5 Quick tips to appease your regulator

 

With holiday indulgences in full swing, we wouldn’t be surprised if fitness isn’t far from your mind. During the Christmas to New Year’s season, Americans gain an average of 1.3 pounds, and often times, only about half of the weight is lost while the remaining pounds stick around until summer or beyond. It doesn’t take a health expert to tell you that staying fit during the holidays can be challenging. “How does this apply to appraisal regulations?” you might ask. Well, much like those annual physicals and post-holiday fitness evaluations, regulatory exams are headed your way regardless of how healthy (or unhealthy) your appraisal process may be. Since regulators are on a fixed schedule, you’ll be seeing yours regularly. Instead of rushing around to make sure your policies are compliant (aka. the appraisals’ fad diet), stay fit in between regulatory reporting with these five quick tips for how to appease your regulator.

Before moving into how to appease your regulator, it’s more helpful to start with evaluating exactly why a regulator might be reaching out to a bank or credit union asking for more information or following-up about banking regulations violations. A regulator is the person that approves or denies your appraisal reviews, and they will be the deciding factor on whether you need to dispute an issue or remove your appraiser. According to the Summer 2014 edition of the FDIC Supervisory Insights publication, the FDIC cites one of the major reasons for citing Matters Requiring Board Attention (MRBA) as being appraisal reviews. Most commonly cited MRBA categories during the past four years addressed deficiencies in two categories: Loans (approximately 69 percent of all ROEs with MRBAs cited) and Board/Management (approximately 45 percent of all ROEs with MRBAs cited). Within the broad category of loans, over three-quarters of the MRBAs were related to credit administration. These MRBAs included the need to improve appraisal review, loan review, and the loan grading system, reduce credit data or collateral documentation exceptions, prepare cash flow analyses on loans, and properly account for troubled debt restructurings. It also reflects the need for increased monitoring and oversight of concentrations in commercial real estate, agricultural, and small-business loans.

To make sure that you remain compliant and appease your regulator, there are a few things that you can do:

DEVELOP A THOROUGH APPRAISAL PROCESS.

Have a policy for how you handle residential and commercial appraisals and reviews prior to your exam. The qualifications of your internal review staff are important, so make sure you are comfortable with them. Additionally, understand if your review is actually accomplishing its purpose of regulatory compliance, USPAP compliance, and valuation. Policies will help bring continuity to your appraisal processes and make them more seamless. They’ll also ensure that you’re following not only your own bank compliance but also federal regulations.

PRACTICE WHAT YOU PREACH.

Follow your policy with process. Prior to your exam, make sure that your policy is being put to practice. A policy is only as good as the practice behind it. It’s not good enough to say that you have a policy; instead, you have to be using it and doing so regularly. A part of this might include your customary and reasonable fee policy or your reassessment form. Make sure your internal appraisal ordering and review functions are consistent with regulatory guidance, and be sure you understand your appraisal panel. Who builds the panel and who selects the appraisers is just as important as who does the review.

IS YOUR LOAN PRODUCTION STAFF SEPARATE FROM YOUR APPRAISAL PROCESS?

Document your structure. Disputing an appraisal and removing an appraiser from an approved panel is common, but adding an appraiser to an exclusion or probation list is a big deal. Because of this, it’s important to document and show all of the files when requesting or disputing any appraisals. Additionally, remember that for regulatory purposes, it’s imperative that your loan production staff is separated from your appraisal process. The FDIC recommends that your valuation review staff should report directly to your board or loan committee or your Chief Loan Officer. From there, your Resi RE Loan Officers and your CRE Loan Officers will follow. Your regulator will want to see proof of your structure.

UNDERSTAND YOUR APPRAISAL MANAGEMENT VENDORS’ STRUCTURES TOO.

Manage your vendors and understand their internal structure. Understand exactly who is completing your appraisals along with their track record. If appraisals are outsourced, do you have a panel of trusted and knowledgeable appraisers? If appraisals are internal, who are your on-staff appraisers and are their credentials up-to-date? If you haven’t done so already, this is a great place to fit an appraisal management company into your team.

STAY AHEAD OF APPRAISAL RULES AND REGULATIONS CHANGES.

Strive for continuous improvement. As the market changes and regulations change right along with it, make sure you have a process to stay in touch with the changes. That means you’re keeping abreast of any changes, and you know where to access information about those changes. We recommend keeping a close eye on FDIC Supervisory Insights and OCC News Releases.

When it comes to appeasing your regulator, it’s all about staying fit in between each visit. That means paying attention to financial regulations and federal regulations and how you stack up to those year-round rather than simply when you’re expecting an exam. Remember, if you slip a little bit, don’t sweat it. Instead, get back on the fitness, instead of the fad diet, train.