WASHINGTON - Because it may compromise the quality of theappraisals, regulators have suggested that banks should not allowborrowers or lending officers to select their own real estateappraisers. In new guidelines on independent appraisals released bythe Federal Financial Institutions Examination Council (FFIEC),banks should select their own appraiser rather than using aborrower suggestion or letting borrowers select from a list ofapproved appraisers, the regulators said. "These independenceconcerns include the risk that improperly prepared appraisals mayundermine the integrity of credit underwriting processes. Morebroadly, an institution's lending functions should not have undueinfluence that might compromise the program's independence," theFFIEC wrote. "The only exception to this requirement is that aninstitution may use an appraisal prepared for another financialservices institution, provided that the institution determines thatthe appraisal conforms to the agencies' appraisal regulations andis otherwise acceptable," the FFIEC said. The new appraisalguidance applies to all real estate-related financial transactionsthat banks engage in, whether the loans are originated orpurchased. Barbara Grunkemeyer, the OCC's deputy comptroller forcredit risk, said "the board of directors is responsible forensuring that policies and procedures are adopted that establish aneffective, independent real estate appraisal and evaluation programthat covers all lending functions."

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