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What’s New at the OCC: CRE Lending Handbook and Third Party Arrangements

What’s New at the OCC: CRE Lending Handbook and Third Party Arrangements. Presenters: Bull Garber, Jr., Director of Governmental and External Relations, Appraisal Institute Robert L. Parson, Appraisal Policy Specialist, Office of the Comptroller of the Currency (OCC). Recent releases:

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What’s New at the OCC: CRE Lending Handbook and Third Party Arrangements

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  1. What’s New at the OCC: CRE Lending Handbook and Third Party Arrangements Presenters: Bull Garber, Jr., Director of Governmental and External Relations, Appraisal Institute Robert L. Parson, Appraisal Policy Specialist, Office of the Comptroller of the Currency (OCC)

  2. Recent releases: • OCC Comptroller’s Handbook A-CRE: Commercial Real Estate Lending, August 2013 • OCC Bulletin 2013-29: Third Party Relationships, October 2013 • Agenda

  3. Links the Handbook to OCC Bulletin 2010-42, Interagency Appraisal and Evaluation Guidelines (Guidelines) • Reinforces: • Independence of appraisal function in a bank • Selection and engagement of a competent, qualified and independent appraiser • CRE Handbook

  4. Appropriate communication between bank valuation staff and appraiser • Banks should use written engagement letters • Banks should establish procedures for: • Selecting and approving appraisers • Monitoring appraiser performance • CRE Handbook - Reinforces

  5. Reviews: • Determine whether methods, assumptions, and value conclusions are reasonable • Sufficiency of information and analysis Reviewers to possess the requisite: • Education • Expertise • Competence • CRE Handbook

  6. Rescinds 2001-47 “The Office of the Comptroller of the Currency (OCC) expects a bank to practice effective risk management regardless of whether the bank performs the activity internally or through a third party. A bank’s use of third parties does not diminish the responsibility of its board of directors and senior management to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws. • Third Party Relationships – 2013-29

  7. The OCC is concerned that the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships. The OCC has identified instances in which bank management has: • failed to properly assess and understand the risks and direct and indirect costs involved in third-party relationships. • Third Party Relationships

  8. failed to perform adequate due diligence and ongoing monitoring of third-party relationships. • entered into contracts without assessing the adequacy of a third party’s risk management practices. • entered into contracts that incentivize a third party to take risks that are detrimental to the bank or its customers, in order to maximize the third party’s revenues. • engaged in informal third-party relationships without contracts in place. • Third Party Relationships

  9. Operational Risk: • Entire Appraisal Program • Reputational Risk • “agent” • High profile failures: • AppraiserLoft • JVI Solutions • ES Appraisal Services • Third Party Relationships

  10. All AMCs are not alike • An applicable quote: • “Not everything that can be counted counts and not everything that counts can be counted”William Bruce Cameron – 1963 • “Don’t believe every quote you find on the internet that is attributed to me”Albert Einstein - • Third Party Relationships

  11. A primary objective of a bank appraisal program is to assure that the bank receives reliable appraisals (residential and commercial) that are prepared by competent, unbiased, and independent appraisers. • To that end, Nothing trumps the selection and engagement process. • Third Party Relationships

  12. Questions? • OCC Horizontal Research Findings

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