The preliminary determination was based on supervisory experience regarding causes of losses at financial institutions, analysis of available Home Mortgage Disclosure Act (HMDA) data, and the fact that evaluations would be required for transactions below the proposed threshold. 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). The mortgage originator must be subject to oversight by a Federal financial institutions regulatory agency, as defined in Title XI. documents in the last year, 929 The agencies also invited comment on the appropriateness of the data used in the proposal and requested any suggestions for alternative sources of data. provide that individuals preparing evaluations should be qualified, competent, and independent of the transaction and the loan production function of the institution. 3339(3). The President of the United States issues other types of documents, including but not limited to; memoranda, notices, determinations, letters, messages, and orders. 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. FHA uses the estimate to confirm the home is worth the amount it is guaranteeing. A few commenters suggested that evaluations are subject to less regulatory scrutiny than appraisals. Share. See OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b). The other alternative proposals suggested, such as varying the threshold based on local housing prices or wages, would add unnecessary regulatory burden and complexity by introducing numerous threshold levels across the country. 4802(b). Further, consumers may voluntarily obtain appraisals regardless of whether the regulated institution is required to do so. 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. Browse our An institution may take a lien on real estate and be exempt from obtaining an appraisal if the... 3. $375/$307,700 = .001218, $900/$307,700 = .002925. Public Law 115-174, Title I, section 103, codified at 12 U.S.C. After considering the comments received, the agencies have decided to implement the requirement for regulated institutions to obtain evaluations when the rural residential appraisal exemption is used. The agencies also proposed to amend the definitional term “complex 1-to-4 family residential property appraisal” to “complex appraisal for a residential real estate transaction” to conform to the definition of residential real estate transaction. [37] This appraisal training is approved for seven hours of Continuing Education Units (CEUs) for licensed appraisers in states where it is applicable, and accreditation is required. [81] which includes both appraisals and evaluations. Federal Register. [48] One commenter suggested that evaluations may not constitute appraisals for purposes of appraisal contingency clauses and may cause confusion to consumers opting for these contingencies. But if you’re using a … October 18, 2019 • This chapter has been revised in its entirety. [77] Qualifying business loans are business loans that are real estate-related financial transactions and that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. The agencies invited comment on the proposed level for the residential real estate appraisal threshold. 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. For transactions at or below the new residential threshold, regulated institutions will be given the option to obtain an evaluation of the property instead of an appraisal. A few commenters suggested lower thresholds and that transactions under the current and proposed thresholds often pose risk to financial institutions and to consumers. [30] of which 2,705 are defined as small entities by the terms of the RFA. Y-14 data. The exemption provides that residential transactions in certain rural areas do not require Title XI appraisals if the financial institution documents that appraisers are not available for the transaction within reasonable time and cost parameters. 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. The agencies recognize that the requirement to obtain an evaluation for transactions exempted by the rural residential appraisal exemption [105] Effective January 1, 2010, § 225.63 is further amended by revising paragraph (b) to read as follows: (b) Evaluations required. [57] Each document posted on the site includes a link to the In addition, the Dodd-Frank Act contained provisions that addressed independence requirements applicable to “valuations” for consumer-purpose mortgages secured by a consumer's principal dwelling. Requiring 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. 1818, 1819(a) (“Seventh” and “Tenth”), 1831p-1 and 3331 et seq. For residential real estate transactions exempted from the appraisal requirement as a result of the revised threshold, regulated institutions would be required to obtain an evaluation of the real property collateral that is consistent with safe and sound banking practices. has no substantive legal effect. [83] 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. documents in the last year, 647 6. In contrast, some commenters who were providers of evaluation services indicated that they typically include a physical inspection of the property in their product. 1296, Title I, section 103, codified at 12 U.S.C. 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. Another commenter asserted that evaluations typically cost about $100 less than appraisals. [36] With respect to consumer recourse for faulty evaluations, available information from entities that use or provide evaluations indicates that lenders often order appraisals when disputes arise with evaluations, so the agencies do not expect the proposal to materially affect options for consumer recourse. The $250,000 residential threshold was set in 2002, but as inflation and residential real estate prices increased in the intervening years, the intended relief eroded. Appraisal Threshold. One commenter indicated that evaluation tools provide accurate valuation information at approximately half the cost of an appraisal. Be sure to leave feedback using the 'Feedback' button on the bottom right of each page! 1639c (implemented by the CFPB at 12 CFR 1026.43); reverse mortgages subject to 12 CFR 1026.33; and certain refinancings. The OCC, Board, and FDIC (collectively, the agencies) are adopting a final rule to amend the agencies' regulations requiring appraisals of real estate for certain transactions. 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: 9. 17. However, the agencies do not view the option to obtain an evaluation instead of an appraisal as a new or additional requirement for purposes of RCDRIA. [56] The Board believed that such standards should esta… history, career opportunities, and more. The agencies also considered housing prices over the most recent financial cycle which were generally at a low point in 2011. In addition, although all sources of publicly available valuation information might not always accurately Start Printed Page 53590reflect the market value of a particular property, consumers can use a variety of available information to learn more about the availability of and the potential range of values for properties in a particular area or market. 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. 12/02/2020, 382 documents in the last year, 746 b. This site displays a prototype of a “Web 2.0” version of the daily Walls and ceilings in good condition without cracks or holes. The agencies also requested comment on the availability of valuation information to consumers through public sources and whether information from those sources help provide consumers with additional protection in residential transactions. 83. 100-1001, pt. 15. Some of these commenters also asserted that they have adequate programs and policies to ensure that evaluations are used prudently. While the cost of obtaining appraisals and evaluations can vary and may be passed on to borrowers, evaluations generally cost less to perform than appraisals, given that evaluations are not required to comply with USPAP. Only official editions of the 32. 3356. 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. However, because the final rule increases the residential threshold to $400,000 for all residential transactions, institutions, including small entities, 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. The agencies are increasing the threshold from $250,000 to $400,000 at or below which a Title XI appraisal is not required for residential real estate transactions in order to reduce regulatory burden in a manner that is consistent with the safety and soundness of financial institutions. Paper copies of FDIC FILs may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200). 48. 3341(b). The Public Inspection page may also The OCC estimates the UMRA inflation adjustment using the change in the annual U.S. GDP Implicit Price Deflator between 1995 and 2018, which is the most recent available annual data. Some commenters also raised concerns about the use of evaluations on homes that may need repairs, suggesting that evaluations may not uncover these issues. See OCC: 12 CFR 34.203(b); Board: 12 CFR 226.43(b); FDIC (through adoption of CFPB rule): 12 CFR 1026.35(c)(2). 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]. The agencies note that many commenters suggested that appraisers, unlike those who perform evaluations, cannot be employees of the financial institution making the loan. Some commenters opposed to an increase raised concerns that free online valuation information and tools may be flawed due to, for example, their reliance on public records with data entry errors. Uniform Appraisal Dataset (UAD) The UAD is a component of the Uniform Mortgage Data Program® (UMDP®), jointly established by Fannie Mae and Freddie Mac under the direction of the Federal Housing Finance Agency to provide common requirements for appraisal and loan delivery data. 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 the proposal, the agencies requested comment on whether the proposed level of $400,000 for the threshold would be appropriate from a safety and soundness perspective, and on what sources of data would be appropriate for the safety and soundness analysis. data. 22. 1681s, 1681w, 6801 and 6805. b. These tools are designed to help you understand the official document daily Federal Register on FederalRegister.gov will remain an unofficial The agencies received one comment generally supporting the proposed definition and one comment generally opposing the definition, neither of which included any detail regarding the reasoning for the position. 3341(b). This document has been published in the Federal Register. Adding this definition does not change any substantive requirement, but provides clarity to the regulation. on Office of the Comptroller of the Currency, Treasury (OCC); Board of Governors of the Federal Reserve System (Board); and Federal Deposit Insurance Corporation (FDIC). Effective January 1, 2020, § 225.64 is amended by: For the reasons set forth in the joint preamble, the FDIC amends part 323 of chapter III of title 12 of the Code of Federal Regulations as follows: 11. Appraisals required; transactions requiring a State certified or licensed appraiser. As discussed above, in section 103 of EGRRCPA, Congress amended Title XI in 2018 to add a rural residential appraisal exemption. § 34.44 is amended by: b. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f), respectively; and. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI) requires the Agencies to adopt regulations prescribing standards for appraisals used in connection with federally related transactions within the jurisdiction of each agency, and that they be performed by certified or licensed appraisers. This final rule is effective on October 9, 2019, except for the amendments in instructions 4, 5, 9, 10, 14, and 15, which are effective on January 1, 2020. See OCC: 12 CFR 34.44(b); Board: 12 CFR 225.64(b); FDIC: 12 CFR 323.4(b). These commenters generally asserted that doing so would be more consistent with the data presented. 12/02/2020, 297 Further, historical loss information in the Call Reports reflects that the net charge-off rate for residential transactions did not increase after the increase in the appraisal threshold from $100,000 to $250,000 in June 1994, or during and after the recession in 2001 through year-end 2007. Some commenters noted the agencies' acknowledgement that there is limited information on the cost and time burden of evaluations versus appraisals and urged the agencies to obtain additional data to quantify any expected savings. The agencies also considered comments received during the EGRPRA process and in response to questions posed about the residential threshold in the CRE rulemaking. The final rule(opens new window) increases the appraisal threshold for residential real estate from $250,000 to $400,000. Accessed Oct. 27, 2019. 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. The agencies received one comment on these conforming changes seeking clarification as to whether certified appraisers would be required for complex appraisals for residential real estate transactions above $400,000 or transactions at or above $400,000. Since we are living in 2019, the guidelines have to be modernized as well. However, beginning in 2017, FDIC-supervised institutions ceased reporting residential loan origination data in compliance with HMDA if they originated less than 25 loans per year. These independence requirements extend to appraisals, evaluations, and other estimations of value and encompass not only individuals preparing such valuations but also those performing valuation management functions. Even assuming that a number of transactions fall into this category, the agencies believe the threshold increase will produce burden relief for regulated institutions. The FDIC adopted the HPML Rule as published in the CFPB's regulation. Effective January 1, 2020. of the issuing agency. The Board's rule applies to state chartered banks that are members of the Federal Reserve System (state member banks), as well as bank holding companies and nonbank subsidiaries of bank holding companies that engage in lending. collection of financial education materials, data tools, 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. 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. See Standard & Poor's CoreLogic Case-Shiller Home Price Indices, available at https://us.spindices.com/​index-family/​real-estate/​sp-corelogic-case-shiller. In adopting the threshold increase for residential mortgage loans as proposed, the agencies appreciate and have considered the consumer protection issues and concerns raised by the commenters. 1004, 1025, 1073, etc., but not 1004D, 1075, 2000, 2000A, 2055, 2070, 2075, 2095, or any “Subject To” or Recertification of Value assignments). 83 FR 15019-01 (April 9, 2018) (“commercial real estate transaction” is defined as a “real estate-related financial transaction that is not secured by a single 1-to-4 family residential property”). 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. 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. 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]. 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]. 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. 75. OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b). [88] Threshold Level. Pursuant to section 302(a) of the Riegle Community Development and Regulatory Improvement Act (RCDRIA),[103] and the FHFA Index [34] In contrast, commenters noted there are no standardized requirements for those who perform evaluations. 33. edition of the Federal Register. which implements the Dodd-Frank Act independence provisions, states that “no covered person shall or shall attempt to directly or indirectly cause the value assigned to the consumer's principal dwelling to be based on any factor other than the independent judgment of a person that prepares valuations, through coercion, extortion, inducement, bribery, or intimidation of, compensation or instruction to, or collusion with a person that prepares valuations or performs valuation management functions.” [64] 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,[69] FIL-53-2019 - PDF . “The intended user of this appraisal report is the lender/client. 1338, 1471 (1999). should verify the contents of the documents against a final, official 54. The agencies have implemented examination procedures to frame their review of an institution's valuation practices and the sufficiency of the supporting information in evaluations, as appropriate for the size and nature of the institution's residential real estate lending activities. rendition of the daily Federal Register on FederalRegister.gov does not Some commenters opposing the increase asserted that inflationary changes are inadequate justifications for increasing the appraisal threshold. Finally, the agencies note that even when the transaction amount is at or below the threshold, the Guidelines [71] A number of commenters requested that the agencies conduct alternative analyses and pointed out that the agencies did not analyze the local or regional markets affected by the increase nor the impact on particular borrowers or communities. See 59 FR 29482 (June 7, 1994). 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). As previously discussed in the Revisions to the Title XI Appraisal Regulations section,[100] More information and documentation can be found in our