FFIEC: Mortgage Borrowers, Loans Officers Should Not Pick Real Estate Appraisers

WASHINGTON – Because it may compromise the quality of the appraisals, regulators have suggested that banks should not allow borrowers or lending officers to select their own real estate appraisers. In new guidelines on independent appraisals released by the Federal Financial Institutions Examination Council (FFIEC), banks should select their own appraiser rather than using a borrower suggestion or letting borrowers select from a list of approved appraisers, the regulators said. “These independence concerns include the risk that improperly prepared appraisals may undermine the integrity of credit underwriting processes. More broadly, an institution’s lending functions should not have undue influence that might compromise the program’s independence,” the FFIEC wrote. “The only exception to this requirement is that an institution may use an appraisal prepared for another financial services institution, provided that the institution determines that the appraisal conforms to the agencies’ appraisal regulations and is otherwise acceptable,” the FFIEC said. The new appraisal guidance applies to all real estate-related financial transactions that banks engage in, whether the loans are originated or purchased. Barbara Grunkemeyer, the OCC’s deputy comptroller for credit risk, said “the board of directors is responsible for ensuring that policies and procedures are adopted that establish an effective, independent real estate appraisal and evaluation program that covers all lending functions.”