Commercial Real Estate Appraisal: How lenders can improve their CRE appraisal process

Commercial Real Estate Appraisal: How lenders

can improve their CRE appraisal process

April 27, 2016

P R E S E N T E D B Y

Nathan BrownMountainSeed

Terry BowditchMountainSeed

About the Webinar.

• Ask questions throughout the session using the GoToWebinar control panel

• We will answer as many questions as we can at the end of the presentation

• Risk management thought leader for institutions and examiners

• Featured in national and trade media

About Sageworks.

• Loan portfolio and risk management solutions

• More than 1,000 financial institution clients

• Founded in 1998

About MountainSeed and the Presenters.

MountainSeed serves several hundred community, regional, national and international banks with their appraisal management and appraisal review functions. Over the years MountainSeed has developed a specialty and industry reputation of expertise in the commercial appraisal process and has assisted hundreds of banks in all 50 states manage compliance, streamline appraisal ordering, and improve appraisal review quality.

Learn more at mountainseed.com.Nathan BrownMountainSeed

Terry BowditchMountainSeed

Disclaimer.

This presentation may include statements that constitute “forward-looking statements” relative to publicly available industry data. Forward-looking statements often contain words such as “believe,” “expect,” “plans,” “project,” “target,” “anticipate,” “will,” “should,” “see,” “guidance,” “confident” and similar terms. There can be no assurance that any of the future events discussed will occur as anticipated, if at all, or that actual results on the industry will be as expected. Sageworks is not responsible for the accuracy or validity of this publicly available industry data, or the outcome of the use of this data relative to business or investment decisions made by the recipients of this data. Sageworks disclaims all representations and warranties, express or implied. Risks and uncertainties include risks related to the effect of economic conditions and financial market conditions; fluctuation in commodity prices, interest rates and foreign currency exchange rates. No Sageworks employee is authorized to make recommendations or give advice as to any course of action that should be made as an outcome of this data. The forward-looking statements and data speak only as of the date of this presentation and we undertake no obligation to update or revise this information as of a later date.

Agenda

• Structuring Your Appraisal Department• Common Deficiencies in Appraisals• High-Volatility Commercial Real Estate (HVCRE)• Fee Disclosure• Vendor Management• Disclosing Valuations to Borrowers• Lending on Another Bank’s Appraisal• Appraisal Regulatory Outlook

Poll Question

Structuring Your Appraisal Department

• Who is Loan Production Staff?

• Check their comp

• Separate reporting lines

• But what if we’re a small bank?

• Appraisal-reviewer competency

Structuring Your Appraisal Department

Insufficient

Independence

Optimized

Chief Loan Officer

Valuation Review Staff

Resi RE Loan Officers

CRE Loan Officers

Valuation Review Staff

Board / Loan Committee

Chief Loan Officer

Resi RE Loan Officers

CRE Loan Officers

FDIC Supervisory Insights (Winter 2011)

Common Deficiencies in Bank-Ordered Appraisals

• Math errors in DCF

• As-Is Value

• Leased Fee/Fee Simple

• Extraordinary Assumptions

• Hypothetical Conditions

HVCRE and the Appraisal Process

• Final regulatory capital rule

• Risk-based review scope

• As-Complete Value (vs. As-Stabilized)

HVCRE and the Appraisal Process

OCC/FDIC/Board: Regulatory Capital: Frequently Asked Questions

AMC- and Appraisal-Fee Disclosure

• Timing

• Zero Variance

• Changed Circumstances

• Appraiser vs. AMC Fees

• Don’t Forget: Customary & Reasonable Fees

Vendor Management of AMCs and Review Firms

• Review the review?

• Licensing requirements

• Contracts, guarantees and indemnities

• Reviewers vs. Firms

Poll Question

Providing Copies of Appraisals to Borrowers

• When does it apply?

• Timing

• What about evaluations?

• What about reviews?

• Can I deliver electronically?

Lending on Another Bank’s Appraisal

• Can I?

• Should I have the appraisal re-addressed or assigned to my bank?

• Reviewing another bank’s appraisal

What’s Next on the Regulatory Front?

Supplemental Information to the Proposed Higher-Risk Mortgage Rule (Sep ‘12)

“The Dodd-Frank Act added a third standard—that real estate appraisals be subject to appropriate review for compliance with USPAP— for which the Federal banking agencies must prescribe implementing regulations.”

What’s Next on the Regulatory Front?

Dodd-Frank Amendments to FIRREA Title XI

Learn More About Sageworks & Mountainseed.

Nathan [email protected]

Terry BowditchMountainSeed

[email protected]

[email protected]

2016 Risk Management Summit.

• Topics include:

» CECL

» Current ALLL best practices

» Stress Testing

• Speakers from CliftonLarsonAllen, Grant Thornton, Sageworks and more

• sageworks.com/summit

Q&A.

Nathan [email protected]

Terry BowditchMountainSeed

[email protected]

[email protected]

Presenters.

NATHAN BROWNPRESIDENT

Nathan develops and executes the company vision and goals at MountainSeed. He leads the core teams of sales, operations, technology, government-relations, compliance functions as well as the research and execution of new products and services.

Prior to MountainSeed, Nathan practiced law at Seyfarth Shaw LLP. While working at the large law firm, he worked with David and Carl to organize the branches of MountainSeed and structure compliance around new and emerging regulations.As a published writer and sought-after speaker, Nathan frequently writes and speaks on regulatory and real-estate valuation issues. He has articles and quotes in state bank and national publications, such as American Banker, Mortgage Daily and National Mortgage News.

[email protected]

Presenters.

TERRY BOWDITCHCHIEF APPRAISER

Terry manages a team of senior review appraisers and oversees MountainSeed appraisal review functions.

Terry works with hundreds of banks to assist them in appraisal related issues, interface with regulators, and manage their panel of appraisers. Terry has been in the appraisal business since 1984.

Before joining the MountainSeed team, Terry had a successful fee appraisal company of his own. He was appointed by two governors to hold the position of Vice Chairman for the state appraisal boards in 2002 and 2008. In his free time, you’ll find Terry practicing his swing on the golf course.

Additional Resources.

• Learn more about MountainSeed – www.mountainseed.com

• Learn about Sageworks risk management suite – www.sageworksanalyst.com

• Interagency Appraisal and Evaluation Guidelines, 75 Fed. Reg. 77450 (Dec. 10, 2010)

http://www.occ.gov/news-issuances/federal-register/75fr77450.pdf

• “Navigating the Real Estate Valuation Process,” FDIC Supervisory Insights – Winter 2011

https://www.fdic.gov/regulations/examinations/supervisory/insights/siwin11/siwin11.pdf

• Regulatory Capital: Frequently Asked Questions, FDIC/OCC/Board

https://www.fdic.gov/regulations/capital/capital/faq.pdf

• CFPB, Equal Credit Opportunity Act (ECOA) Valuations Rule, Small Entity Compliance Guide

http://files.consumerfinance.gov/f/201401_cfpb_compliance-guide_ecoa.pdf