Treasury Cites Appraisal Deficiencies Identified by OCC in Bank Failure


– Appraisal Institute

An audit report issued on November 25 by the Department of the Treasury has found that appraisal deficiencies were partially responsible for the recent failure of ANB Financial, National Association, an Arkansas-based lender. The report, which also assessed the role played by the Office of the Comptroller of the Currency in supervising ABN, concluded that “the primary causes of ANB’s failure were the bank’s strategy of aggressive growth without adequate controls; heavy reliance on wholesale funding, including brokered deposits; inadequate risk management of credit concentrations in commercial real estate, and unsound underwriting practices.”

The report went on to note that although the OCC conducted regular and timely examinations of ABN, the oversight provided was often generalized. Among the OCC’s recommendations to ABN were for the lender to hire a senior loan officer, ensure that all underwriting and credit administration practices were commensurate with the level of risk in the loan portfolio, and enhance the independence of the real estate appraisal ordering and review process.

Yet these recommendations went mostly unheeded by ABN so that by April 26, 2007, the OCC designated ABN to be in “troubled condition.” The Treasury notes in its audit report that at one point inadequate controls led to ABN’s failure to obtain appraisals before funding one real estate transaction in the amount of $6.2 million as required by federal banking regulations.

The findings of the Treasury’s audit report also emphasize the original recommendations of the OCC when it came to the importance of a sound, impartial appraisal process. As recommended in the audit report, “Enhance the independence of the real estate appraisal ordering and review process by clearly separating it from the loan approval process. The individual granting the loan request should not have the responsibility for reviewing the appraisals and evaluations.”

Integra Realty Resources can assist with setting up a proper appraisal procurement and review system to meet appraisal independence regulations. In fact, the entire process can be outsourced to Integra at a significant savings to lending institutions. Please e-mail or call me with questions – we would love to help.

Michael Dodds, MAI, CCIM, MRICS

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