AppraisalRegulations.com
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   Regulations
Greer Advisors, LLC is the creator of www.appraisalregulations.com and www.bankingregs.com.

The following links, references and tools are provided primarily for the banking industry with an emphasis toward commercial real estate lending and valuation.

Feel free to contact Everett (Allen) Greer with questions, comments, updates.

International links are near the bottom of this page.

Appraisal and lending regulations tends to remaining farily static until a financial crisis occurs; then, politicians and regulators tend to create regulations to prevent future crises. During the late 1980's and early 1990's, the United States experienced the "Savings and Loan (S&L) Crisis." As a result, the U.S. government spent enormous amounts of money related to the failures of numerous S&Ls across the country. Following the crisis, the government enacted various laws collectively known as FIRREA (Financial Institution Recovery, Reform and Enforcement Act). The laws were written under different jurisdictional bodies and within different publications. The 2007-2010 financial crisis led to the transfer of tens of billions of dollars of corporate/investment bank losses to public debt via TALF, TARP, QE1, QE2 and QE3. Two U.S. Senators created a series of legislation, i.e. the Dodd-Frank Act (DFA), which resulted in numerous changes to FIRREA and a revision to the Interagency Appraisal and Evaluation Guidelines. The DFA brought numerous changes to consumer lending, especially payday loans, home equity loans, home loans. The biggest changes for home lending were requirements to disallow use of a 'teaser' rate for underwriting an applicant's ability to pay a loan, and the requirement to use the higher of the fully indexed interest rate or start rate. The act also included significantly more disclosure documents and other modifications to underwriting. The DFA had little impact to commercial real estate lending. Due to the virtual collapse of the securitized bond market, i.e. RMBS, CMBS, and CDO, the authors of the act intended to 'clean up' the securitization market; however, lobbying by investment banks and issues of securitized debt instruments successfully eliminated most of 'the teeth' in the regulations. The authors had a goal to require issuers of securitized debt to keep a sizeable first-loss piece of the issue; however, investment banks argued that most of the debt was sold to qualified institutional buyers (QIBs), who understood the risks; hence, QIB clawback provisions eliminated most of the teeth within the regulations. Lastly, the authors intended to clean up the derivative markets; however, the investment banks lobbied to ensure that all value at risk (VAR) calculations were based on the 'net' exposure, not the gross exposure; hence, the teeth were once again eliminated. Lastly, the authors intended to use one set of VAR derivative calculations for institutions buying derivatives as an 'insurance-like' product for bonds they held and another set of VAR calculations for investment banks that trade derivatives merely for the purpose of trading profits, i.e. they have no bonds they are protecting. Once again, investment banks won on this issue. The problem is that if they buy protection from one entity, and sell the same type of protection to another entity, they are on the 'hook' for the selling side, and the ability of the protection provider to pay may be uncertain.

The following file provides additional historical information pertaining to events and laws (or the relaxing of laws) that contributed to the S&L Crisis.

History of Regulations pre-2009

The most common publications were the Code of Federal Regulations (CFR), Federal Register (FR), and later within the Federal Depository Insurance Corporation Improvement Act (FDICIA). Most of the laws were eventually written in the Code of Federal Regulations, which is broken into sections. Volume 12 of CFR pertains to Banking. Sections 1-199 are for FRB. Sections 200-399 apply to OCC. Sections 400-599 apply to other regulatory bodies.

There were five regulatory bodies that oversaw U.S. financial institutions: Federal Reserve Board (FRB), Federal Depository Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS) and National Credit Union Administration (NCUA). In 2011, the OTS was merged into the OCC. Generally, the agencies issues statements and rules jointly; hence, the statements are often named "Interagency Statements." Though each organization publishes a copy of the statement under its separate entity, most of the agencies do not publish the statements on an "easy to access" web site; therefore, most statements are not immediately or easily accessible via the internet. Over the years, the Federal Reserve Board has been the sole agency that electronically publishes all statements on an "easy to access" web site. Therefore, this site references FRB publications more than any other regulatory entity. However, other agencies have numerous regulations related to real estate, such as the Small Business Administration, FNMA / Freddie Mac, HUD, and others. Also, additional regulations than impact real estate exist, such as HMDA.

Generally, the charter of the financial institution will dictate which regulatory agency provides oversight. For example, credit unions are regulated by the NCUA. Commercial banks may be regulated by the OCC (largest banks), FDIC or FRB. Very large banks are regulated by multiple agencies. Certain institutions have regulators assigned to their institution on a full time basis. For example, the largest two or three institutions may have 50+ regulators working inside each institution on a full time basis, with permanent offices inside the bank.

Nearly 10 years after the United States' S&L Crisis, the world faced a financial crisis. Issues arose in Japan, Russia and across Europe. There were no global accounting standards. Some countries allowed banks to value loans on their books at the face amount of the loan, even if the borrower had completely defaulted and the loan was worthless. The disparity of accounting systems made it virtually impossible to compare the health, safety or soundness of one institution with another institution in a different country. Hence, an international regulatory body in Basel Switzerland named the Bank of International Settlements (BIS) reacted to requests from various countries, the world bank, the international monetary fund, and several other organizations. Initially, BIS began working on uniform standards to measure capital and capital reserves. Simultaneously, while the U.S. had the Financial Accounting Standards Board (FASB), the development of a Global Accounting Standards Board (GASB) was underway. Likewise, the North American Industrial Classification System (NAICS) was being replaced by the Global Industrial Classification System (GICS) in many countries. Ultimately, BIS published the "Basel Accord" (aka Basel Capital Accord), a comprehensive set of guidelines and standards related to capital. The Basel Accord has experienced several iterations, and is now in its 3rd version. Pertaining to valuation, a set of guidelines known as the International Valuation Standards were also developed.

  Appraisal and Banking Regulations
 
    •  Code of Federal Regulations
    •  Federal Reserve Board, Supervisory & Regulation Letters (SR)
    •  Office of Comptroller of Currency, Guide to all Regulatory Letters
    •  Comptroller Handbook & Additional Regulations
    •  International Regulations
 
Federal Reserve Board, Supervisory & Regulation Letters (SR) Back To Top
Legislation Link
Guide to all Letters
SR 91-2 (FIS) on Collateralized Mortgage Obligations/Real Estate Mortgage Investment Conduits -- Jan 31, 1991
SR 91-16 (FIS) on Supplementary Examination Guidelines on Real Estate Loans and Certain Reporting Issues Pertaining to Nonaccrual Loans -- July 16, 1991
SR 91-20 (FIS) on Environmental Liability -- Oct 11, 1991
SR 91-24 (FIS) on Interagency Examination Guidance on Commercial Real Estate Loans -- November 7, 1991
SR 91-25 (FIS) on Interagency Examination Guidance on Commercial Real Estate Loans -- November 7, 1991
SR 93-1 (FIS) on Real Estate Lending Standards -- January 11, 1993
SR 93-11 (FIS) on Real Estate Lending Standard -- March 11, 1993
SR 93-33 (FIS) on Clarification on Real Estate Lending Standards -- June 14, 1993
SR 93-42 (FIS) on Interagency Guidance on Accounting for Disposition of Other Real Estate Owned -- July 16, 1993
SR 93-70 (FIS) on Interagency Policy Statement on the Allowance for Loan and Lease Losses (December 22, 1993) -- December 22, 1993
SR 94-35 (FIS) on amendments to the real estate appraisal regulation -- June 8, 1994
SR 94-55 (FIS) on interagency appraisal and evaluation guidelines -- October 28, 1994
SR 95-16 (SUP) on Real Estate Appraisal Requirements for Other Real Estate Owned (OREO) -- March 28, 1995
SR 95-27 (SUP) on interagency statement on appraisals for affordable housing loans -- May 3, 1995
SR 95-34 (SUP) on Sharing of Facilities and Staff by Banking Organizations -- May 30, 1995
SR 95-38 (SUP) on Supervisory Guidance Related to FASB Statement No. 114 (Loan Losses) -- June 26, 1995
SR 97-20 (GEN) on Superseded SR Letters -- July 10, 1997
SR 98-18 (SUP) on Lending Standards for Commercial Loans -- June 23, 1998
SR 99-26 (SUP) on Interagency Guidance on High Loan-To-Value Residential Real Estate Lending -- October 12, 1999
SR 99-32 (SUP) on Capital Treatment for Synthetic Collateralized Loan Obligations -- November 17, 1999
SR 00-10 (SUP) on Revised Review Procedures for Reports Required under Section 36 of the Federal Deposit Insurance Act (FDI Act) -- June 26, 2000
SR 00-17 (SPE) on Guidance on the Risk Management of Outsourced Technology Services -- November 30, 2000
SR 01-25 (GEN) on Guidelines for Using External Experts on Examinations, Inspections, and Other Bank Supervision Matters -- October 12, 2001
SR 02-19 on Use of Statistical Sampling in the Review of Commercial and Industrial Loans and Commercial Real Estate Loans during On-Site Safety and Soundness Examinations of Community Banks -- October 29, 2002
SR 02-20 on The Sarbanes-Oxley Act of 2002 -- October 29, 2002
SR 03-04 on Risk Management and Valuation of Mortgage Servicing Assets Arising from Mortgage Banking Activities -- February 25, 2003
SR 03-18 on Independent Appraisal and Evaluation Functions -- October 28, 2003
SR 04-07 on SEC Guidance on the Potential Liability of Financial Institutions for Securities Law Violations Arising from Deceptive Structured Finance Products and Transactions -- May 14, 2004
SR 04-09 on Revised Uniform Agreement on the Classification of Assets and Appraisal of Securities Held by Banks and Thrifts -- June 15, 2004
SR 05-05 on interagency FAQs on the Agencies' Appraisal Regulations and Independence of Appraisal and Evaluation Functions -- March 22, 2005
SR 05-11 on interagency Credit Risk Management Guidance for Home Equity Lending -- May 16, 2005
SR 05-14 on interagency FAQs on Residential Tract Development Lending -- September 8, 2005
SR 05-18 on Waiver of the Appraisal Regulation for Regulated Institutions Affected by Hurricanes Katrina and Rita -- October 11, 2005
SR 06-09 on Revisions to the Uniform Standards of Professional Appraisal Practice -- June 22, 2006
SR 06-15 / CA 06-12 on Interagency Guidance on Nontraditional Mortgage Product Risks -- October 10, 2006
SR 06-17 on Interagency Policy Statement on the Allowance for Loan and Lease Losses (ALLL) -- December 13, 2006
SR 07-1 on Interagency Guidance on Concentrations in Commercial Real Estate -- January 4, 2007
SR 07-1a2 Attachment: Concentrations in Commercial Real Estate -- December 12, 2006
 
Office of Comptroller of Currency, Guide to all Regulatory Letters Back To Top
Legislation Link
OCC Guide to All Regulatory Letters
2000-7a - Risk-Based Capital Standards; Recourse and Direct Credit, Substitutes
2001-18a - Leveraged Financing (#1 most-used section for Going Concern
2003-9a - Independent Appraisal and Evaluation Functions (Full Document)
2004-1 - Nonconforming Loans Due to Collateral Shortfall (note: when value falls, banks have 30 days to get back into conformity with Supervisory Exceptions)
2005-6 - Appraisal Regulations and the Interagency Statement on Independent Appraisal and Evaluation Functions: Frequently Asked Questions
2005-32 - Residential Tract Development Lending: Frequently Asked Questions
Notice 71 FR2302 - 2006-2 - Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices
2006-3 - Comptroller Dugan Issues Statement Regarding Real Estate Rulings
2006-21 - Federal Financial Regulatory Agencies Extend Comment Period on Nontraditional Mortgage Products
2006-29 - Agencies Extend Comment Period on Interagency Guidance On Concentrations in Commercial Real Estate Lending
2006-45 - Comptroller Dugan Tells Bankers Commercial Real Estate Concentrations Raise Concerns, but Can Be Safe if Effectively Managed
2006-68 - OCC Chief of Staff Discusses Mortgage Guidance at National Housing Advisory Council
2006-94a - Agencies Seek Public Comment on Basel II and Market Risk Proposed Rulemakings
2006-94b - Risk-Based Capital Standards, Market Risk
2006-94e - Template
2006-94c - Risk-Based Capital Standards, Advanced Capital Adequacy Framework
2006-94d - Template
2006-96 - Testimony
2006-96a - Comptroller Dugan Tells House Panel that Goal of Basel II Capital Framework And Commercial Real Estate Guidance is to Address Risks Facing Banking System
2006-107a - Federal Financial Regulatory Agencies Issue Final Guidance on Nontraditional Mortgage Product Risks
2006-107b - Proposed Illustrations of Consumer Information for Nontraditional Mortgage Products
2006-107c - Interagency Credit Risk Management Guidance for Home Equity Lending
2006-108 - Comptroller of the Currency Praises Interagency Work on Non-Traditional Mortgage Guidance
2006-131 - Federal Banking Agencies Issue Final Guidance On Concentrations in Commercial Real Estate Lending
2006-131a - Guidance
2006-134 - Federal Financial Regulatory Agencies Issue Interagency Policy Statement on the Allowance for Loan and Lease Losses and Frequently Asked Questions
2006-134a - Comptroller's Statement
2006-134b - Interagency Policy Statement
2006-134c - FAQs
2006-136 - Agencies Announce Interim Decision on Impact of FAS 158 on Regulatory Capital
 
Code of Federal Regulations Back To Top
Legislation Link
Code of Federal Regulations - Year by Year Index (Title 12 is banking)
Code of Federal Regulations - 2007 (OCC is Value I, Chapters 1-199)
Title 12 - Banks and Banking, Chapter 1, Parts 1-199
Title 12 - Banks and Banking - Part 22 - Loans in Areas Having Special Flood Hazards
Title 12 - Banks and Banking - Part 30 - Safety & Soundness
Title 12 - Banks and Banking - Part 32 - Lending Limits
Title 12 - Banks and Banking - Part 32.1 - Authority, Purpose and Scope
Title 12 - Banks and Banking - Part 32.2 - Definitions
Title 12 - Banks and Banking - Part 32.3 - Lending Limits
Title 12 - Banks and Banking - Part 32.4 - Calculation of Lending Limits
Title 12 - Banks and Banking - Part 32.5 - Combination Rules
Title 12 - Banks and Banking - Part 32.6 - Nonconforming Loans
Title 12 - Banks and Banking - Part 32.7 - Pilot Programs for Residential R.E. and Small Business Loans
Title 12 - Banks and Banking - Part 34 - Real Estate Lending and Appraisals (note: FDICIA table is 34.62)
Title 12 - Banks and Banking - Part 34.42 - Definition of Market Value
Title 12 - Banks and Banking - Part 34.43 - Appraisals required; transactions requiring a State certified or licensed appraiser
Title 12 - Banks and Banking - Part 34.44 - Minimum appraisal standards
Title 12 - Banks and Banking - Part 34.45 - Appraiser independence
Title 12 - Banks and Banking - Part 34.46 - Professional Association Membership; Competency
Title 12 - Banks and Banking - Part 34.62 - Real estate lending standards
Title 12 - Banks and Banking - Part 34.81 - Other Real Estate Owned, Definitions
Title 12 - Banks and Banking - Part 34.83 - OREO, Disposition of Real Estate
Title 12 - Banks and Banking - Part 34.85 - Appraisal requirements
Title 12 - Banks and Banking - Part 37 - Debt Cancellation contracts and Debt Suspension Agreements
 
Comptroller Handbook & Additional Regulations Back To Top
Legislation Link
Comptroller's Handbook on Commercial Real Estate and Construction Lending
Federal Reserve Board - Commercial Bank Examination Manual
FIRREA - Act of 1989 - text
FIRREA - Act of 1989
FDIC - Important Banking Legislation
FDIC - Regulations (also contains FDICIA (Insurance Act) - see section 1000)
FDIC in 12 CFR - sections 300-399 (note: Supervisory Exception Table = 365.2) - text
FDICIA - (FDIC Improvement Act) - text
HMDA - Home Mortgage Disclosure Act
HMDA - A Guide to HMDA Reporting - 2004 - FFIEC
Julie L. Williams, First Senior Deputy Comptroller and Chief Counsel, Speech
 
International Regulations Back To Top
Legislation Link
Appraisal Subcommittee
Appraisal Foundation
Appraisal Institute
RICS Organization (Royal Institution of Chartered Surveyors)
IVSC Home Page (International Valuation Standards Committee)
Various Appraisal Organizations By Country
IVSC by DT (Deloitte Touche Tohmatsu)
GAAP vs IFRS
Overview of IVSC as noted in Bank for International Settlements
BIS Paper on Valuation (Bank for International Settlements)
Recent BIS Paper on Valuation-refers to IFRS Standards
IVSC Newsletter "We're working w/the Appraisal Foundation to create one Standard"
 
 
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