However, the regulatory flexibility analysis otherwise required under the RFA is not required if an agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined in regulations promulgated by the Small Business Administration (SBA) to include commercial banks and savings institutions, and trust companies, with assets of $600 million or less and $41.5 million or less, respectively) and publishes its certification and a brief explanatory statement in the Federal Register together with the rule. 38. 1376, codified at 12 U.S.C. The agencies' experience in supervising appraisal and evaluation programs and practices since the enactment of FIRREA indicates that increasing the threshold would not threaten the safety and soundness of financial institutions. In designing the scope of the threshold increase, the agencies chose to align the definition of residential real estate transaction with industry practice, regulatory guidance, and the categories used in the Call Report in order to reduce the administrative burden of determining which transactions were exempted by the final rule. 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. (rural residential appraisal exemption). OCC: 12 CFR part 34, subpart G; Board: 12 CFR 226.43; FDIC (through adoption of CFPB rule): 12 CFR 1026.35(c). In contrast, commenters noted there are no standardized requirements for those who perform evaluations. CHAPTER 12: PROPERTY AND APPRAISAL REQUIREMENTS . 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]. This site displays a prototype of a “Web 2.0” version of the daily documents in the last year, by the Animal and Plant Health Inspection Service 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. For transactions exempted by the $400,000 threshold, the Appraisal Rule requires an evaluation. 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. although they may be less structured than appraisals. Introduction A. August 6, 2019 . Based on the agencies' supervisory experience with appraisals and evaluations since 1994, the agencies believe that property inspections done by appropriately trained individuals for either appraisals or evaluations can provide prospective buyers with detailed information regarding a property's condition and features, may provide consumer protection, and can help ensure that appraisals or evaluations are consistent with safe and sound banking practices. The https:// ensures that you are connecting to Comments from appraisers, appraiser trade organizations, individuals, and consumer advocate groups generally opposed the proposal to increase the threshold. By that measure, 1,430 (52.9 percent) are estimated to be affected by this rule. 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. [28] 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. 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. 7.5 hours * $69.22 per hour = $519.15 The FDIC estimates that the average hourly compensation for a loan officer is $69.22 an hour. The HPML Rule applies to certain higher-risk transactions. Consumer Protection Considerations. the current document as it appeared on Public Inspection on 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. In the supervisory experience of the agencies, a financial institution may choose to obtain appraisals for exempt transactions based on the risks associated with a particular transaction or to preserve the flexibility to sell residential loans in the secondary market. 26. Appraisal requirements are designed by financial institutions and should form a valuation that meets their needs based on their risk profile, real estate lending activities, and business model — all while complying with the appropriate laws. 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. 6. A few commenters suggested that evaluations are subject to less regulatory scrutiny than appraisals. The final rule, issue… 53. Increasing the appraisal threshold for residential real estate transactions to $400,000 approximates more recent house prices and provides an inflation adjustment to a threshold that has not been increased since 1994. Effective January 1, 2010, § 225.63 is further amended by revising paragraph (b) to read as follows: (b) Evaluations required. 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. 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. regulatory information on FederalRegister.gov with the objective of 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) [3] One commenter indicated that only 17 metropolitan statistical areas have a median sales price for single-family homes that exceeds $400,000. The FHFA Index reflects changes in home prices from a base of $250,000 in June 1994, based on the FHFA House Price Index. As such, they argued that an increase in the threshold would be justified to align the threshold with its 1994 scope. 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. 40. OCC: 57 FR 12190-02 (April 9, 1992); Board: 55 FR 27762 (July 5, 1990); FDIC: 57 FR 9043-02 (March 16, 1992). For complete information about, and access to, our official publications 1691 et seq., by Dodd-Frank Act section 1474, 15 U.S.C. The final rule defines a residential real estate transaction as a real estate-related financial transaction that is secured by a single 1-to-4 family residential property. Similarly, the Evaluations Advisory suggests it would be prudent to obtain an appraisal rather than an evaluation when an institution's portfolio risk increases or for higher-risk transactions. [65] The agencies note that many evaluations of residential properties that are a consumer's principal dwelling are covered by the valuation independence requirements of section 1472 of the Dodd-Frank Act and its implementing regulation. When you originate a higher-priced first-lien or subordinate-lien loan covered by the HPML Appraisal Rule, you must: Use a licensed or certified appraiser who certifies the appraisal complies with the Uniform Standards of Professional Appraisal Practice (USPAP) and the … Some commenters asserted that the threshold should vary based on market values in specific geographic areas, and that a national threshold level is inappropriate given differences in property values across the country. 85. The agencies reviewed HMDA data to measure the percent of regulated transactions exempted in 1994 when the Start Printed Page 53585threshold was raised from $100,000 to $250,000 as compared to raising the threshold from $250,000 to $400,000. 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. 18. See Board: 12 CFR 226.42(c)(2), (d); CFPB: 12 CFR 1026.42(c)(2), (d). The final rule also makes several technical and conforming changes to the appraisal regulations. OCC: The Regulatory Flexibility Act (RFA), 5 U.S.C. [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. Supportive commenters also indicated that a threshold increase would provide burden relief for financial institutions without sacrificing safe and sound banking practices. The President of the United States manages the operations of the Executive branch of Government through Executive orders. The agencies recognize that the requirement to obtain an evaluation for transactions exempted by the rural residential appraisal exemption [105] Additionally, the rule prohibits mischaracterizations of property value and conflicts of interest for persons preparing valuations or performing valuation management functions. The U.S. Small Business Administration just announced an important change to its 7(a) and 504 loan program appraisal requirements, effective March 26, 2019. [22] First, the process of obtaining an evaluation is not new since IDIs already obtain evaluations for transactions at or below the current $250,000-threshold. The agencies received very few comments on the proposed evaluation requirement. documents in the last year, 43 The agencies also proposed to make conforming changes to add the rural residential appraisal exemption to the appraisal regulations. government site. The President of the United States communicates information on holidays, commemorations, special observances, trade, and policy through Proclamations. Numerous commenters opposed to a threshold increase asserted that an increase to the appraisal threshold would have a disproportionately negative impact on more at-risk consumers, such as low-income individuals, members of certain minority groups, or first-time homebuyers, because at-risk borrowers are more likely to purchase homes priced in lower ranges and, therefore, are more likely to enter into residential transactions without the benefit of an appraisal. documents in the last year, 64 informational resource until the Administrative Committee of the Federal As discussed earlier, the agencies attribute the increase in the net charge-off rate for loans secured by single 1-to-4 family residential real estate during the recent recession to weak underwriting standards in the lead up to the crisis. Some commenters asserted that appraisals provide more accuracy than evaluations because they include a physical inspection of the property. Federal Register provide legal notice to the public and judicial notice with a transaction value of $1 million or less, and commercial real estate (CRE) transactions with a transaction value of $500,000 or less do not require Title XI appraisals. A few commenters asserted that the preparation of both appraisals and evaluations on properties located in rural areas may be affected by the limited comparable sales data available in rural areas. on 95. 3356. As discussed in the OCC's Regulatory Flexibility Act section, the costs associated with the final rule, if any, would be de minimis. [57] 5. Commenters supporting the proposed threshold increase asserted that an increase would be appropriate given the increases in real estate values since the current threshold was established as well as the cost and time savings to lenders and borrowers that the higher threshold would provide. The effective date for the rule will be the first day after its publication in the Federal Register, other than the evaluation requirement for transactions exempted by the rural residential appraisal exemption and the appraisal review provision, which will become effective on January 1, 2020. Some of these commenters asserted that it would be inappropriate for the agencies to expand the residential real estate transaction threshold before issuing quality control standards for AVMs, as required by Title XI. 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. [84] 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. If you claim a deduction for a contribution of noncash property worth more than $500,000, you'll also need to attach the qualified appraisal to your return. 1004, 1025, 1073, etc., but not 1004D, 1075, 2000, 2000A, 2055, 2070, 2075, 2095, or any “Subject To” or Recertification of Value assignments). The agencies reviewed the data used in 1994 and determined that the information reviewed by the agencies did not appear to exclude transactions originated by nonbanks or transactions sold to the GSEs or otherwise insured or guaranteed by a U.S. government agency, thus, necessitating the additional analysis. 4. 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. Effective January 1, 2020. A few commenters suggested lower thresholds and that transactions under the current and proposed thresholds often pose risk to financial institutions and to consumers. The term “Federal financial institutions regulatory agencies” means the Board, the FDIC, the OCC, the National Credit Union Administration (NCUA), and, formerly, the Office of Thrift Supervision. OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); FDIC: 12 CFR 323.3(b). that would amend the agencies' appraisal regulations promulgated pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI). the Title XI appraisal regulations require regulated institutions to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices. Therefore, the FDIC believes the proposed rule is unlikely to pose significant safety and soundness risks for small, FDIC-supervised entities. to the courts under 44 U.S.C. 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. 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] The amendments to increase the residential appraisal threshold exempts additional transactions from the agencies' appraisal requirement, which would have the effect of relieving restrictions. During this timeframe, the net charge-off rate for small, FDIC-supervised institutions ranged from 1 basis point to 9 basis points. With respect to transactions that qualify for the rural residential appraisal exemption, the requirement that institutions obtain evaluations for such transactions could be viewed as an additional burden. The Appraisal Subcommittee of the Federal Financial Institutions Examination Council has approved a waiver request from appraisal licensing requirements for the state of North Dakota. 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. Analysis of Loss Rates. 106. As discussed in the proposal, the United States Department of Veterans Affairs' appraisal fee schedule [97] 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 Public Inspection page may also Although several commenters were concerned that the agencies had not analyzed the effects on local markets or particular communities, the agencies' supervisory experience with the current threshold since 1994 suggests that this incremental increase will not negatively affect safety and soundness on the local or national level based on loss rates for residential real estate loans as discussed below and observations during examinations. 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. 12 U.S.C. The agencies' analysis of the charge-off rates offered no evidence that increasing the appraisal threshold to $400,000 for residential real estate transactions would materially increase the risk of loss to financial institutions. 12 U.S.C. When considering the threshold increase's potential impact on safety and soundness, the agencies considered a loss analysis of aggregate net charge-off rates for residential real estate loans after the last increase in the appraisal threshold in 1994. 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). Effective January 1, 2020, § 34.43 is further amended by revising paragraph (b) to read as follows: (b) Evaluations required. 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. Valuation management functions include: “Recruiting, selecting, or retaining a person to prepare a valuation”; “contracting with or employing a person to prepare a valuation”; “managing or overseeing the process of preparing a valuation, including by providing administrative services such as receiving orders for and receiving a valuation, submitting a completed valuation to creditors and underwriters, collecting fees from creditors and underwriters for services provided in connection with a valuation, and compensating a person that prepares valuations”; and “reviewing or verifying the work of a person that prepares valuations.” 12 CFR 1026.42(b)(4). All provisions of the rule, other than the evaluation requirement for transactions exempted by the rural residential appraisal exemption [82] The agencies expect regulated institutions to continue using a risk-focused approach when considering whether to order an appraisal for transactions that fall below the threshold. 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. For the purposes of the HMDA analysis, a property is considered to be located in a “rural” area if it is in a county that is neither in a metropolitan statistical area nor in a micropolitan statistical area that is adjacent to a metropolitan statistical area, based on 2013 Urban Influence Codes (UIC) published by the United States Department of Agriculture. The revision and addition read as follows: (f) Complex appraisal for a residential real estate transaction means one in which the property to be appraised, the form of ownership, or market conditions are atypical. Some commenters suggested eliminating the residential appraisal threshold exemption entirely and requiring appraisals for all residential real estate transactions. The agencies do not currently have the ability to accurately determine which transactions not sold to a GSE or U.S. government agency actually qualified for sale. 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. 16. 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. 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. The final rule also requires evaluations for transactions exempted by the rural residential appraisal exemption. It is not an official legal edition of the Federal 12/02/2020, 382 See OCC: 12 CFR 34.43(a)(7) and (b); Board: 12 CFR 225.63(a)(7) and (b); FDIC: 12 CFR 323.3(a)(7) and (b). This rule is likely to reduce residential real estate transaction valuation-related costs for the parties involved. 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. 1296, Title I, section 103, codified at 12 U.S.C. Complying with the evaluation requirement for transactions below the residential appraisal threshold is likely to be less burdensome than complying with the requirements of the rural residential appraisal exemption. on Policy. 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). 0 Comments. Use of Evaluations. Revisions to the Title XI Appraisal Regulations, A. 32. on Originations with loan amounts greater than $20 million are excluded. 1338, 1471 (1999). The agencies have published guidance to help ensure that financial institutions' use of AVMs is consistent with this requirement.[53]. supervisory experience indicates that appraisals and evaluations are both credible tools to support real estate lending decisions, so the FDIC does not expect that increasing the threshold for appraisals will affect the safety and soundness of small, FDIC-supervised institutions. See OCC: 12 CFR 34.42(d); Board: 12 CFR 225.62(d); FDIC: 12 CFR 323.2(d). 3009-414, (1996) (codified at 12 U.S.C. So banks won’t lend money until the required repairs are completed. [78] 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. 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. An evaluation should contain sufficient information and analysis to support the regulated institution's decision to engage in the transaction. These federal financial and public policy interests have been described in predecessor legislation and accompanying Congressional reports. documentation of laws and regulations, information on These estimated savings would not exceed 5 percent of annualized salary expense or 2.5 percent of annualized noninterest expense for any small, FDIC-supervised institutions.[96]. The estimate includes the May 2017 75th percentile hourly wage rate reported by the Bureau of Labor Statistics, National Industry Specific Occupational Employment and Wage Estimates for the Depository Credit Intermediation sector. 62. 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. However, the agencies also observe that Congress did not amend the agencies' long-standing authority in Title XI to establish a threshold level at or below which a certified or licensed appraiser is not required to perform an appraisal in connection with federally related transactions. The agencies requested comment on use of evaluations instead of appraisals for residential real estate transactions. 1532). A number of commenters opposed to a threshold increase asserted that appraisals are easier for consumers to understand than evaluations. 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.
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