According to several of these commenters, this is because first-time homebuyers typically use a substantial portion of their savings for the down payment or obtain mortgages with high loan-to-value ratios. These commenters generally asserted that doing so would be more consistent with the data presented. 3311). Safety and Soundness Considerations for Raising the Residential Real Estate. Revisions to the Title XI Appraisal Regulations, A. OCC: 12 CFR part 34, subpart G; Board: 12 CFR 226.43; FDIC (through adoption of CFPB rule): 12 CFR 1026.35(c). In the proposed rule, the agencies specifically asked what challenges, if any, would be posed by requiring lenders to obtain evaluations where the rural residential appraisal exemption under section 103 of EGRRCPA is used. This analysis of the 2017 HMDA data indicates that the increased threshold will affect a low aggregate dollar volume but a material number of transactions, suggesting the potential for financial savings and burden relief with limited additional risk. One commenter indicated that appraisal review provides significant consumer and lender safeguards. 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. 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. The Appraisal Rule also incorporates the appraisal exemption for rural residential properties provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRCCPA) and requires evaluations for these exempt transactions. 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. Home prices in rural areas are generally lower than those in suburban and urban areas. These data are also consistent with some commenters' assertions that lenders would continue to use a risk-based approach in determining whether to obtain an evaluation or an appraisal for a particular transaction, regardless of the threshold amount. We’ve made big changes to make the eCFR easier to use. Some commenters also raised concerns about the use of evaluations on homes that may need repairs, suggesting that evaluations may not uncover these issues. 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 FDIC believes that effects in excess of these thresholds typically represent significant effects for FDIC-supervised institutions. See Supervisory Guidance on Model Risk Management (April 4, 2011), OCC Bulletin 2011-12; Board SR Letter 11-7; FDIC FIL-22-2017 (adopted by the FDIC in 2017 with technical and conforming changes)); Guidelines, Appendix B. 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. I. 10. Some financial institutions commented that they had found evaluations to generally contain sufficient information and analysis to be the basis for lending decisions. Several commenters asserted that evaluations are usually performed by individuals who, unlike appraisers, are not credentialed valuation professionals subject to standardized training and experience requirements. In general, commenters who supported the proposed increase in the threshold viewed the data presented in the proposed rule as supporting the increase, while commenters opposed to the increase found the data insufficient. 1639h. The agencies acknowledge that the data presented indicates that a house sold in 1994 would sell for higher than $400,000 today; however, the agencies believe the more conservative approach is appropriate.  The final rule to increase the residential threshold may result in cost savings for impacted institutions. The Appraisal Institute has a long history as the leader of the valuation profession and as a developer of valuation standards. Similarly, in requiring evaluations for exempted rural transactions and adding the appraisal review requirement, the agencies considered the administrative burden of these requirements on IDIs consistent with principles of safety and soundness and the public interest. It also provides credit unions parity with their banking peers.1 Unless specifically exempted from valuation requirements,2 the new th… Further, the agencies consulted with the CFPB throughout the development of the proposal and final rule and, as required by Title XI, 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). Since the early 1990s, the agencies' appraisal regulations have required that regulated institutions obtain evaluations for certain other exempt residential real Start Printed Page 53592estate transactions (which in practice are generally retained in their portfolios). b. In addition, the proposed rule would have required evaluations for transactions that are exempt from the agencies' appraisal requirement under the rural residential appraisal exemption under section 103 of EGRRCPA. 3009-414, (1996) (codified at 12 U.S.C. An official website of the United States government. Several commenters asserted that inflationary measures such as the CPI are inappropriate measures Start Printed Page 53584on which to base the threshold because they are not accurate indicators of housing prices. The hourly compensation estimate is based on published compensation rates for Credit Counselors and Loan Officers ($44.30).  Counts are subject to sampling, reprocessing and revision (up or down) throughout the day. The agencies also note that regulated institutions generally need less time to review evaluations than Title XI appraisals because the content of the report can be less comprehensive than an appraisal report. Some commenters questioned the need for, and appropriateness of, the proposed threshold increase in light of the rural residential appraisal exemption. Be sure to leave feedback using the 'Feedback' button on the bottom right of each page! 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. In general, commenters who supported the increase in the threshold Start Printed Page 53586also viewed evaluations as providing sufficient valuation information and analysis for financial institutions and consumers to engage in safe and sound residential real estate transactions. The FDIC supervises 3,465 depository institutions, In the proposal, the agencies specifically asked what concerns, if any, would be posed by requiring lenders to conduct appropriate reviews of Title XI appraisals for compliance with USPAP. For clarity, the agencies note that under the final rule, creditors operating in rural areas could opt to rely on the more broadly applicable exemption for transactions of $400,000 or less in lieu of the rural residential appraisal exemption and will not need to meet the additional criteria required under the rural residential appraisal exemption. In general, commenters that supported the proposed threshold and commented on consumer protection issues indicated that evaluations provide consumers with sufficient protection in a residential real estate transaction. are not part of the published document itself. 2. These commenters focused on the percentage of residential transactions that would be affected, either on a national basis or based on specific geographic areas. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(l), 3106, 3108, 3310, 3331 et seq., 3906, 3907, and 3909; 15 U.S.C. Median home price in the United States as of January 2019 is estimated at $307,700 by the Federal Reserve Bank of St. Louis. 14. 1639c (implemented by the CFPB at 12 CFR 1026.43); reverse mortgages subject to 12 CFR 1026.33; and certain refinancings. In the proposal, the agencies also highlighted that the Guidelines and the Evaluations Advisory  Finally, by potentially reducing valuation-related costs associated with residential real estate transactions for properties greater than $250,000 but not more than $400,000, the proposed rule could result in a marginal increase in lending activity of small, FDIC-supervised institutions for properties of this type. As discussed above, the FR Y-14M data reviewed by the agencies found that lenders included in the data obtained appraisals on 74 percent of residential real estate loans of $250,000 and below that were held in portfolio. 12/02/2020, 201 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. Document Drafting Handbook In its determination, the “SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates.” See 13 CFR 121.103. The agencies have found that both appraisals and evaluations prepared properly can be credible tools to support real estate lending decisions. For the hearing impaired only, Telecommunications Device for the Deaf (TDD) users may contact (202) 263-4869. 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. 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. (ii) The institution may engage a certified appraiser to complete the appraisal. Even assuming that a number of transactions fall into this category, the agencies believe the threshold increase will produce burden relief for regulated institutions. At a minimum, the appraiser must complete the following steps: Visually inspect the subject property both inside and out. 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. This approach also considers that a high percentage of residential real estate transactions is already captured by the existing residential real estate threshold, as reflected below in Table 2. Background B. The OCC does not believe, however, that this requirement will impose a significant burden or economic impact on regulated institutions because Title XI and the agencies' appraisal regulations already require that Title XI appraisals be performed in compliance with USPAP. 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. 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. 3350(5). OCC: 12 CFR 34.43(c); Board: 12 CFR 225.63(c); FDIC: 12 CFR 323.3(c). Effective January 1, 2010, § 225.63 is further amended by revising paragraph (b) to read as follows: (b) Evaluations required. See infra, Section II.C. with a transaction value  The FDIC provides a wealth of resources for consumers,
and should contain sufficient information and analysis to support the decision to engage in the transaction, This site displays a prototype of a “Web 2.0” version of the daily 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. For real estate-related financial transactions at or below the applicable thresholds and for certain existing extensions of credit exempt from the agencies' appraisal requirement, 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.  OCC: 12 CFR 34.43(a)(10)(i); Board: 12 CFR 225.63(a)(10)(i); FDIC: 12 CFR 323.3(a)(10)(i). For the pooling of loans or interests in real property for resale or purchase, the transaction value is the amount of each loan or the market value of each real property, respectively. Some commenters in favor of a threshold increase asserted that evaluations protect consumers by helping to ensure the property's value supports the purchase price. In considering the aggregate effect of this rule, the agencies also considered the number of transactions likely to be affected by the increased threshold. Removing the word “or” at the end of paragraph (a)(12); c. Removing the period at the end of paragraph (a)(13) and adding “; or” in its place; The revisions and addition read as follows: (1) The transaction is a residential real estate transaction that has a transaction value of $400,000 or less; (14) The transaction is exempted from the appraisal requirement pursuant to the rural residential exemption under 12 U.S.C. headings within the legal text of Federal Register documents. A regulated institution may presume that appraisals for residential real estate transactions are not complex, unless the institution has readily available information that a given appraisal will be complex. The OCC has analyzed the final rule under the factors in the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. The failure to comply with the independence requirements in the Valuation Independence Rule can result in civil liability.. profiles, working papers, and state banking performance
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. In the proposal, the agencies preliminarily determined that the proposed threshold level for residential real estate transactions would not pose a threat to the safety and soundness of financial institutions. 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. See OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b). Beginning Oct. 9, 2019, certain home sales of $400,000 and under will no longer require an appraisal. on 5. After carefully considering the comments received, and for the reasons discussed previously, the agencies have decided to increase the residential real estate appraisal threshold to $400,000, as proposed. although they may be less structured than appraisals. These interests include those stemming from the federal government's roles as regulator and deposit insurer of financial institutions that engage in real estate lending and investment, guarantor or lender on mortgage loans, and as a direct party in real-estate related financial transactions. The agency’s action brings its appraisal threshold in line with federal bank regulators. U.S. Department of Housing and Urban Development. " USPAP was adopted by Congress in 1989, and contains standards for all types of appraisal services, including real estate, personal property, business and mass appraisal. In contrast, some commenters believed that AVMs could provide valuable information, and that improvements in technology and greater availability of information has improved the quality of evaluations. 1818, 1819(a) (“Seventh” and “Tenth”), 1831p-1 and 3331 et seq. Browse our extensive research tools and reports. 20. These commenters asserted that expedited valuations could make the residential mortgage market more efficient and lower closing costs. 30. Effective January 1, 2020, § 323.4 is amended by. The SBA defines a small banking organization as having $600 million or less in assets, where an organization's “assets are determined by averaging the assets reported on its four quarterly financial statements for the preceding year.” See 13 CFR 121.201 (as amended by 84 FR 34261, effective August 19, 2019). Other commenters supporting a threshold increase supported a higher threshold, such as $500,000. The final rule, issue… (rural residential appraisal exemption). Therefore, the FDIC believes the proposed rule is unlikely to pose significant safety and soundness risks for small, FDIC-supervised entities. One commenter indicated that only 17 metropolitan statistical areas have a median sales price for single-family homes that exceeds $400,000. This definition is consistent with current references to appraisals for residential real estate in the agencies' appraisal regulations and in Title XI, and the definition of commercial real estate transaction that was created in the recent rulemaking to increase the appraisal threshold for commercial real estate (CRE) transactions (CRE rulemaking). on documents in the last year, by the Centers for Medicare & Medicaid Services On the other hand, some commenters asserted that lenders would feel competitive pressure to use more evaluations if the threshold were raised and that the agencies lacked data on how often lenders use evaluations when permitted.  Some commenters asserted that first-time homebuyers are among the consumers least able to manage financial risk, and are most in need of consumer protections. 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”). 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. In 1994, the bank regulators exempted wide swaths of loans from appraisal requirements, including real estate loans below $250,000 and owner occupied business loans below $1 million. In addition, the proposal would add to the list of exempt transactions those transactions that are 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 (EGRRCPA)  57. Comments from appraisers, appraiser trade organizations, individuals, and consumer advocate groups generally opposed the proposal to increase the threshold. documents in the last year, 64 Another commenter asserted that evaluations typically cost about $100 less than appraisals.  The amendments to increase the residential appraisal threshold exempts additional transactions from the agencies' appraisal requirement, which would have the effect of relieving restrictions. , The final rule is likely to reduce loan valuation-related costs for small, covered institutions. 3339(3). 3356. 553(d)(1), which provides an exception to the 30-day delayed effective date requirement when a substantive rule grants or recognizes an exemption or relieves a restriction. In 2013, in keeping with its historic role, as well as in recognition of the limitations of many valuation standards currently in existence, the Appraisal Institute Board of Directors directed the development of high quality, straightforward, principle-based standards that could be used where existing standards are not already required or do not apply. the requirements identified in Selling Guide section B4-1.2-02, Appraisal Age and Use Requirements, have been met. 2. 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. Introduction A. As a result, evaluations are often simpler and take less time to review than appraisals. 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. 40. 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.. Property being financed is more than $500,000; or. 5000 - Statements of Policy 1. The HPML Rule applies to certain higher-risk transactions. The OCC currently supervises 1,211 institutions (commercial banks, trust companies, federal savings associations, and branches or agencies of foreign banks) of which approximately 782 are small entities. Other commenters expressed concern that the proposed threshold level would exempt too high a percentage of residential transactions from the protections provided by appraisals. Those opposed to the increase in the threshold generally argued that evaluations would not provide enough support for these transactions and would pose a threat to financial institutions and consumers. Effective January 1, 2020, § 34.43 is further amended by revising paragraph (b) to read as follows: (b) Evaluations required. 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. Reducing Burden Associated with Appraisals. The authority citation for part 323 continues to read as follows: Authority: 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. 23. Therefore, this aspect of the rule is likely to have little or no effect on small, FDIC-supervised entities. Analysis of Loss Rates. 12/02/2020, 382 Check for cracks, leaks, and damage to the exterior. 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 intended use is to evaluate the property that is the subject of this appraisal for a mortgage finance transaction, subject to the stated scope of work, purpose of the appraisal, reporting requirements of this appraisal report form, and definition of market value. 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. The OCC estimates that the final rule may impact approximately 734 of these small entities. Costs of appraisals and evaluations may also be passed on to borrowers.  The agencies noted that evaluations have long been required for below-threshold transactions; must be consistent with safe and sound banking practices;  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. include documents scheduled for later issues, at the request The documents posted on this site are XML renditions of published Federal 12 U.S.C. The OCC, Board, and FDIC had previously set the appraisal threshold at $100,000. The last major overhaul to FHA appraisal … 3341(b). Summary: The FDIC, the Federal Reserve, and the Office of the Comptroller of the Currency (the Agencies) have jointly issued an amended rule (the Appraisal Rule) that increases the threshold for residential real estate transactions requiring an appraisal from $250,000 to $400,000. 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. publication in the future. 44. In proposing the increase in the appraisal threshold for residential transactions, the agencies noted that evaluations can provide consumer protections. 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. 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.