| November 3, 2003
|Circular No. 11553|
To All Depository Institutions and Others Concerned in the Second Federal Reserve District:
A Federal Reserve supervisory letter (SR 03-18) dated October 28, 2003, announces that the federal bank and thrift regulatory agencies issued a statement on the independence of the collateral valuation process. The statement serves as a reminder to regulated institutions of the need for an effective, independent real estate appraisal and evaluation program for all their lending functions.
The statement applies to all real estate-related financial transactions originated or purchased by a regulated institution for its own portfolio or as assets held for sale. The statement should be reviewed in conjunction with each agency’s appraisal and real estate lending regulations and the Interagency Appraisal and Evaluation Guidelines.
To foster control and accountability, the agencies encourage a banking institution to use written engagement letters when ordering appraisals, especially for large, complex, or out-of-area commercial real estate properties. Even in small institutions when absolute lines of independence cannot be achieved, effective internal controls should be implemented to ensure that no single person has sole authority to render credit decisions involving loans on which they ordered or reviewed the appraisal or evaluation.
William L. Rutledge