On November 20, 2018, the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, and Federal Deposit Insurance Corporation (the Agencies) released a proposed rule to amend the appraisal requirements. Specifically, the proposal would increase the threshold for which appraisals are required on residential real estate loans, define a residential real estate transaction, include an exemption for rural real estate transactions pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), and implement a requirement for appraisal review.
Currently, appraisals are required for residential real estate transaction exceeding $250,000; for transactions of $250,000 or less evaluations are required. The Agencies are proposing to increase the residential real estate threshold from $250,000 to $400,000. A similar adjustment for commercial real estate transactions was made effective by the Agencies on April 9, 2018, raising the threshold from $250,000 to $500,000.
The agencies are also proposing to define a residential real estate transaction as a real estate transaction secured by a single 1-to-4 family residential property. This definition correlates with the definition of commercial real estate transaction, as a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property, that was included in the April 9, 2018 Final Rule increasing the commercial transactions threshold.
The agencies are also proposing to add the rural residential appraisal exemption to the list of transactions that do not require appraisals, pursuant to the EGRRCPA. The rural appraisal exemption, which was effective on enactment of EGRRCPA requires:
- The property must be located in a rural area;
- The transaction value must be less than $400,000;
- The financial institution must retain the loan in portfolio, subject to exceptions; and
- Not later than three days after the Closing Disclosure is given to the consumer, the financial institution or its agent must have:
- Contacted not fewer than three state certified or state licensed appraisers, as applicable; and
- Documented that no such appraiser was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments.
- The mortgage originator is subject to oversight by a Federal financial institutions regulatory agency.
As is consistent with certain other exemptions from the appraisal requirement, the Agencies are proposing transactions meeting the EGRRCPA exemption would be subject to evaluation requirements. The Agencies noted that “[r]equiring evaluations for transactions exempted by the rural residential appraisal exemption reflects the agencies’ long-standing view that safety and soundness principles require institutions to obtain an understanding of the value of real estate collateral underlying most real estate-related transactions they originate.”
Finally, Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act the proposed rule would amend the appraisal regulations to require financial institutions to subject appraisals to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice or USPAP.
The interagency proposal and request for comment is available here. Comments are due 60 days after publication in the Federal Register.
On September 20, 2018, the National Credit Union Association issued a proposed rule to increase the commercial real estate transaction threshold to $1 million and implement the EGRRCPA rural residential appraisal exemption. The NCUA’s proposal is available here.
Recordings of our recent webinar “Writing Compliant Real Estate Evaluations Internally,” presented by Eric Collinsworth, is available in the Compliance Marketplace.