Two-thirds of failed banks had problems with appraisals

An analysis conducted by the Appraisal Institute of failed banks shows that nearly two-thirds had been previously cited by federal bank examiners or had ongoing appraisal administration problems, highlighting a significant weakness in many struggling financial institutions.

 

Of the 35 Federal Deposit Insurance Corporation Inspector General Material Loss Reviews of failed banks nationwide, 22 contained concerns or unheeded recommendations from previous reviews, regarding the appraisal practices of the banks, according to the Appraisal Institute. These results were analyzed from Material Loss Reviews conducted by the FDIC Inspector General in 2009 and 2010. Examples of such concerns include: “Failure to obtain current appraisals or perform adequate appraisal reviews”; “Bank frequently relied on stale appraisals”; “Inadequate control of the lending function, including appraisals”; and “Poorly explained upward adjustments to the appraisal values.”

 

“The findings of the Material Loss Reviews illustrate that many institutions have not adequately invested in critical risk management functions like appraisal administration and oversight,” said Bill Garber, director of government and external relations of the Appraisal Institute. “Moving forward, if we are going to have any success in stabilizing mortgage markets, preventing mortgage fraud and kick-starting the secondary markets, bank examiners must place more emphasis on risk management, mitigation, meaningful oversight and enforcement of these critical issues.”