Since December 2010, financial institutions have had to maintain strict requirements to ensure a safe and sound program for performing appraisals and evaluations for real-estate related transactions, as required by the Interagency Appraisal and Evaluation Guidelines. Limited exceptions for appraisals were required under the Guidelines, requiring banks to request more appraisals than ever before and maintain stringent requirements in the ordering of those appraisals. Since 2010, appraisals for real-estate related transactions have dramatically increased while the number of state certified and licensed appraisers continues to decrease, especially in small, rural areas of the country.
The federal bank regulatory agencies released an Interagency Advisory today, May 31, 2017, on the availability of state certified and licensed appraisers, particularly in rural areas. The Board of Governors of the Federal Reserve, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency (Agencies) issued the advisory to provide two existing options that may assist those financial institutions that are dealing with appraiser shortages:
- Temporary Practice Permits
- Temporary Waivers
Temporary Practice Permits are allowed under Section 1122(a) of Title XI of FIRREA that requires a state appraiser certifying or licensing agency to recognize the certification or license of an appraiser issued by another state on a temporary basis for federally related transaction (FRT). These permits could allow an appraiser to provide their services in states where they are not certified or licensed, including those areas within states that are experiencing a shortage. The appraiser is responsible for applying for the temporary practice permit, if allowed under applicable state law.
Temporary Waivers may be authorized by the Appraisal Subcommittee (ASC) under Section 1119 of Title XI of FIRREA. ASC may grant temporary waivers of any requirements relating to certification or licensing of an appraiser in any state where there is a shortage of appraisers leading to significant delays in obtaining appraisals in connection with FRT’s. These waivers may allow for more individuals to become eligible to complete appraisals which may alleviate some of the cost and burden associated with having a shortage of state certified or licensed appraisers. Waiver requests can be submitted to the ASC by any of the following:
- A state appraiser certifying or licensing agency;
- A federal bank regulatory agency;
- A regulated financial institution or credit union;
- Other persons or institutions with a demonstrable interest in appraiser regulation.
Once required information is submitted, the ASC may waive the requirement to use a certified or licensed appraiser on FRTs for all regulated institutions in the affected geographic area, regardless of who requested the waiver. The waiver request must go through the public notification process in the Federal Register, including a 30-day comment period. Within 15 days of the close of the comment period, a decision will be issued by the ASC with an order specifying the time period during which the waiver will be in effect.
Since the onset of the Interagency Guidelines in 2010, appraisal requirements have been at the forefront of most compliance officers and/or lenders minds when completing a real-estate related transaction. While this may be great news for many rural-based financial institutions, how comfortable will you be utilizing an appraisal from an out-of-state appraiser or from an individual who has been “pushed through” the strict qualification requirements to become an appraiser? Weren’t these Guidelines originally put in place to ensure a “safe and sound program for performing appraisals and evaluations for real-estate related transactions?” While these two allowances have been present in the law, will the use of them being encouraged by the agencies begin to discredit what financial institutions have worked so hard to build? Only time will tell.