(a) It is the strong intent of the Act and regulations that financial institutions should be making every effort to find and make sound loans in low loan volume areas, and compliance with the Act and regulations will be viewed in this light. The Act and these regulations should be interpreted to prohibit the use of unfounded and unsubstantiated assumptions regarding the effect upon loan risk of the physical or economic characteristics of a neighborhood or geographic area. A properly prepared appraisal using the market data approach will adequately reflect neighborhood characteristics affecting the subject property.

(b) Pursuant to Section 35810 of the Act, consideration of conditions, characteristics or trends in the neighborhood or geographic area surrounding the housing accommodation shall be deemed to be required to avoid an unsafe and unsound business practice only in accordance with one or more of the following provisions of this Section:

(c) Nothing herein shall preclude a financial institution from considering the properly appraised fair market value of the property which will secure the proposed loan.

(d) (Reserved)

(e) (Reserved)

(f) As a general rule, zoning, including zoning which designates the security property as a non-conforming use, will be reflected in the appraised value of the property. However, insofar as a pending or recent zoning change may affect the short-term value of the security property (i.e., three to five years), it may be a valid reason for altering the terms of the loan or denying the loan as described in Section 7106. This issue should be approached with caution however. The fact that a housing accommodation is located on or near land zoned industrial or commercial will not in itself be an adequate basis for the denial of the loan. In many instances the location of a housing accommodation in or near a commercial zone may increase its fair market value. However, in cases where the financial institution is reasonably assured that a building permit would not be issued in the event of a casualty loss, due to zoning, the financial institution may be justified in denying the loan. Similarly, the fact that a housing accommodation is located on or near land zoned agricultural or is located in a remote rural area will not in itself be an adequate basis for the denial of a loan. The impact of these factors should be taken into consideration in the appraisal report in the estimation of fair market value and in comments regarding the neighborhood or geographic area surrounding the subject property.