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28. A few commenters asserted that the preparation of both appraisals and evaluations on properties located in rural areas may be affected by the limited comparable sales data available in rural areas. edition of the Federal Register. This feature is not available for this document. The agencies proposed the Guidelines for public comment in 2008, see 73 FR 69647 (November 19, 2008), and adopted the final Guidelines in 2010, see 75 FR 77450 (December 10, 2010). This is because the broader exemption for transactions of $400,000 or less adopted in this final rule encompasses the more narrow exemption under EGRRCPA section 103. documents in the last year, 65 31. The FHFA Index reflects changes in home prices from a base of $250,000 in June 1994, based on the FHFA House Price Index. Board: 12 CFR 226.42(c)(1); CFPB: 12 CFR 1026.42(c)(1). which includes both appraisals and evaluations. electronic version on GPO’s govinfo.gov. One such commenter referred to a survey showing that VA fees are higher than the norm, indicating that the median cost of an appraisal is $450, with 89 percent of those surveyed stating the typical cost of an appraisal is below $600. Some of these commenters based this assertion on the legal requirement for appraiser independence and the professional standards to which appraisers are held. Making more residential real estate transactions eligible for evaluations rather than appraisals is likely to reduce transaction valuation-related costs. 1, at 19 (1988); 133 Cong. One commenter indicated that AVMs are more predictive of default than appraisals. Appraisals required; transactions requiring a State certified or licensed appraiser. 65. Public Law 115-174, Title I, section 103, codified at 12 U.S.C. The SBA has defined “small entities” to include banking organizations with total assets of less than or equal to $600 million. While financial institutions should continue to conduct safety and soundness reviews of evaluations to ensure that an evaluation contains sufficient information and analysis to support the decision to engage in the transaction, the USPAP review requirement in Title XI does not apply to such a review. However, the FDIC believes that this effect is likely to be negligible given that the potential cost savings of using an evaluation, rather than an appraisal, represents between 0.12-0.29 percent of the median home price.[101]. Moreover, the 2017 HMDA data also suggests that, though the impact on the total dollar volume of exempted transactions would be somewhat limited, the number of exempted transactions would increase materially and provide cost savings and regulatory burden relief for financial institutions. The final rule defines a residential real estate transaction as a real estate-related financial transaction that is secured by a single 1-to-4 family residential property. FIRREA allows an exemption from a state licensed or state certified appraisal for business loans of $1M or less that are not dependent upon the sale of, or rental income generated from the collateral real estate as the primary source of repayment. The agencies also concluded that automatic adjustments to the threshold or agency commitments to set timetables for future threshold increases would not be appropriate. 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. Any loans from Census tracts that are missing geographical identifiers or undefined in the 2013 UIC have been excluded from the analysis of burden relief in rural areas. If you live in Philadelphia, Southeast Pennsylvania or Lehigh Valley and have questions on exemptions or other fair housing topics, contact info@equalhousing.org , 866-540-FAIR or complete an online form . 84. See OCC: 12 CFR 34.43(a)(7) and (b); Board: 12 CFR 225.63(a)(7) and (b); FDIC: 12 CFR 323.3(a)(7) and (b). the federal financial institutions regulatory agencies can require an institution to obtain an appraisal to address safety and soundness concerns. OCC: G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649-7152; Mitchell E. Plave, Special Counsel, (202) 649-5490; or Joanne Phillips, Counsel, Chief Counsel's Office (202) 649-5500; Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. Based on the net charge-off data, which suggest that the increase in the appraisal threshold in 1994 did not have a material effect on the loss experience associated with residential real estate loans, the agencies believe the increase to $400,000 will not lead to increases in charge-off rates. Several commenters supportive of increasing the threshold recommended that the agencies either commit to adjusting the threshold periodically, or automatically adjust the threshold periodically, to reflect changes in housing values, market conditions or inflation. [7], Title XI directs the agencies to prescribe appropriate standards for Title XI appraisals under the agencies' respective jurisdictions. The requirement that Title XI appraisals be subject to appropriate review for USPAP compliance could also be viewed as a new mandate. 72. Many commenters argued that appraisers are the only independent third party in a real estate transaction and that only appraisers' opinions are independent and unbiased. This prototype edition of the Some commenters that opposed an increase in the residential threshold argued that, unlike for faulty appraisals, consumers do not have any recourse for faulty evaluations. Valuation management functions include: “Recruiting, selecting, or retaining a person to prepare a valuation”; “contracting with or employing a person to prepare a valuation”; “managing or overseeing the process of preparing a valuation, including by providing administrative services such as receiving orders for and receiving a valuation, submitting a completed valuation to creditors and underwriters, collecting fees from creditors and underwriters for services provided in connection with a valuation, and compensating a person that prepares valuations”; and “reviewing or verifying the work of a person that prepares valuations.” 12 CFR 1026.42(b)(4). Consumer Protection Considerations. Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions (March 4, 2016), OCC Bulletin 2016-8; Board SR Letter 16-5; FDIC FIL-16-2016. Information about this document as published in the Federal Register. 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. We’ve made big changes to make the eCFR easier to use. 3356. on 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 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. 12 U.S.C. The agencies estimate that increasing the appraisal threshold to $400,000 would potentially increase the share of exempted transactions from 82 percent to 91 percent of the number, and from 43 percent to 58 percent of the dollar volume, of regulated transactions that were secured by residential property located in a rural area.[43]. [31] OCC: 57 FR 12190-02 (April 9, 1992); Board: 55 FR 27762 (July 5, 1990); FDIC: 57 FR 9043-02 (March 16, 1992). Therefore, complying with the evaluation requirement for below-threshold transactions will be significantly less burdensome than complying with the requirements of the rural residential appraisal exemption. Counts are subject to sampling, reprocessing and revision (up or down) throughout the day. In order to make this paragraph consistent with the other proposed changes to the agencies' appraisal regulations, the agencies proposed changes to its wording to incorporate the proposed definition of “residential real estate transaction,” to introduce the $400,000 threshold, and to make other technical and conforming changes. The agencies proposed increasing the residential real estate appraisal threshold from $250,000 to $400,000. 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. This PDF is As discussed earlier, the agencies attribute the increase in the net charge-off rate for loans secured by single 1-to-4 family residential real estate during the recent recession to weak underwriting standards in the lead up to the crisis. See OCC: 12 CFR 34.42(m); Board: 12 CFR 225.62(m); FDIC: 12 CFR 323.2(m). Further, individuals performing evaluations are expected to be independent of the transaction. OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b). 16. In the course of the agencies' most recent EGRPRA review, commenters contended that it can be difficult to find state certified and licensed appraisers, particularly in rural areas, which results in delays in completing transactions and sometimes increased costs for appraisals. The term “Federal financial institutions regulatory agencies” means the Board, the FDIC, the OCC, the National Credit Union Administration (NCUA), and, formerly, the Office of Thrift Supervision. [28] See infra, Section II.C. The rule is likely to pose relatively larger residential real estate valuation-related transaction cost reductions for rural buyers and small, FDIC-supervised institutions lending in rural areas; however, these effects are difficult to accurately estimate. The agencies requested comment on this analysis of the charge-off data. Some commenters suggested eliminating the residential appraisal threshold exemption entirely and requiring appraisals for all residential real estate transactions. See also Frequently Asked Questions on the Appraisal Regulations and the Interagency Appraisal and Evaluation Guidelines (October 16, 2018), OCC Bulletin 2018-39; Board SR Letter 18-9; FDIC FIL-62-2018. Residential real estate transaction would be defined as a real-estate related financial transaction that is secured by a single 1-to-4 family residential property. ... (FIRREA… See FHFA House Price Index, available at https://www.fhfa.gov/​DataTools/​Downloads/​Pages/​House-Price-Index.aspx. [48] the current document as it appeared on Public Inspection on The IRS and the … As detailed above, data reviewed by the agencies found that lenders often choose to obtain appraisals, even when evaluations are permitted for transactions at or below the current $250,000 threshold. The Valuation Independence Rule,[63] This commenter also questioned whether the cost and time to receive an appraisal were burdensome, as its survey reflected that appraisals represented less than 0.2 percent of the total transaction cost and that the typical wait time for an appraisal in 2018 was only 7 days. Some of these commenters also asserted that they have adequate programs and policies to ensure that evaluations are used prudently. [22] The increased threshold level for residential transactions is expected to produce cost and time savings for financial institutions without imposing any burden, since it will permit institutions to use evaluations instead of appraisals for a greater number of transactions, and evaluations generally cost less and take less time to conduct and review than appraisals. A number of commenters questioned the reliability of valuation methods other than appraisals, particularly AVMs and evaluations. [94] 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. Some opposing commenters suggested the agencies should either maintain the current $250,000 threshold or lower the threshold, with suggested ranges from $100,000 or under to $275,000. [52], Regarding concerns about AVM use, the agencies note that, while financial institutions may use AVMs in preparing evaluations, any evaluation in which they are used must be consistent with safe and sound practices. Increasing the appraisal threshold for residential real estate transactions to $400,000 approximates more recent house prices and provides an inflation adjustment to a threshold that has not been increased since 1994. documents in the last year, 10 The agencies also indicated in the proposal that the Guidelines provide more information to assist financial institutions in the appropriate review of appraisals and evaluations.[76]. The HPML Rule applies to certain higher-risk transactions. These can be useful 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. Other commenters questioned how much relief the proposal would provide. 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 commenters opposing the proposal highlighted the benefits that state licensed or state certified appraisers bring to the real estate valuation process. 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. Removing the word “or” at the end of paragraph (a)(13); c. Removing the period at the end of paragraph (a)(14) and adding “; or” in its place; The addition and revisions read as follows: (15) The transaction is exempted from the appraisal requirement pursuant to the rural residential exemption under 12 U.S.C. As noted above, in estimating the impact of the threshold increase on institutions, the agencies attempted to exclude from the HMDA data analysis residential transactions that were already exempt from the appraisal regulations, including those sold to the GSEs. 78. 3341(b). [2] The agencies received several comments from financial institutions, financial institution trade associations, and state regulators asserting that the proposals would particularly reduce delays and costs in rural areas that may be experiencing a shortage of state licensed or state certified appraisers. For the hearing impaired only, TDD users may contact (202) 925-4618. [91], The final rule is likely to reduce loan valuation-related costs for small, covered institutions. Numerous commenters opposed to a threshold increase asserted that an increase to the appraisal threshold would have a disproportionately negative impact on more at-risk consumers, such as low-income individuals, members of certain minority groups, or first-time homebuyers, because at-risk borrowers are more likely to purchase homes priced in lower ranges and, therefore, are more likely to enter into residential transactions without the benefit of an appraisal. If you are using public inspection listings for legal research, you 33. 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. In addition, section 302(b) of RCDRIA requires new regulations and amendments to regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally to 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.[104]. In designing the scope of the threshold increase, the agencies chose to align the definition of residential real estate transaction with industry practice, regulatory guidance, and the categories used in the Call Report in order to reduce the administrative burden of determining which transactions were exempted by the final rule. An evaluation provides a market value of the real estate collateral. As described in the proposal, the 214,000 additional exempted transactions represent only three percent of total HMDA originations in 2017 and, as also reflected in Table 2, 16 percent of regulated transactions. The agencies recognize that the analysis may not have excluded all GSE-related transactions exempted from the appraisal regulations, as the regulations exempt not just transactions sold to the GSEs, but all transactions that qualify for sale to a GSE or U.S. government agency. In considering the aggregate effect of this rule, the agencies also considered the number of transactions likely to be affected by the increased threshold. documents in the last year, 356 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. [47] Many commenters who opposed the increased threshold indicated that evaluations are inadequate substitutes for appraisals and therefore an increased threshold would pose a threat to consumer protection. Some of these commenters asserted that it would be inappropriate for the agencies to expand the residential real estate transaction threshold before issuing quality control standards for AVMs, as required by Title XI. As stated in the proposal, the threshold increase will exempt a much smaller percentage of regulated transactions by dollar volume. [92] on residential properties by FDIC-insured institutions and affiliated institutions that are not sold to the GSEs or otherwise insured or guaranteed by a U.S. government agency (“regulated transactions”).[39]. Many of these commenters saw evaluations as appropriate substitutes for appraisals and institutions as having appropriate risk management controls in place to manage the proposed threshold change responsibly. Further, many financial institutions already have review processes in place to ensure that appraisals comply with USPAP. and the FHFA Index [34] A, Title II, section 2222, 110 Stat. 15. 97. While the supervisory data discussed above suggest that use of evaluations is lower than it could be, the agencies expect that raising the residential appraisal threshold will still provide burden relief because it will provide flexibility in those situations where obtaining an appraisal would significantly delay the transaction and the financial institution determines that an evaluation would be sufficient for the safety and soundness of the particular transaction. Branches and Agencies of Foreign Banks, Charge-Off and Delinquency Rates on Loans and Leases at Commercial Banks, Senior Loan Officer Opinion Survey on Bank Lending Practices, Structure and Share Data for the U.S. Offices of Foreign Banks, New Security Issues, State and Local Governments, Senior Credit Officer Opinion Survey on Dealer Financing Terms, Statistics Reported by Banks and Other Financial Firms in the United States, Structure and Share Data for U.S. Offices of Foreign Banks, Financial Accounts of the United States - Z.1, Household Debt Service and Financial Obligations Ratios, Survey of Household Economics and Decisionmaking, Industrial Production and Capacity Utilization - G.17, Factors Affecting Reserve Balances - H.4.1, Federal Reserve Community Development Resources. 1813(q)(2). See 12 U.S.C. The data show that increasing the threshold from $100,000 to $250,000 in 1994 resulted in an estimated 77 percent of the total dollar volume of regulated transactions being exempt. Finally, the agencies requested comment on challenges, if any, that financial institutions may have in meeting the requirements and standards for independence for evaluations prepared by internal staff or external third parties. The fact that evaluations, which will continue to be subject to supervisory oversight, will be required for transactions at or below the increased threshold supports the conclusion that increasing the residential real estate appraisal threshold to $400,000 will not pose a threat to safety and soundness. c. Removing the period at the end of paragraph (a)(13) and adding “; or” in its place; and. An evaluation should contain sufficient information and analysis to support the regulated institution's decision to engage in the transaction. Additionally, although not required by RCDRIA, the agencies did consider the administrative costs and benefits of the residential appraisal threshold increase while developing the proposal. From 1983 to 1990, nearly 25% of savings and loans were closed, merged, or placed in conservatorship by the Federal Savings and Loan Insurance Corporation (FSLIC). [36] 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). 26. the Federal Register. These tools are designed to help you understand the official document Therefore, this aspect of the rule is likely to have little or no effect on small, FDIC-supervised entities. Exemptions from the requirement for two appraisals for certain transactions include, among others, extensions of credit that finance a consumer's acquisition of property located in a rural county, as defined in 12 CFR 1026.35(b)(2)(iv)(A). Both appraisals and evaluations were cited in examiner findings, however, the overall amount and nature of valuation-related examination findings support a conclusion that the proposed threshold increase would not threaten the safety and soundness of financial institutions. The agencies denied these requests on grounds that holding a public hearing would not elicit relevant information that could not be conveyed through the notice and comment process. 46. 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. The deflator was 71.868 in 1995, and 110.382 in 2018, resulting in an inflation adjustment factor of 1.54 (110.382/71.868 = 1.54, and $100 million × 1.54 = $154 million). See https://fred.stlouisfed.org/​series/​MSPUS. 69. 17 30. See the Third Party Arrangements section in these Guidelines. All provisions of the rule, other than the evaluation requirement for transactions exempted by the rural residential appraisal exemption [82] As we previously reported, last November the FDIC, Federal Reserve Board and Comptroller of the Currency (the federal banking agencies) proposed a rule to implement a rural residential property appraisal exemption under the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Growth Act) and also increase the appraisal exemption based on transaction value from $250,000 to … The agencies recognize that the requirement to obtain an evaluation for transactions exempted by the rural residential appraisal exemption [105] in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on IDIs, each Federal banking agency must consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. There are twelve exemptions from this requirement. The CPI, which is published by the Bureau of Labor Statistics, is a measure of the average change over time in the prices paid by urban consumers for a market basket of goods and services. The agencies considered these comments in evaluating the rule's potential impact. Although some commenters expressed concern that raising the threshold would cause financial institutions to feel pressured to use evaluations whenever possible in order to remain competitive, data analyzed by the agencies suggests that financial institutions are generally using caution when determining when evaluations are suitable for a given transaction. [88] But so many banks failed that the insurance funds began to run out of money. 58. These commenters asserted that expedited valuations could make the residential mortgage market more efficient and lower closing costs. Other commenters expressed concern that the proposed threshold level would exempt too high a percentage of residential transactions from the protections provided by appraisals. 40. 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. In addition to the additional safety and soundness protection provided by the risk-based approach to valuations, the agencies note that each agency has the ability under the appraisal Start Printed Page 53588regulations to require an appraisal whenever it is necessary to address safety and soundness concerns. Each document posted on the site includes a link to the 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. This table of contents is a navigational tool, processed from the Background B. For persons who are deaf or hearing impaired, TTY users may contact (202) 649-5597. [49] Be sure to leave feedback using the 'Feedback' button on the bottom right of each page! The delayed effective date will provide regulated institutions adequate time to implement procedures for obtaining an evaluation for certain residential transactions secured by property in a rural area that are exempt from the appraisal requirements and for subjecting appraisals for federally related transactions to appropriate review for compliance with USPAP. The agencies have authority to determine those real estate-related Start Printed Page 53581financial transactions that do not require Title XI appraisals. All real estate-related financial transactions engaged in by financial institutions are FRTs unless the transactions are exempt from the appraisal requirements of the appraisal regulations. 3339(3). [4], Title XI directs each Federal financial institutions regulatory agency [5] 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. When considering the threshold increase's potential impact on safety and soundness, the agencies considered a loss analysis of aggregate net charge-off rates for residential real estate loans after the last increase in the appraisal threshold in 1994. One commenter indicated that evaluations may take longer to review than appraisals. The Appraisal Rule creates a new definition of, and separate category for, commercial real estate transactions and raises the threshold for requiring an appraisal from $250,000 to $500,000 for those transactions, which will exempt an additional 15.7 percent of transactions from the appraisal … For additional information on evaluations, see infra notes 23 and 24. 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