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. Appraisals: FIRREA and Interagency Guidelines An ABA Frontline Compliance Training Course — Free to ABA Members Approach the appraisal process with impartiality, knowledge of requirements and standards, and effective evaluation techniques. Many commenters opined that appraisals are more accurate and reliable sources of valuation information than evaluations because they are done by professionals with strict training requirements and who are subject to state credentialing and disciplinary review for poor quality work. One commenter in favor of an increased threshold indicated that evaluations are often easier for consumers to read and understand, asserting that they typically explain the comparisons with other recent sales in “plain English.” Some commenters generally in favor of an increase noted that consumers have access to a wide array of readily available valuation information, and may also voluntarily obtain appraisals.Start Printed Page 53589. They indicated that the Dodd-Frank Act strengthened protections regarding appraisals, including federal oversight provisions, and that a number of these protections do not apply to evaluations that are not conducted by appraisers. d. Additional Protections. For transactions exempted from the appraisal requirement, the final rule requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral. The historical loss information in the Reports of Condition and Income (Call Reports) also shows that the net charge-off rate for residential real estate transactions remained relatively unchanged after the increase in the threshold in 1994 through year-end 2007. With respect to transactions that qualify for the rural residential appraisal exemption, the requirement that institutions obtain evaluations for such transactions could be viewed as an additional burden. A few commenters suggested lower thresholds and that transactions under the current and proposed thresholds often pose risk to financial institutions and to consumers. According to several of these commenters, this is because first-time homebuyers typically use a substantial portion of their savings for the down payment or obtain mortgages with high loan-to-value ratios. 5. The agencies' appraisal regulations require that all complex 1-to-4 family residential property appraisals rendered in connection with federally related transactions shall have a state certified appraiser if the transaction value is $250,000 or more. If you live in Philadelphia, Southeast Pennsylvania or Lehigh Valley and have questions on exemptions or other fair housing topics, contact firstname.lastname@example.org , 866-540-FAIR or complete an online form . For these reasons, the agencies posited that evaluations could provide a level of consumer protection for transactions at or below the proposed appraisal threshold. This definition is consistent with current references to appraisals for residential real estate in the agencies' appraisal regulations and in Title XI, and the definition of commercial real estate transaction that was created in the recent rulemaking to increase the appraisal threshold for commercial real estate (CRE) transactions (CRE rulemaking). Appraisal Report Options--Refer to the definitions for Restricted Use Appraisal Report, Self-Contained Appraisal Report, and Summary Appraisal Report. See OCC: 12 CFR 34.43(a)(9); Board: 12 CFR 225.63(a)(9); FDIC: 12 CFR 323.3(a)(9). • Uniform Standards of Professional Appraisal Practice (USPAP). In its determination, the “SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates.” See 13 CFR 121.103. 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! Consistent with the General Principles of Affiliation, 13 CFR 121.103(a), the OCC includes the assets of affiliated financial institutions when determining whether to classify an OCC-supervised institution as a small entity. 27. Regarding examination experience, the agencies reviewed Reports of Examination of their respective supervised institutions from January 2017 to December 2018 for examiner findings regarding appraisals and evaluations. for better understanding how a document is structured but Commenters opposing an increase to the residential real estate appraisal threshold asserted that the proposal would elevate risks to borrowers, financial institutions, the financial system, and taxpayers. The statute does not specifically require that real estate evaluations be performed when financial institutions utilize this exemption. The agencies acknowledge the limitations in relying on the VA appraisal fee schedule, which may reflect appraisal fees that are higher than average across the industry. The FHFA Index reflects changes in home prices from a base of $250,000 in June 1994, based on the FHFA House Price Index. 6. 601 et seq., generally requires that, in connection with a rulemaking, an agency prepare and make available for public comment a regulatory flexibility analysis that describes the impact of the rule on small entities. Some commenters called for further study of home prices by region and metro area and for the agencies to show which markets would be most affected by the threshold increase. Among other requirements, this regulation prohibits conflicts of interest and coercion in the preparation of any opinion of value and prohibits preparers of opinions of value from materially misrepresenting the value of the property. Consequently, all provisions of this rule, except the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the appraisal review provision, meet the criteria to waive the 30-day delayed effective date requirement set forth in the Administrative Procedure Act. Some commenters also asserted that the proposed threshold increase would reduce the time needed for appraisal review. The agencies believe that federally related transactions secured by single 1-to-4 family residential properties are currently the only real estate transactions subject to the $250,000 appraisal threshold. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. OCC: 12 CFR 34.45(a); Board: 12 CFR 225.65(a); FDIC: 12 CFR 323.5(a). , Further, as covered in the proposal, the 2017 HMDA data show that the rule would provide significant burden relief in rural areas. The final rule also makes amendments to the appraisal rules to reflect the higher CRE appraisal threshold as it r… The agencies have determined that these categories of transactions do not require appraisals by state certified or state licensed appraisers in order to protect federal financial and public policy interests or to satisfy principles of safe and sound banking.  documents in the last year, by the Federal Railroad Administration Several commenters asserted that evaluations are usually performed by individuals who, unlike appraisers, are not credentialed valuation professionals subject to standardized training and experience requirements. The OCC has analyzed the final rule under the factors in the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. developer tools pages. More information and documentation can be found in our Another commenter estimated that an evaluation could cost between 20 and 50 percent of the price of a comparable appraisal, and that an evaluation can generally be delivered in one to five days while an appraisal may take between five and twenty-one days. Some commenters questioned the need for, and appropriateness of, the proposed threshold increase in light of the rural residential appraisal exemption. Use of Evaluations. In contrast, some commenters believed that AVMs could provide valuable information, and that improvements in technology and greater availability of information has improved the quality of evaluations. of the issuing agency. 31. which includes both appraisals and evaluations. Act of 1989 (FIRREA). 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: (i) The regulated institution may ask the licensed appraiser to complete the appraisal and have a certified appraiser approve and co-sign the appraisal; or. 4802(b). 1532). a. While the net charge-off rate for residential real estate transactions escalated significantly from 2008 through 2013 during the financial crisis, the agencies primarily attribute this to weak underwriting standards in the lead up to the crisis. The FDIC believes that effects in excess of these thresholds typically represent significant effects for FDIC-supervised institutions. Based on supervisory experience, the agencies have previously estimated that, on average, the time to review evaluations takes approximately 30 minutes less than the time to review appraisals. The agencies also considered comments received during the EGRPRA process and in response to questions posed about the residential threshold in the CRE rulemaking. For complete information about, and access to, our official publications the current document as it appeared on Public Inspection on on Although the agencies recognize, as many commenters noted, that evaluations are not subject to the same uniform standards as appraisals in terms of structure and content or the preparer's training and credentialing requirements, evaluations must be consistent with safe and sound banking practices. 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. Though it may be good practice to disclose all costs and affiliated business arrangements anyway, it is not regulated by RESPA to do so for these exempted loan types.  Dodd-Frank Act, section 1473, Public Law 111-203, 124 Stat. should verify the contents of the documents against a final, official The requirement that Title XI appraisals be subject to appropriate review for USPAP compliance applies to all small entities regulated by the Board that engage in real estate lending. Bank Regulators Just Raised Appraisal Threshold to $500,000, Evaluations Now Required for Smaller Transactions. Dated at Washington, DC, on August 20, 2019. Setting the threshold level to the low point of the most recent cycle takes into consideration potential price fluctuations to which financial institutions that engage in residential real estate lending could be exposed. other specific standards such as the Uniform Appraisal Standards for Federal Land Acquisitions, and requiring appraisers to include specific items in an appraisal, such as all sales of the contributed property within 18 months of the appraisal date. documents in the last year, by the National Oceanic and Atmospheric Administration 42. Analysis of HMDA data shows that the rule would newly exempt from appraisal requirements an estimated 13.3 percent of transactions, and 23 percent of the dollar volume of transactions, among small, FDIC-supervised institutions. Regarding the impact of the threshold increase on consumers' understanding of and access to valuation information, the agencies note that lenders must provide a copy of all appraisals and written valuations developed in connection with an application for a first-lien loan secured by a dwelling, 1376. 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.. 12 U.S.C. For the pooling of loans or interests in real property for resale or purchase, the transaction value is the amount of each loan or the market value of each real property, respectively. documents in the last year, 988 Several commenters indicated that institutions follow risk-based internal policies to determine whether to obtain an appraisal, including for transactions that fall under one of the exemptions from the appraisal regulations. 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).  Definition of Residential Real Estate Transaction, 3. An evaluation is not required when real estate-related financial transactions meet the threshold criteria and also qualify for another exemption from the agencies' appraisal requirement where no evaluation is required by the regulation. The agencies have used these procedures to assess the use of evaluations and ensure that they are prepared according to safety and soundness principles and will continue to examine institutions' evaluation policies and practices. When discussing the impact of the threshold increase from $100,000 to $250,000, the preamble to the 1994 rule noted that information from the National Association of Realtors, the Census Bureau, and the Department of Housing and Urban Development indicated that 85 percent of the dollar volume of mortgages financing new homes and 82 percent of the volume of mortgages financing purchases of existing homes would fall below the $250,000 threshold. The agencies received a number of comments indicating that the proposed increase in the residential real estate appraisal threshold would result in cost and time savings for consumers and regulated institutions. See 12 CFR 1002.14, 78 FR 7216 (January 31, 2013) (implementing amendments to the Equal Credit Opportunity Act (ECOA), 15 U.S.C. Reducing Burden Associated with Appraisals. 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