Q: What is the purpose of the Valuation Guidelines, and do all financial institutions’ valuation programs have to meet every aspect of the Valuation Guidelines?
A: The Valuation Guidelines are not regulations and do not prescribe a set of requirements that financial institutions must meet, nor do they represent a checklist or a “one size fits all” approach to supervising financial institutions. Instead, the Valuation Guidelines describe a framework to assist financial institutions in complying with the agencies’ appraisal regulations and real estate lending standards.
A financial institution’s valuation program should be commensurate with the complexity and nature of its real estate lending activities, risk profile, and business model, and must comply with applicable laws and regulations. For example, a financial institution that engages primarily in owner-occupied real estate lending in its local market area should tailor its valuation program to reflect the size and nature of the loans and collateral. In contrast, a financial institution that engages in significant commercial real estate lending or large acquisition, development, and construction (ADC) projects should tailor its valuation program for these types of higher risk transactions.