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Home > News & Events > Inactive Financial Institution Letters
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Inactive Financial Institution Letters |
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FIL-22-95
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In a joint policy statement, the Federal Deposit Insurance
Corporation, the Office of Thrift Supervision, Comptroller of the
Currency and Federal Reserve Board clarified that lenders should
ensure that appraisals of affordable housing projects identify,
consider and discuss the effect of certain types of financial
assistance, such as low income housing tax credits, subsidies and
grants, sometimes referred to as intangible items, on the estimate
of market value for such projects.
A copy of the agencies' press release and
the joint policy
statement are attached.
Attachment
Distribution:
FDIC-Supervised Banks (Commercial and Savings)
FOR AFFORDABLE HOUSING LOANS
WASHINGTON,
D.C., March 10, 1995
-- Federal banking
regulators today
said certain types
of financial
assistance
should be considered
in the determination
of market value for
an
affordable housing
project.
In a
joint policy
statement,
the Office
of Thrift
Supervision,
Comptroller
of the
Currency,
Federal
Deposit
Insurance
Corporation
and Federal
Reserve
Board
clarified
that lenders
should
ensure that
appraisals
of
affordable
housing
projects
identify,
consider and
discuss the
effect of
certain
types of
financial
assistance,
such as
low-income
housing tax
credits,
subsidies
and grants,
sometimes
referred to
as
intangible
items, on
the estimate
of market
value for
such
projects.
The
policy
statement,
which
covers
affordable
housing
construction
projects
and
permanent
mortgage
loans,
promotes
community
development
through
prudent
extensions
of
credit.
Office
of
the
Comptroller
of
the
Currency
for Affordable Housing Loans March 10, 1995
Purpose
This
statement
clarifies
the
position
of
the
Office
of
the
Comptroller
of
the
Currency,
Federal
Reserve
Board,
Federal
Deposit
Insurance
Corporation,
and
Office
of
Thrift
Supervision
(collectively,
the
agencies)
on
the
inclusion
of
various
types
of
financial
assistance,
sometimes
referred
to
as
intangible
items,
in
the
determination
of
market
value
when
a
federally
regulated
financial
institution
obtains
an
appraisal
for
an
affordable
housing
construction
or
permanent
mortgage
loan.
Background
The
agencies
have
long
encouraged
financial
institutions
to
extend
prudent
credit
to
promote
community
development.
By
taking
the
initiative
in
community
development,
institutions
may
establish
new
markets,
reinforce
their
identity
as
community
institutions,
and
enhance
their
performance.
An
institution
that
extends
credit
for
development
of
an
affordable
housing
project
should
consider
the
financial
assistance
that
frequently
accompanies
these
projects,
such
as
low-income
housing
tax
credits
(LIHTC),
subsidies,
and
grants.
Such
financial
assistance
creates
an
incentive
for
developers
and
investors
to
undertake
the
project.
The
agencies
understand
that
some
institutions
have
received
appraisals
where
the
appraiser
has
not
appropriately
considered
the
various
types
of
financial
assistance
that
is
provided
to
affordable
housing
projects
in
the
estimate
of
the
project's
market
value.
When
the
benefits
of
such
financial
assistance
is
not
appropriately
reflected
in
a
project's
appraisal,
the
estimated
cash
flow
of
the
project
is
negatively
affected,
resulting
in
a
lower
market
value.
Consequently,
a
proposed
affordable
housing
loan
may
not
have
a
loan-to-value
ratio
sufficient
to
satisfy
the
standards
of
the
agencies'
real
estate
lending
guidelines
or
to
receive
favorable
treatment
under
the
agencies'
risk-based
capital
rules.
Statement
When
a
regulated
financial
institution
obtains
an
appraisal
for
an
affordable
housing
project,
the
appraisal
should
contain
a
market
value
estimate
that
reflects
the
real
estate
collateral
and
typical
interests
in
the
real
estate
on
a
cash
or
cash
equivalent
basis.¹
The
agencies'
appraisal
regulations
permit
the
appraiser
to
include
in
the
market
value
estimate
any
significant
financial
assistance
that
would
survive
sale
or
foreclosure,
such
as
the
value
of
LIHTC,
subsidies,
and
grants.
An
institution
should
ensure
that
an
appraiser
engage
to
appraise
an
affordable
housing
project
is
competent
to
perform
such
an
appraisal:
is
knowledgeable
about
the
various
types
of
financial
assistance
and
programs
that
are
associated
with
an
affordable
housing
project;
and
identifies
and
considers
the
effect
on
value
of
any
significant
amount
of
the
financial
assistance.
Consequently,
the
appraisal
should
contain
a
discussion
of
the
value
of
the
financial
assistance
that
would
survive
sale
or
foreclosure
and
how
it
effects
the
market
value
estimate
of
the
project.
In
addition,
while
certain
types
of
financial
assistance
such
as
tenant-based
rent
subsidies
do
not
necessarily
transfer
to
new
ownership
upon
sale
or
foreclosure,
the
lender
should
ensure
that
the
appraiser
appropriately
considers
the
effect
of
these
items
in
the
cash
flow
analysis,
when
applicable.
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| Last Updated 09/03/2019 | communications@fdic.gov |
