A bank wants to reuse a nine-month-old evaluation for a new loan on the same property. What should its appraisal and evaluation program include?
Correct Answer
D) Criteria to assess whether an existing valuation may support the new transaction
The program should develop criteria to assess whether an existing appraisal or evaluation may be used to support a subsequent transaction.
Why This Is the Correct Answer
Option D is correct because the Interagency Guidelines direct an institution's program to develop criteria to assess whether an existing appraisal or evaluation may be used to support a subsequent transaction. This lets the bank decide case by case, based on factors such as changes in the property and market, whether the nine-month-old evaluation remains valid. It neither permits automatic reuse nor forbids reuse.
Why the Other Options Are Wrong
Option A: A rule that evaluations may be reused for up to one year after preparation
Option A proposes a rule that evaluations may be reused for up to one year after preparation. The guidelines call for criteria to assess validity, not a fixed time window, and a valuation could become unreliable well before a year passes.
Option B: A requirement to order a new AVM for each subsequent transaction
Option B requires ordering a new AVM for each subsequent transaction. The guidelines do not mandate a new AVM; they ask the institution to assess whether the existing valuation can still be used.
Option C: A prohibition on reusing any prior appraisal or evaluation for a new loan
Option C, a prohibition on reusing any prior appraisal or evaluation for a new loan, contradicts the guidelines, which contemplate that an existing valuation may support a subsequent transaction when the institution's criteria are met.
Reuse needs a test, not a timer
An old valuation can be reused only if it passes the bank's validity test; there is no built-in expiration clock in the guidelines.
How to use: Use this phrase when an option offers a fixed reuse period or a blanket ban.
Exam Tip
When a guidelines question asks what a program should include, prefer answers about criteria, policies and judgment over fixed numeric cutoffs not found in the guidance.
Common Mistakes to Avoid
- -Assuming the guidelines set a one-year validity period
- -Believing prior valuations can never be reused
- -Thinking a new AVM is required for every subsequent transaction
Concept Deep Dive
Analysis
This question tests what the Interagency Appraisal and Evaluation Guidelines expect when an institution considers reusing an existing valuation. The guidelines do not set a fixed reuse period or a blanket ban; they ask the institution to develop criteria for deciding whether an existing appraisal or evaluation can support a subsequent transaction. Pick the option that describes a judgment-based criteria framework.
Background Knowledge
Under the Interagency Guidelines, institutions maintain appraisal and evaluation programs with policies and procedures. One element is criteria for judging whether an existing valuation remains valid for a later transaction, considering matters such as changes to the property, market conditions and the age of the valuation.
Real-World Application
A borrower seeks a second loan on a commercial lot nine months after the bank obtained an evaluation. The bank's program criteria call for checking market trends and property changes, and the reviewer documents why the existing evaluation still supports the new transaction or orders a new one.
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