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. An appraisal is required on any home loan purchase transaction to show the current market value of the property. During the low point of the cycle, in December 2011, a house that sold for $250,000 in 1994 would have been expected to sell for $445,152 in December 2011, according to the Case-Shiller Index and $414,629 according to the FHFA Index. Two of these commenters specifically asserted that a broadly applicable threshold increase to $400,000, rather than the more limited rural residential appraisal exemption, is appropriate because it would provide additional burden relief by eliminating unnecessary qualifying criteria. Therefore, residential real estate transactions in rural areas are likely to utilize evaluations more than appraisals, under the proposed rule. In addition, one commenter questioned whether evaluations could be used to renegotiate or cancel PSAs under an appraisal contingency clause. Thus, for a select group of loans, the HPML Rule assures that the information in an appraisal will be available for some of the consumers who might be more likely to fall into the at-risk categories mentioned by commenters as being most affected by the threshold increase. Effective January 1, 2020, § 323.4 is amended by. Therefore, the agencies are adopting the definition of a residential real estate transaction as proposed. 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. 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. edition of the Federal Register. See FHFA House Price Index, available at https://www.fhfa.gov/​DataTools/​Downloads/​Pages/​House-Price-Index.aspx. 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. In considering the aggregate effect of this rule, the agencies also considered the number of transactions likely to be affected by the increased threshold. [11] 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. It’s mandatory. daily Federal Register on FederalRegister.gov will remain an unofficial 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. In both the 1994 and 2017 HMDA analyses, the agencies excluded transactions originated by nonbanks or transactions sold to the GSEs or otherwise insured or guaranteed by a U.S. government agency because those transactions are already subject to other exemptions in the appraisal regulations. Based on supervisory experience, the agencies have previously estimated that, on average, the time to review evaluations takes approximately 30 minutes less than the time to review appraisals. 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. Accordingly, with respect to the requirement that financial institutions obtain evaluations for transactions exempted by the rural residential appraisal exemption and the requirement for appraisal review, the effective date will be January 1, 2020, which is the first day of a calendar quarter which begins on or after the date on which the regulations are published in final form, consistent with RCDRIA. [41] Appraisal reports are typically based on the evaluation of a property as well as sales data. The agencies encourage regulated institutions to review their existing appraisal review policies and incorporate additional procedures for subjecting appraisals for federally related transactions to appropriate review for compliance with USPAP, as needed. 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. By increasing the residential real estate appraisal threshold, the rule is expected to increase the number of residential real estate loans eligible for an evaluation, instead of an appraisal. 44. (k) Residential real estate transaction means a real estate-related financial transaction that is secured by a single 1-to-4 family residential property. Many of these comments focused on views that evaluations are inadequate substitutes for appraisals. The Appraisal Institute has a long history as the leader of the valuation profession and as a developer of valuation standards. The FDIC estimates that, on average, the review process for an appraisal would take approximately forty minutes, but only ten minutes, on average, for an evaluation. 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. 5000 - Statements of Policy 1. The agencies proposed to increase the threshold level at or below which appraisals are not required for residential real estate transactions from $250,000 to $400,000. In addition, the agencies proposed to amend the agencies' appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for compliance with USPAP, pursuant to Title XI, as amended by the Dodd-Frank Act. (3) Complex appraisals for residential real estate transactions of more than $400,000. 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 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. Reducing Burden Associated With Appraisals, B. Incorporation of the Rural Residential Appraisal Exemption Under Section 103 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, C. Addition of Appraisal Review Requirement, C. Riegle Community Development and Regulatory Improvement Act of 1994, D. Solicitation of Comments on Use of Plain Language, E. OCC Unfunded Mandates Reform Act of 1995 Determination, In December 2018, the agencies invited comment on a notice of proposed rulemaking (proposal or proposed rule) [1] 1296, Title I, section 103, codified at 12 U.S.C. documents in the last year, 32 The FDIC does not expect the rule to have any substantive effects on the safety and soundness of small, FDIC-supervised institutions. The agencies have published guidance to help ensure that financial institutions' use of AVMs is consistent with this requirement.[53]. [77] 54. 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. 1376. This PDF is In this regard, the agencies do not have reason to believe that the incremental increase in exempted transactions will create consumer protection concerns related to PSAs. The agencies also indicated in the proposal that the Guidelines provide more information to assist financial institutions in the appropriate review of appraisals and evaluations.[76]. 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”). 12 U.S.C. and the Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions (Evaluations Advisory,[24] Thus, by using evaluations instead of appraisals a small, FDIC-supervised institution may reduce its total annual residential real estate transaction valuation-related labor hours by 7.5 hours. 97. [14] 3356. The agencies also considered comments received during the EGRPRA process and in response to questions posed about the residential threshold in the CRE rulemaking. developer tools pages. 19. Making more residential real estate transactions eligible for evaluations rather than appraisals is likely to reduce transaction valuation-related costs. The regulated institution shall be responsible for making the final determination of whether the appraisal is complex. See OCC: 12 CFR 34.43(a); Board: 12 CFR 225.63(a); FDIC: 12 CFR 323.3(a). The FHFA Index reflects changes in home prices from a base of $250,000 in June 1994, based on the FHFA House Price Index. In addition, the agencies have long recognized that appraisal review is consistent with safe and sound banking practices, as outlined in the Guidelines, and should be employed as part of the credit approval process to ensure that appraisals comply with USPAP, the appraisal regulations, and a financial institution's internal policies. These can be useful These commenters asserted that expedited valuations could make the residential mortgage market more efficient and lower closing costs. The proposed threshold level is also consistent with general measures of inflation across the economy reflected in the CPI since 1994. More than one parcel or lot may be included as long as all of the property is profiles, working papers, and state banking performance rendition of the daily Federal Register on FederalRegister.gov does not 1818, 1819(a) (“Seventh” and “Tenth”), 1831p-1 and 3331 et seq. Increasing the threshold reduces burdens and restores flexibility to credit unions and their members. [95] 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. 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. See OCC: 12 CFR 34.43(a)(9); Board: 12 CFR 225.63(a)(9); FDIC: 12 CFR 323.3(a)(9). As described in more detail below, many commenters in opposition asserted that the proposal would negatively impact consumers. In addition, the agencies asked commenters for specific information about the potential cost and time savings to consumers that may result from the increased use of evaluations versus appraisals and whether information in evaluations would be sufficiently clear to enable the consumer to make an informed decision. HB-1-3555 12-2 3550 and HB-1-3550 Chapter 5, for additional information regarding rural area designations. By comparison, as referenced above in Table 2, 2017 HMDA data indicates that increasing the threshold from $250,000 to $400,000 will result in an estimated 35 percent of the total dollar volume of regulated transactions being exempt. 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. 58. Public Law 104-208, Div. legal research should verify their results against an official edition of 29. Additionally, of the 1,430 small, FDIC-supervised institutions that reported residential loan originations, a total of 163,148 residential real estate loans Start Printed Page 53595were originated,[93] Institutions are more likely to obtain an evaluation, where permitted, for transactions with a lower dollar value, that are less complex, or that are subsequent to a previous transaction for which a Title XI appraisal was obtained. [7], Title XI directs the agencies to prescribe appropriate standards for Title XI appraisals under the agencies' respective jurisdictions. with a transaction value [16] The agencies have provided the Evaluation Guidance to assist institutions in complying with this requirement. on 53. However, the FDIC assumes that most, if not all, of these cost reductions would be passed on to residential real estate buyers. The authority citation for part 225 continues to read as follows: Authority: Special Instructions: Advance registration is required by March 25, 2019 . bankers, analysts, and other stakeholders. Access FDIC Financial Institution Letters (FILs) on the FDIC's website. The agencies requested comment on use of evaluations instead of appraisals for residential real estate transactions. Several commenters questioned the proposal in light of the agencies' previous decision not to propose an increase to the residential real estate appraisal threshold during the regulatory review process required by the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA). 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. OCC: G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649-7152; Mitchell E. Plave, Special Counsel, (202) 649-5490; or Joanne Phillips, Counsel, Chief Counsel's Office (202) 649-5500; Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. Therefore, the OCC concludes that the final rule will not result in an expenditure of $154 million or more annually by state, local, and tribal governments, or by the private sector. of the issuing agency. These commenters asserted that the aggregate data could include loans not eligible for the exemption or loans exempted on other grounds. 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. Any loans from Census tracts that are missing geographical identifiers or undefined in the 2013 UIC have been excluded from the analysis of burden relief in rural areas. for better understanding how a document is structured but [92] The agencies also proposed to make conforming changes to add the rural residential appraisal exemption to the appraisal regulations. Some opposing commenters suggested the agencies should either maintain the current $250,000 threshold or lower the threshold, with suggested ranges from $100,000 or under to $275,000. to publish appraisal regulations for federally related transactions within its jurisdiction. [2] For loans and extensions of credit, the transaction value is the amount of the loan or extension of credit. The HPML Rule applies to certain higher-risk transactions. This commenter also questioned whether the cost and time to receive an appraisal were burdensome, as its survey reflected that appraisals represented less than 0.2 percent of the total transaction cost and that the typical wait time for an appraisal in 2018 was only 7 days. Moreover, although limited in scope, the higher-priced mortgage loan rule (HPML rule),[70] A five-year review of supervisory information on the use of appraisals and evaluations by large financial institutions found larger lenders obtained appraisals on 74 percent of portfolio residential real estate originations at or below the current $250,000 threshold. Agency staff used HMDA data to estimate the number and dollar volume of institutions' residential real estate transactions that would be affected by the increased threshold. Rep. No. [12] Many commenters asserted that appraisers are the only unbiased party in the valuation process, in contrast to buyers, agents, lenders, and sellers, who each have an interest in the underlying transactions. 3356. For instance, the Evaluation Guidance states that, generally, evaluations should be performed by persons who are competent, independent of the transaction, and have the relevant experience and knowledge of the market, location, and type of real property being valued. 73. Section 1473(e) of the Dodd-Frank Act amended Title XI to require that the agencies' appraisal regulations include a requirement that Title XI appraisals be subject to appropriate review for compliance with USPAP. The proposed rule would have made a conforming amendment to add this statutory requirement for appraisal review to the appraisal regulations. 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. 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. 62. The SBA has defined “small entities” to include banking organizations with total assets of less than or equal to $600 million. 1681s, 1681w, 6801 and 6805. b. The FHA Appraisal Process. 3350(6). As noted in the proposal, a historical review of loss data demonstrates that the net charge-off rate for residential real estate transactions did not increase after the appraisal threshold was raised from $100,000 to $250,000 in June 1994, indicating the 1994 threshold increase did not have a negative impact on the safety and soundness of regulated institutions. More information and documentation can be found in our [22] FDIC: Beverlea S. Gardner, Senior Examination Specialist, Division of Risk Management and Supervision, (202) 898-3640, BGardner@FDIC.gov; Benjamin K. Gibbs, Counsel, Legal Division, (202) 898-6726; Mark Mellon, Counsel, Legal Division, (202) 898-3884; or Navid Choudhury, Legal Division, (202) 898-6526, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. For the reasons described below and under section 605(b) of the RFA, the FDIC certifies that this rule will not have a significant economic effect on a substantial number of small entities. 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. In this regard, one commenter indicated that evaluations must be consistent with safe and sound banking practices and, according to agency guidelines, they should provide supporting information and an estimate of market value. Threshold Level. One commenter noted the VA's underwriting requirements exceed USPAP standards, which increases costs. [51] One commenter noted that evaluations are often performed by bank employees, in which case the customer is not typically charged for the service, and that when the lender obtains an evaluation from a third-party provider (as opposed to using its own employee), borrowers may still save approximately 50 percent. 12-5. [66] 28. Open for Comment, Economic Sanctions & Foreign Assets Control, Threatened Species Status for Whitebark Pine, Animal and Plant Health Inspection Service, Organization and functions (Government agencies), Addressing the Threat From Securities Investments That Finance Communist Chinese Military Companies, Establishing the President's Advisory 1776 Commission, Office of the Comptroller of the Currency, C. Addition of the Appraisal Review Requirement, PART 34—REAL ESTATE LENDING AND APPRAISALS, PART 225—BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y), https://www.federalregister.gov/d/2019-21376, MODS: Government Publishing Office metadata, https://us.spindices.com/​index-family/​real-estate/​sp-corelogic-case-shiller, https://www.fhfa.gov/​DataTools/​Downloads/​Pages/​House-Price-Index.aspx, https://www.ffiec.gov/​pdf/​2017_​FFIEC_​EGRPRA_​Joint-Report_​to_​Congress.pdf, https://www.benefits.va.gov/​HOMELOANS/​appraiser_​fee_​schedule.asp, https://fred.stlouisfed.org/​series/​MSPUS.