Safety and Soundness Considerations for Raising the Residential Real Estate Threshold, 5. 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. 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. 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. Reducing Burden Associated with Appraisals. The amendment to this provision would have been a technical change that would not alter any substantive requirement, because the statutory provision is self-effectuating and the proposed threshold increase to $400,000 would encompass loans that would otherwise qualify for the section 103 rural residential appraisal exemption. An evaluation is not necessary if the transaction qualifies both for the new threshold and for another exemption that does not require an evaluation. 14 value of $400,000 or less. 1, at 19 (1988); 133 Cong. See OCC: 12 CFR 34.43(a)(1), (5), and (13); Board: 12 CFR 225.63(a)(1), (5), and (14); and FDIC: 12 CFR 323.3(a)(1), (5), and (13). As a result, evaluations are often simpler and take less time to review than appraisals. 20th Street and Constitution Avenue N.W., Washington, DC 20551, Last Update: 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. 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. (rural residential appraisal exemption). Several commenters concurred with the agencies' cost estimates in the proposal. that the agencies or a financial institution regulated by the agencies engages in or contracts for, that requires the services of an appraiser under Title XI and the interagency appraisal rules. documents in the last year, 787 Review of Monetary Policy Strategy, Tools, and Communications, Banking Applications & Legal Developments, Financial Market Utilities & Infrastructures, Board of Governors of the Federal Reserve System, Office of the Comptroller of the Currency. Be sure to leave feedback using the 'Feedback' button on the bottom right of each page! Other commenters supporting a threshold increase supported a higher threshold, such as $500,000. 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. Some commenters in support of the proposal indicated that the proposed threshold increase would benefit consumers, arguing that costs and delays due to appraisals could be reduced. By specifying that an evaluation is required for transactions in which all of the criteria under EGRRCPA section 103 are met, the agencies seek to streamline the exemption rules and eliminate confusion for creditors operating in rural areas. 85. In particular, commenters requested that the agencies analyze the effect of the proposed increase in the threshold in dynamic markets and compare its effect in urban versus rural areas. in real estate-related transactions by requiring that real estate appraisals used in connection with federally related transactions (Title XI appraisals) be performed in accordance with uniform standards by individuals whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. could be considered by IDIs to be a new requirement, despite the longstanding requirements for IDIs to obtain evaluations for transactions exempt from agencies' appraisal requirement under a threshold exemption. Effective May 24, 2018, section 103 provides that a Title XI appraisal is not required if the real property or interest in real property is located in a rural area, as described in 12 CFR 1026.35(b)(2)(iv)(A), and if the transaction value is $400,000 or less. The final rule does not contain any new recordkeeping, reporting, or significant compliance requirements. [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. For instance, the Evaluation Guidance states that, generally, evaluations should be performed by persons who are competent, independent of the transaction, and have the relevant experience and knowledge of the market, location, and type of real property being valued. Threshold Level. 29. Consumer Protection Considerations. 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. See Real Estate Appraisal Reform Act of 1988, H.R. Numbers and dollar volumes are based on 2017 HMDA data. See Standard & Poor's CoreLogic Case-Shiller Home Price Indices, available at​index-family/​real-estate/​sp-corelogic-case-shiller. Register (ACFR) issues a regulation granting it official legal status. The third minimum requirement was added to Title XI by section 1473(e) of the Dodd-Frank Act, as noted supra, and is being implemented by this rulemaking. 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. Further, individuals performing evaluations are expected to be independent of the transaction. 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. Subtotals may not add to totals due to rounding. documents in the last year, by the Federal Railroad Administration [36] The SBA has defined “small entities” to include banking organizations with total assets of less than or equal to $600 million. 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. One of these commenters, a financial institution trade association from a large state, asserted that the rural residential appraisal exemption would not apply to transactions in areas representing 86 percent of the state's population, and that the proposed threshold increase thus would provide additional burden relief in the state beyond what was provided by the rural residential appraisal exemption. 3311). 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. 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]. 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. To ensure that the safety and soundness of Start Printed Page 53594regulated institutions are protected, the agencies will require evaluations for transactions that are exempted by the increased residential appraisal threshold. The Evaluation Guidance provides information to help ensure that evaluations provide a credible estimate of the market value of the property pledged as collateral for the loan. However, because the final rule increases the residential threshold to $400,000 for all residential transactions, institutions will not need to comply with the detailed requirements of the rural residential appraisal exemption in order for such transactions to be exempt from the agencies' appraisal requirement. 70. In proposing the increase in the appraisal threshold for residential transactions, the agencies noted that evaluations can provide consumer protections. [99] 44. While the precise time and cost reduction per transaction is difficult to determine, the agencies conclude that the increased threshold is likely to result in some level of cost and time savings for regulated institutions that engage in residential real estate lending and for consumers. 5. The Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) is a set of regulatory changes to the U.S. savings and loan banking system and the real estate appraisal … The FDIC adopted the HPML Rule as published in the CFPB's regulation. 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. 2019-21376 Filed 10-7-19; 8:45 am], BILLING CODE 4810-33-P 6210-01-P; 6714-01-P, updated on 8:45 AM on Tuesday, December 22, 2020. And no one is exempt from the Civil Rights Act of 1866, which prohibits all racial discrimination in the sale or rental of property. 12 U.S.C. The agencies have consulted with the Consumer Financial Protection Bureau (CFPB), and, as required by statute, have received its concurrence on the increased threshold. As is the case currently for transactions under the threshold exemptions, evaluations will be required for transactions exempted by the new threshold that do not receive appraisals. See FHFA House Price Index, available at​DataTools/​Downloads/​Pages/​House-Price-Index.aspx. The mortgage originator must be subject to oversight by a Federal financial institutions regulatory agency, as defined in Title XI. Some of these commenters cited alternative sources for fee data, including several state-specific studies. 12/22/2020, 392 Other commenters suggested that the proposal would cause consumers to lose the benefit of appraisers performing a physical inspection and an analysis of specific property features, including property maintenance and repair issues that can affect the property value. 12/22/2020, 41 In response to the comments concerning valuation independence, the agencies have long recognized that evaluations prepared by competent and independent preparers can provide credible valuation information for residential real estate transactions. 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. requires the Federal banking agencies to use plain language in all proposed and final rules published after January 1, 2000. While the FDIC does not have definitive data on the cost of evaluations, some of the comments from financial institutions and their trade associations represented that evaluations are less costly than appraisals. The CFPB released its letter concurring that the increased threshold provides reasonable protection for consumers who purchase 1-4 unit single-family residences. The Board certifies that the final rule will not have a significant economic impact on a substantial number of small entities supervised by the Board. Originations with loan amounts greater than $20 million are excluded. See 59 FR at 29486. Several commenters questioned the proposal in light of the agencies' previous decision not to propose an increase to the residential real estate appraisal threshold during the regulatory review process required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). Many commenters who opposed a threshold increase on consumer protection grounds asserted that evaluations are not subject to uniform standards and are not a meaningful substitute for an appraisal that must be conducted in compliance with USPAP. 4802(b). 3356. See EGRPRA Report, available at​pdf/​2017_​FFIEC_​EGRPRA_​Joint-Report_​to_​Congress.pdf. 17. Further, the agencies consulted with the CFPB throughout the development of the proposal and final rule and, as required by Title XI,[62] The agencies are not aware of any such issues regarding the current threshold, which already exempts a significant portion of residential real estate transactions. 12. Bank holding companies and intermediate holding companies with $50 billion or more in total consolidated assets are required to submit a quarterly Capital Assessments and Stress Testing (FR Y-14M) reports and schedules, which collect granular data on institutions' various asset classes, including residential real estate loans. In the proposal, the agencies also highlighted that the Guidelines and the Evaluations Advisory [60] 16. In order to fulfill the agencies' statutory responsibility under the Dodd-Frank Act, the agencies are also adding to the appraisal regulations a requirement that appraisals be subject to appropriate review for compliance with USPAP. Other commenters expressed concern that the proposed threshold level would exempt too high a percentage of residential transactions from the protections provided by appraisals. Public Law 104-208, Div. 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. 3331 et seq., directs the federal financial institutions regulatory agencies1 to publish appraisal rules for federally related transactions within the jurisdiction of each agency. 22. establishing the XML-based Federal Register as an ACFR-sanctioned Background B. 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]. Transactions that involve an existing extension of credit at the lending institution are exempt from the agencies' appraisal requirement, but are required to have evaluations, provided that there has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution's real estate collateral protection after the transaction, even with the advancement of new monies; or there is no advancement of new monies, other than funds necessary to cover reasonable closing costs. Overall, the Board does not believe this requirement will have a significant economic impact on small institutions. [65] 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. The agencies also considered the cost savings that IDIs would experience by obtaining evaluations instead of appraisals and set the threshold at a level designed to provide significant burden relief without sacrificing safety and soundness. Some commenters noted that consumers may file an official complaint with a state's appraiser board to address an inaccurate appraisal, which is not an option for addressing an inaccurate evaluation performed by a non-appraiser. 5. Some commenters asserted that appraisals provide more accuracy than evaluations because they include a physical inspection of the property. Agency staff used HMDA data to estimate the number and dollar volume of institutions' residential real estate transactions that would be affected by the increased threshold. This site displays a prototype of a “Web 2.0” version of the daily This document has been published in the Federal Register. [87] offers a preview of documents scheduled to appear in the next day's FDIC: Beverlea S. Gardner, Senior Examination Specialist, Division of Risk Management and Supervision, (202) 898-3640,; Benjamin K. Gibbs, Counsel, Legal Division, (202) 898-6726; Mark Mellon, Counsel, Legal Division, (202) 898-3884; or Navid Choudhury, Legal Division, (202) 898-6526, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. 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. A number of commenters disputed that there are appraiser shortages warranting regulatory relief outside of Start Printed Page 53591rural areas, with some offering supporting data from the Appraisal Subcommittee of the Federal Financial Institutions Examination Council and the Appraisal Foundation. Another commenter expressed concern that a requirement for appraisal review would force some financial institutions to outsource the review process, given that many small institutions do not have staff trained in USPAP standards, which would add considerable overhead expense for financial institutions. By comparison, as referenced above in Table 2, 2017 HMDA data indicates that increasing the threshold from $250,000 to $400,000 will result in an estimated 35 percent of the total dollar volume of regulated transactions being exempt. 1, 25b, 29, 93a, 371, 1462a, 1463, 1464, 1465, 1701j—3, 1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B), and 15 U.S.C. In addition, the agencies asked commenters for specific information about the potential cost and time savings to consumers that may result from the increased use of evaluations versus appraisals and whether information in evaluations would be sufficiently clear to enable the consumer to make an informed decision. with a transaction value [16] In addition to costing less than an appraisal, evaluations may require less time to review than appraisals because evaluations typically contain less detailed information than appraisals. A, Title II, section 2222, 110 Stat. [91], The final rule is likely to reduce loan valuation-related costs for small, covered institutions. These federal financial and public policy interests have been described in predecessor legislation and accompanying Congressional reports. [68] For the hearing impaired only, TDD users may contact (202) 925-4618. A real estate-related financial transaction is defined as any transaction that involves: (i) The sale, lease, purchase, investment in or exchange of real property, including interests in property, or financing thereof; (ii) the refinancing of real property or interests in real property; and (iii) the use of real property or interests in real property as security for a loan or investment, including mortgage-backed securities. Based on their supervisory experience with evaluations since 1994, the agencies have found that both appraisals and evaluations can protect consumers by facilitating the informed use of credit and helping to ensure the estimated value of the property supports the purchase price and mortgage amount. We’ve made big changes to make the eCFR easier to use. Introduction A. Use the PDF linked in the document sidebar for the official electronic format. Further, many financial institutions already have review processes in place to ensure that appraisals comply with USPAP. 19. The agencies proposed to increase the threshold level at or below which appraisals are not required for residential real estate transactions from $250,000 to $400,000. The cost and time savings produced for institutions by obtaining evaluations versus appraisals is difficult to quantify because of limited available data and variation based on the type and complexity of the transaction. 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. The final rule makes a conforming change to add to the list of exempt transactions those transactions secured by residential property in rural areas that have been exempted from the agencies' appraisal requirement pursuant to the Economic Growth, Regulatory Relief, and Consumer Protection Act. Safety and Soundness Considerations for Raising the Residential Real Estate. See 78 FR 10368-01, 10370 (December 26, 2013). 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, 235 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. 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