Q: Updated Valuation Information. Do financial institutions need to obtain updated valuation information for real estate related transactions when granting a short- term loan modification to a borrower affected by COVID-19?
A: No. Loan modifications, extensions, or similar arrangements, such as those that may be provided in connection with mortgage forbearances required under Sections 4022 and 4023 of the CARES Act, do not require appraisals under the agencies’ appraisal regulations if the transaction is wholly or partially insured or guaranteed by a federal agency or government- sponsored enterprise (GSE), such as Fannie Mae or Freddie Mac. Such transactions would instead be subject to the valuation standards required by the agency or GSE. Relatedly, the federal financial institutions regulatory agencies’ appraisal regulations generally would not require an appraisal for this type of transaction, as their appraisal regulations do not require an appraisal for a transaction involving an existing extension of credit at the lending institution (i.e., subsequent transactions) if there is not a new advance of funds, other than funds necessary to cover reasonable closing costs.
Rather, an evaluation is permitted in lieu of an appraisal under those circumstances. The federal financial institutions regulatory agencies’ appraisal regulations also permit an evaluation for extensions of credit at the lending institution if there has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the real estate collateral protection after the transaction, even with advancement of new funds. Note additionally that a loan modification that only entails a decrease in the interest rate or a single extension of a limited or short-term nature would not be viewed as a subsequent transaction, and as such, not require an evaluation.
This Q&A was contained in the Frequently Asked Questions for Financial Institutions Affected by the Coronavirus Disease 2019 (Referred to as COVID-19) – As of March 3, 2021 (which may be updated from time to time). This may be found on the FDIC’s website here: https://www.fdic.gov/Coronavirus/faq-fi.pdf.