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Analysis for current validity

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  • #2412
    dgrayson
    Participant

    How are valuations to be handled for renewals or modifications of existing loans? We had previously performed an analysis of current validity. Do we need to restablish value when renewing or modifying the existing loan? If so under which circumstances and what is the acceptable way to handle the valuation?

    #2716
    jholzknecht
    Keymaster

    Following is a long answer to a short question.

    Under certain circumstances, renewals, refinancings, and other subsequent transactions may be supported by evaluations rather than appraisals. The Agencies’ appraisal regulations permit an evaluation for a renewal or refinancing of an existing extension of credit at the institution when either:
    (i) There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or
    (ii) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs.

    A subsequent transaction is exempt from the appraisal requirement if no new monies are advanced (other than funds necessary to cover reasonable closing costs) even when there has been an obvious and material change in market conditions or the physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection.
     Conversely, when new monies are advanced (other than funds necessary to cover reasonable closing costs) and there has been an obvious and material change in market conditions or the physical aspects of the property that threaten the adequacy of the institution’s real estate collateral protection, the institution must obtain an appraisal unless another exemption applies.

    If an evaluation is permitted under this exemption, an institution may use an existing appraisal or evaluation as long as the institution verifies and documents that the appraisal or evaluation continues to be valid. Even if a subsequent transaction qualifies for this exemption, an institution should consider the risk posed by the transaction and may wish to consider obtaining a new appraisal.

    The Agencies allow an institution to use an existing appraisal or evaluation to support a subsequent transaction in certain circumstances.
     An institution should establish criteria for assessing whether an existing appraisal or evaluation continues to reflect the market value of the property (that is, remains valid).
     Such criteria will vary depending upon the condition of the property and the marketplace, and the nature of the transaction.
     The documentation in the credit file should provide the facts and analysis to support the institution’s conclusion that the existing appraisal or evaluation may be used in the subsequent transaction.

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