.] 160.35(d)(3) 249 6 1,494
Procedure to be followed when seeking
to use an alternative index
Reporting: [Sec.] 34.86 6 5 30
Prior notification of making advances
under development or improvement plan
for OREO
Disclosure: [Sec.] 190.4(h) 42 2 84
Default notice to debtor at least 30
days before repossession, foreclosure,
or acceleration of payments
Disclosure: N/A 976 5 4,880
New IC 4-Interagency Appraisal and
Evaluation Guidelines
Total Annual Burden Hours 217,829
Board
Table 2-Summary of Estimated Annual Burden FRY-30 Estimated Estimated Estimated Estimated number of annual average hours annual respondents frequency per response burden hours Recordkeeping Sections 225.61-225.67 for SMBs 701 519 5 minutes 30,318 Sections 225.61-225.67 for BHCs and 4,714 25 5 minutes 9,821 nonbank subsidiaries of BHCs Guidelines 5,415 1 10 54,150 Policies and Procedures ROV guidance 5,799 1 13.3 77,127 (Initial setup) Policies and Procedures ROV guidance 5,799 1 2 11,598 (Ongoing) Disclosure Guidelines 5,415 1 5 27,075 Total 210,089
See table in Original Document.
NCUA
See table in Original Document.
Comments are invited on:
(a) Whether the collections of information are necessary for the proper performance of the agencies' functions, including whether the information has practical utility;
(b) The accuracy of the estimate of the burden of the information collections, including the validity of the methodology and assumptions used;
(c) Ways to enhance the quality, utility, and clarity of the information to be collected;
(d) Ways to minimize the burden of the information collections on respondents, including through the use of automated collection techniques or other forms of information technology; and
(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.
All comments will become a matter of public record. Comments on the collections of information should be sent to the address listed for each agency in the ADDRESSES section of this document. A copy of the comments may also be submitted to OMB: by mail, to
V. Text of Proposed Interagency ROV Guidance
Background
Credible collateral valuations, including appraisals, are essential to the integrity of the residential real estate lending process. Deficiencies identified in valuations, either through an institution's valuation review processes or through consumer provided information may be a basis for financial institutions to question the credibility of the appraisal or valuation report. Collateral valuations may be deficient due to prohibited discrimination; /7/ errors or omissions; or valuation methods, assumptions, data sources, or conclusions that are otherwise unreasonable, unsupported, unrealistic, or inappropriate. Deficient collateral valuations can keep individuals, families, and neighborhoods from building wealth through homeownership by potentially preventing homeowners from accessing accumulated equity, preventing prospective buyers from purchasing homes, making it harder for homeowners to sell or refinance their homes, and increasing the risk of default. Valuations that are not credible may pose risks to the financial condition and operations of a financial institution. Such risks may include loan losses, violations of law, fines, civil money penalties, payment of damages, and civil litigation.
FOOTNOTE 7 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. END FOOTNOTE
Applicable Statutes, Regulations, and Guidance
The Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B, prohibit discrimination in any aspect of a credit transaction. /8/ The Fair Housing Act (FH Act) and its implementing regulation prohibit discrimination in all aspects of residential real estate-related transactions. /9/ ECOA and the FH Act prohibit discrimination on the basis of race and certain other characteristics in all aspects of residential real estate-related transactions, including in residential real estate valuations. In addition, section 5 of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices /10/ and the Consumer Financial Protection Act prohibits any covered person or service provider of a covered person from engaging in any unfair, deceptive, or abusive act or practice. /11/
FOOTNOTE 8 See 15 U.S.C. 1691 et seq. and 12 CFR part 1002. Regulation B requires creditors to (1) provide an applicant a copy of all appraisals and other written evaluations developed in connection with an application for credit that is to be secured by a first lien on a dwelling; and (2) provide a copy of each such appraisal or other written valuation promptly upon completion, or three business days prior to consummation of the transaction (for closed-end credit) or account opening (for open-end credit), whichever is earlier. See 12 CFR 1002.14(a)(1). END FOOTNOTE
FOOTNOTE 9 See 42 U.S.C. 3601 et seq. and 24 CFR part 100. END FOOTNOTE
FOOTNOTE 10 See 15 U.S.C. 45(a)(1). END FOOTNOTE
FOOTNOTE 11 See 12 U.S.C. 5531, 5536. END FOOTNOTE
The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, establish certain federal appraisal independence requirements. /12/ Specifically, TILA and Regulation Z prohibit compensation, coercion, extortion, bribery, or other efforts that may impede upon the appraiser's independent valuation in connection with any covered transaction. /13/ However, Regulation Z also explicitly clarifies that it is permissible for covered persons /14/ to, among other things, request the preparer of the valuation to consider additional, appropriate property information, including information about comparable properties, or to correct errors in the valuation. /15/
FOOTNOTE 12 See 15 U.S.C.
FOOTNOTE 13 See 12 CFR 1026.42(c)(1). END FOOTNOTE
FOOTNOTE 14 "Covered persons" include creditors, mortgage brokers, appraisers, appraisal management companies, real estate agents, and other persons that provide "settlement services" as defined in section 3(3) of the Real Estate Settlement Procedures Act (12 U.S.C. 2602(3)) and the implementing regulation. See 12 CFR 1026.42(b)(1). END FOOTNOTE
FOOTNOTE 15 See 12 CFR 1026.42(c)(3)(iii). END FOOTNOTE
The Board's,
FOOTNOTE 16 See 12 CFR part 34, subpart C (OCC); 12 CFR part 208, subpart E and 12 CFR part 225, subpart G (Board); 12 CFR part 323 (FDIC); 12 CFR part 722 and 12 CFR part 701.31 (NCUA). END FOOTNOTE
FOOTNOTE 17 Public Law 101-73, title XI, 103 Stat. 511 (1989), codified at 12 U.S.C. 3331 et seq. END FOOTNOTE
The Board's,
FOOTNOTE 18 See 12 CFR 34.44(a) (OCC); 12 CFR 225.64(c) (Board); 12 CFR 722.4(c) (NCUA); and 12 CFR 323.4(c) (FDIC). END FOOTNOTE
FOOTNOTE 19 An error of omission is neglecting to do something that is necessary, e.g., failing to identify the subject property's relevant characteristics. An error of commission is doing something incorrectly, e.g., incorrectly identifying the subject property's relevant characteristics. END FOOTNOTE
FOOTNOTE 20 See 12 CFR 34.44 (OCC); 12 CFR 225.64 (Board); 12 CFR 323.4 (FDIC); and 12 CFR 722.4 (NCUA). In addition, under TILA, if at any point during the lending process the financial institution reasonably believes, through appraisal review or consumer-provided information, that an appraiser has not complied with USPAP or ethical or professional requirements for appraisers under applicable State or Federal statutes or regulations, the financial institution is required to refer the matter to the appropriate State appraisal regulatory agency if the failure to comply is material. See 12 CFR 1026.42(g). END FOOTNOTE
The Board,
FOOTNOTE 21 See Interagency Appraisal and Evaluation Guidelines, 75 FR 77450 (
Use of Third Parties
A financial institution's use of third parties in the valuation review process does not diminish its responsibility to comply with applicable laws and regulations. /22/ Moreover, whether valuation review activities and resolving deficiencies are performed internally or via a third party, financial institutions supervised by the Board,
FOOTNOTE 22 See OCC Bulletin 2013-29, "Third-Party Relationships: Risk Management Guidance;" CFPB Compliance Bulletin and Policy Guidance; 2016-02, Service Providers (
FOOTNOTE 23 See Section 39 of the Federal Deposit Insurance Act (12 U.S.C. 1831p-1) (which requires each appropriate Federal banking agency to prescribe safety and soundness standards for insured depository institutions). The Federal banking agencies implemented section 1831p-1 by rule through the "Interagency Guidelines Establishing Standards for Safety and Soundness." See 12 CFR part 30, appendix A (OCC); 12 CFR part 208, appendix D-1 (Board); and 12 CFR part 364, appendix A (FDIC). See also 12 U.S.C. 1786(b); 12 U.S.C. 1789; and 12 CFR 741.3 (NCUA). END FOOTNOTE
FOOTNOTE 24 CFPB Compliance Bulletin and Policy Guidance; 2016-02, Service Providers (
Reconsiderations of Value
An ROV request made by the financial institution to the appraiser or other preparer of the valuation report encompasses a request to reassess the report based upon deficiencies or information that may affect the value conclusion. A financial institution may initiate a request for an ROV because of the financial institution's valuation review activities or after consideration of information received from a consumer through a complaint, or request to the loan officer or other lender representative. /25/
FOOTNOTE 25 See Interagency Appraisal and Evaluation Guidelines, 75 FR 77450, 77463 (
A consumer inquiry or complaint regarding a valuation would generally occur after the financial institution has conducted its initial appraisal or evaluation review and resolved any issues identified. Given this timing, a consumer may provide specific and verifiable information that may not have been available or considered when the initial valuation and review were performed. Regardless of how the request for an ROV is initiated, a request could be resolved through a financial institution's independent valuation review or other processes to ensure credible appraisals and evaluations.
An ROV request may include consideration of comparable properties not previously identified, property characteristics, or other information about the property that may have been incorrectly reported or not previously considered, which may affect the value conclusion. To resolve deficiencies, including those related to potential discrimination, financial institutions can communicate relevant information to the original preparer of the valuation and, when appropriate, request an ROV.
Complaint Resolution Process
Financial institutions can capture consumer feedback regarding potential valuation deficiencies through existing complaint resolution processes. The complaint resolution process may capture complaints and inquiries about the financial institution's products and services offered across all lines of business, including those offered by third parties, as well as complaints from various channels (such as letters, phone calls, in person, transmittal from regulators, third-party valuation service providers, emails, and social media). Depending on the nature and volume, appraisal and other valuation-based complaints and inquiries can be an important indicator of potential risks and risk management weaknesses. Appropriate policies, procedures, and control systems can adequately address the monitoring, escalating, and resolving of complaints including a determination of the merits of the complaint and whether a financial institution should initiate an ROV.
Examples of Policies, Procedures, and Control Systems
Financial institutions may consider developing risk-based ROV-related policies, procedures, control systems, and complaint processes that identify, address, and mitigate the risk of deficient valuations, including valuations that involve prohibited discrimination, and that:
* Consider ROVs as a possible resolution for consumer complaints related to residential property valuations.
* Consider whether any information or other process requirements related to a consumer's request for a financial institution to initiate an ROV create unreasonable barriers or discourage consumers from requesting an ROV.
* Establish a process that provides for the identification, management, analysis, escalation, and resolution of valuation related complaints across all relevant lines of business, from various channels and sources (such as letters, phone calls, in person, regulators, third-party service providers, emails, and social media).
* Establish a process to inform consumers how to raise concerns about the valuation sufficiently early enough in the underwriting process for any errors or issues to be resolved before a final credit decision is made. This may include suggesting to consumers the type of information they may provide when communicating with the financial institution about potential valuation deficiencies.
* Identify stakeholders and clearly outline each business unit's roles and responsibilities for processing an ROV request (e.g., loan origination, processing, underwriting, collateral valuation, compliance, customer experience or complaints).
* Establish risk-based ROV systems that route the request to the appropriate business unit (e.g., ROV requests that allege discrimination could be routed to the appropriate compliance, legal, and appraisal review staff that have the requisite skills and authority to research and resolve the request).
* Establish standardized processes to increase the consistency of consideration of requests for ROVs:
o Use clear, plain language in notices to consumers of how they may request the ROV;
o Use clear, plain language in ROV policies that provide a consistent process for the consumer, appraiser, and internal stakeholders;
o Establish guidelines for the information the financial institution may need to initiate the ROV process;
o Establish timelines in the complaint or ROV process for when milestones need to be achieved;
o Establish guidelines for when a second appraisal could be ordered and who assumes the cost; and
o Establish protocols for communicating the status of the complaint or ROV and results to consumers.
* Ensure relevant lending and valuation related staff, inclusive of third parties (e.g., appraisal management companies, fee-appraisers, mortgage brokers, and mortgage servicers) are trained to identify deficiencies (inclusive of prohibited discriminatory practices) through the valuation review process.
VI.
The Director of the
Acting Comptroller of the Currency.
By order of the
Secretary of the Board.
Dated at
Assistant Executive Secretary,
Secretary of the Board,
Federal Register Liaison,
[FR Doc. 2023-12609 Filed 7-20-23;
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