100-1001, pt. • Interagency Appraisal and Evaluation Guidelines (October 7, 1994). 1691 et seq., by Dodd-Frank Act section 1474, 15 U.S.C. Several commenters noted that the cost of an appraisal is relatively small compared to other financing costs in the transaction such as the fees charged by banks and brokers. So, the Federal Agencies can increase the residential threshold from $250,000 to $1 Trillion and it wouldn’t be noticed by 99%+ of residential appraisers! obtain an appraisal from a state licensed or certified appraiser. d. Additional Protections. Costs of appraisals and evaluations may also be passed on to borrowers. b. That bankrupted it. The FDIC estimates that, on average, the review process for an appraisal would take approximately forty minutes, but only ten minutes, on average, for an evaluation. Under this analysis, the OCC considered whether the final rule includes a Federal mandate that may result in the expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year (adjusted annually for inflation, currently $154 million). However, beginning in 2017, FDIC-supervised institutions ceased reporting residential loan origination data in compliance with HMDA if they originated less than 25 loans per year. [30] In general, commenters who supported the increase in the threshold Start Printed Page 53586also viewed evaluations as providing sufficient valuation information and analysis for financial institutions and consumers to engage in safe and sound residential real estate transactions. The agencies have exercised this authority by exempting several categories of real estate-related financial transactions from the agencies' appraisal requirement, including transactions at or below certain designated thresholds. Office of the Comptroller of the Currency. Under this new exemption, a financial institution need not obtain a Title XI appraisal if the property is located in a rural area; the transaction value is less than $400,000; the financial institution retains the loan in portfolio, subject to exceptions; and not later than three days after the Closing Disclosure Form is given to the consumer, the financial institution or its agent has contacted not fewer than three state certified or state licensed appraisers, as applicable, and has documented that no such appraiser was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments.[73]. 89. Further, the exemption does not apply to loans that are high-cost mortgages, as defined in section 103 of TILA, or if a Federal financial institutions regulatory agency requires an appraisal because it believes it is necessary to address safety and soundness concerns. For residential real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions must obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices. Through the review process, the institution should be able to assess the reasonableness of the valuation method, the assumptions, and whether data sources are appropriate and well-supported.[79]. These commenters generally asserted that doing so would be more consistent with the data presented. Many commenters asserted that appraisers are the only unbiased party in the valuation process, in contrast to buyers, agents, lenders, and sellers, who each have an interest in the underlying transactions. [44] As discussed below, new requirements on insured depository institutions (IDIs) generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form. Introduction A. Board: 12 CFR 226.42(c)(1); CFPB: 12 CFR 1026.42(c)(1). A number of commenters opposed to a threshold increase asserted that appraisals are easier for consumers to understand than evaluations. The agencies' experience in supervising appraisal and evaluation programs and practices since the enactment of FIRREA indicates that increasing the threshold would not threaten the safety and soundness of financial institutions. 82 FR 35478, 35482 (July 31, 2017); 83 FR at 15029-15030. Single-family properties include 1-to-4 family and manufactured housing property types. In the proposed rule, the agencies specifically asked what challenges, if any, would be posed by requiring lenders to obtain evaluations where the rural residential appraisal exemption under section 103 of EGRRCPA is used. In addition, the agencies have issued guidance to help institutions ensure that they have the proper controls to fulfill independence expectations. I. Some commenters asserted that first-time homebuyers are among the consumers least able to manage financial risk, and are most in need of consumer protections. The Federal and State government currently have ruling authority over appraisal regulations in the United States. Table 2 below shows the number and dollar volume of transactions in 2017 that: (i) Would have been exempted under the current threshold; (ii) would be newly exempted under the proposed threshold increase; (iii) in total would be exempted as a result of the proposed threshold increase; and (iv) would not be exempted following the proposed threshold increase. 53. Many commenters opposing the proposal highlighted the benefits that state licensed or state certified appraisers bring to the real estate valuation process. Board of Governors of the Federal Reserve System. Some commenters also cited consistency with the CRE appraisal threshold as a justification for increasing the residential real estate threshold to $500,000. As part of the agencies' consideration of the safety and soundness implications of the proposed threshold increased, the agencies reviewed safety and soundness Reports of Examination. The agencies recognize that the scarcity of comparable sales data in rural areas has been a long-standing issue and issued guidance in 2016 to assist institutions in obtaining evaluations in rural areas with few or no recent comparable sales. A White Paper on the Federal Banking Agencies’ Arbitrary and Capricious Efforts to Exempt the Vast Majority of Federal Real Estate Related Financial Transactions from Title XI of FIRREA’s Appraisal Reforms . The HPML Rule applies to certain higher-risk transactions. In addition, the agencies have long recognized that appraisal review is consistent with safe and sound banking practices, as outlined in the Guidelines, and should be employed as part of the credit approval process to ensure that appraisals comply with USPAP, the appraisal regulations, and a financial institution's internal policies. OCC: The Regulatory Flexibility Act (RFA), 5 U.S.C. The OCC, Board, and FDIC (collectively, the agencies) are adopting a final rule to amend the agencies' regulations requiring appraisals of real estate for certain transactions. An evaluation is required regardless of which of these exemptions is relied upon. The agencies have published guidance to help ensure that financial institutions' use of AVMs is consistent with this requirement.[53]. on Thus, by using evaluations instead of appraisals a small, FDIC-supervised institution may reduce its total annual residential real estate transaction valuation-related labor hours by 7.5 hours. The SBA defines a small banking organization as having $600 million or less in assets, where an organization's “assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.” See 13 CFR 121.201 (as amended by 84 FR 34261, effective August 19, 2019). Commenters also noted that appraisals are required to follow established requirements as provided by USPAP, which guarantees a certain level of information and quality, whereas evaluations lack standard requirements for information or structure. Additionally, there may be less delay in finding qualified personnel to perform an evaluation than to perform a Title XI appraisal, particularly in rural areas. FRB: The RFA [86] See https://www.bls.gov/​cpi/​. The agencies also proposed to make conforming changes to add the rural residential appraisal exemption to the appraisal regulations. The IRS and the … The agencies have implemented examination procedures to frame their review of an institution's valuation practices and the sufficiency of the supporting information in evaluations, as appropriate for the size and nature of the institution's residential real estate lending activities. with a transaction value of $1 million or less, and commercial real estate (CRE) transactions with a transaction value of $500,000 or less do not require Title XI appraisals. generally requires that an agency prepare and make available a final regulatory flexibility analysis in connection with a final rulemaking that the agency expects will have a significant economic impact on a substantial number of small entities. When a borrower pays for an evaluation outsourced to a third-party, the cost may still be significantly less than for a comparable appraisal. for better understanding how a document is structured but The proposal would require regulated institutions to obtain evaluations for transactions exempt from the agencies' appraisal requirements due to the increase in the residential real estate appraisal threshold or the rural residential appraisal exemption. On the other hand, commenters who supported the proposed increase in the threshold argued that evaluations are a safe alternative to appraisals, with some noting that individuals who prepare evaluations are also required to be independent under federal law, as discussed further below. In general, commenters who supported the proposed increase in the threshold viewed the data presented in the proposed rule as supporting the increase, while commenters opposed to the increase found the data insufficient. The revision and addition read as follows: (f) Complex appraisal for a residential real estate transaction means one in which the property to be appraised, the form of ownership, or market conditions are atypical. [84] A number of commenters noted that the scope of the threshold had decreased significantly since it was established in 1994 due to inflation in home values. The biggest, the Federal Savings and Loan Insurance Corporation, spent $20 billion to insure depositors of the failed banks. Based on supervisory experience and available data, the agencies published the proposed rule to accomplish these goals without posing a threat to the safety and soundness of financial institutions. Two of these commenters specifically asserted that a broadly applicable threshold increase to $400,000, rather than the more limited rural residential appraisal exemption, is appropriate because it would provide additional burden relief by eliminating unnecessary qualifying criteria. Some of these commenters asserted that many transactions involving defaults or foreclosures are transactions below $400,000. OCC: 57 FR 12190-02 (April 9, 1992); Board: 55 FR 27762 (July 5, 1990); FDIC: 57 FR 9043-02 (March 16, 1992). These empirical data indicate that lenders generally obtain appraisals for a majority of residential real estate transactions for which the agencies' appraisal regulations permitted an evaluation. that agencies use to create their documents. Specifically, the proposal would increase the monetary threshold at or below which financial institutions that are subject to the agencies' appraisal regulations (regulated institutions) would not be required to obtain appraisals in connection with residential real estate transactions (residential real estate appraisal threshold) from $250,000 to $400,000. Several commenters cited to sources of data that indicated lower median home prices than the sources cited in the proposal. and the requirement to subject appraisals to appropriate review for compliance with USPAP (as discussed below) are effective the first day after publication of the final rule in the Federal Register. 88. The agencies proposed to define a residential real estate transaction as a real estate-related financial transaction secured by a single 1-to-4 family residential property and specifically asked commenters whether the proposed definition is appropriate. 12/22/2020, 392 Federal Deposit Insurance Corporation. [47] 1818, 1819(a) (“Seventh” and “Tenth”), 1831p-1 and 3331 et seq. As discussed in the proposal, the agencies analyzed the Standard & Poor's Case-Shiller Home Price Index (Case-Shiller Index) [33] In the proposal, the agencies also highlighted that the Guidelines and the Evaluations Advisory [60] documents in the last year, 29 Because the final rule does not contain any new recordkeeping, reporting, or significant compliance requirements, the OCC anticipates that costs associated with the final rule, if any, will be de minimis. FDIC: The RFA generally requires that, in connection with a final rulemaking, an agency prepare and make available a final regulatory flexibility analysis describing the impact of the rule on small entities. Public Law 115-174, 132 Stat. The Title XI appraisal regulations require regulated institutions to obtain evaluations for several categories of real estate-related financial transactions that the agencies have determined do not require a Title XI appraisal, including transactions at or below the current thresholds. Public Law 115-174, Title I, section 103, codified at 12 U.S.C. The agencies have reconsidered this decision based on continued comments received from financial institutions and state bank regulatory agencies that increasing the residential appraisal threshold would provide meaningful burden relief, as well as further analysis regarding safety and soundness and consumer protection factors related to the proposal, as detailed below. In addition, the agencies proposed to amend the agencies' appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for compliance with USPAP, pursuant to Title XI, as amended by the Dodd-Frank Act. As discussed in the proposal and further detailed below, increasing the residential real estate appraisal threshold will provide meaningful regulatory relief for financial institutions without threatening the safety and soundness of financial institutions. About the Federal Register 12. Some commenters asserted that appraisals provide more accuracy than evaluations because they include a physical inspection of the property. See OCC: 12 CFR 34.44(b); Board: 12 CFR 225.64(b); FDIC: 12 CFR 323.4(b). [14] Assume the transaction involves a federal financial or regulatory agency. A residential property that sold for $250,000 as of June 30, 1994, would be expected to sell in March 2019 for $643,750 according to the Case-Shiller Index and $621,448 according to the FHFA Index (see Table 1 below). Overview of FHA Appraisal Guidelines for 2020. • Amendment to FIRREA effective June 7, 1994. While the cost of obtaining appraisals and evaluations can vary and may be passed on to borrowers, evaluations generally cost less to perform than appraisals, given that evaluations are not required to comply with USPAP. Raising the threshold to $400,000 will exempt an additional estimated 14 percent of the dollar volume, thus increasing the share of the dollar volume of regulated transactions that are exempt to approximately 35 percent. Many such commenters cited data indicating that the proposed threshold of $400,000 is well above median home prices nationally and would exempt a large majority of residential transactions in specific areas. An evaluation should contain sufficient information and analysis to support the regulated institution's decision to engage in the transaction. [98] 20th Street and Constitution Avenue N.W., Washington, DC 20551, Last Update: In the proposal, the agencies preliminarily determined that the proposed threshold level for residential real estate transactions would not pose a threat to the safety and soundness of financial institutions. By increasing the residential real estate appraisal threshold, the rule is expected to increase the number of residential real estate loans eligible for an evaluation, instead of an appraisal. These commenters also argued that individuals preparing evaluations are often not disinterested third parties because they are employed by the lender. [107] Second, for residential real estate transactions between $250,000 and $400,000, IDIs could continue to obtain appraisals instead of evaluations. Home prices in rural areas are generally lower than those in suburban and urban areas. which includes both appraisals and evaluations. If during the course of the appraisal a licensed appraiser identifies factors that would result in the property, form of ownership, or market conditions being considered atypical, then either: 9. By that measure, 1,430 (52.9 percent) are estimated to be affected by this rule. Definition of Residential Real Estate Transaction. 9. 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