Letter on joint agencies’ appraisals threshold proposal highlights key points

Following up on its announcement Tuesday of a proposed ruling increasing the threshold for real estate appraisals, the federal insurer of bank deposits Wednesday issued a letter to insured banks and thrifts about the proposal affecting residential real estate transactions for $250,000 to $400,000.

In its Financial Institution Letter, FIL-76-2018, the Federal Deposit Insurance Corp. (FDIC) said evaluations would be required for transactions exempted as a result of the proposed threshold, as provided in the notice of proposed rulemaking (NPR) issued jointly by the federal banking agencies (the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency [OCC]).

Highlights of the proposal, according to the letter, include:

  • The agencies’ appraisal regulations identify categories of real estate-related financial transactions that do not require appraisals. In addition, the agencies are authorized to establish a threshold level below which an appraisal is not required.
  • Under the current thresholds, residential real estate transactions with a value of $250,000 or less do not require appraisals. The threshold amount for the exemption for residential real estate transactions was last amended in 1994.
  • The NPR proposes to increase the threshold level at or below which appraisals would not be required for residential real estate transactions from $250,000 to $400,000. “Consistent with the requirement in the appraisal regulations for other transactions below their threshold exemptions, regulated institutions would be required to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices for transactions exempted as a result of the proposed threshold,” the letter states.
  • The NPR would add certain transactions secured by residential property in rural areas that have been exempted from the appraisal requirements pursuant to section 103 of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155, enacted into law last spring) to the list of exempt transactions in the appraisal regulations. The proposed rule also would require evaluations for these exempt transactions.
  • The NPR also notes that, pursuant to section 1473(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), the proposal would amend the agencies’ appraisal regulations to require regulated institutions to subject appraisals for federally related transactions to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice.

FIL 76-2018: Appraisal Threshold for Residential Real Estate Loans