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October 25, 2017

AI Advises on Disaster Appraisal Exemptions, Collateral Risks

The Appraisal Institute on Oct. 25 advised real estate appraisers servicing areas affected by recent disasters that the exemption from appraisal requirementsrecently issued by federal bank regulatory agencies does not itself reduce collateral risks. Rather, regulated financial institutions are seeking greater flexibility in reviewing loan applications and loans held in portfolios.

AI noted that appraisal expertise still is essential to evaluating risk, especially since collateral risks likely have increased due to potential environmental damage, dislocation and material changes in market conditions.

Banks and their regulators want to avoid being in a position of declining loan applications, a forced margin call or failing to help with economic recovery because of statutory appraisal obligations. However, their collateral risks are real — and potentially even greater now than before the hurricanes. According to the Appraisal Institute, demand for appraisal and valuation services is expected to increase, and the assignments likely will be complex and require the services of experienced analysts. 

The Appraisal Institute pointed out that appraisers will continue to be the first line of defense for banks because it makes good business sense to understand collateral risks following major disaster events such as hurricanes Harvey, Irma and Maria.

On a related note, AI’s Guide Note 10: Development of an Opinion of Market Value in the Aftermath of a Disastercan help appraisers servicing areas affected catastrophic events. 

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