in terms of structure and content or the preparer's training and credentialing requirements, written estimates of market value provide sufficient consumer protections for transactions under $400,000.[50]. [15] Many commenters stated that the increased threshold would eliminate the competitive disadvantage that FICUs now face since the federal banking agencies raised the residential real estate transaction threshold for banks. regulatory information on FederalRegister.gov with the objective of Threshold Increase for Residential Real Estate Transactions 1. Federal Register issue. One commenter stated that appraisers conduct rigorous analysis of property features, such as number of bedrooms and proximity to open space, which may have an impact on a property's future marketability. FDIC regulations define the term as “any real estate-related financial transaction entered into on or after August 9,1990,that the Board or any regulated institution engages in,contracts for,or regulates.”FDIC regulations require an appraiser for any FRT except those under $250,000 and … The way this will become something Congress has to deal with is when enough participants – appraisers, agents, and lenders – understand what these changes mean for risk, both to the market broadly and to them individually. On the other hand, one commenter noted that buyers conduct their own visual inspections and professional home inspections are a typical part of most transactions. 3356 (effective May 24, 2018). AVMs cannot be the sole source of collateral valuation, but may be used in the process of generating an appraisal, written estimate of market value, or even for credit union portfolio management purposes. Safety and soundness. the current document as it appeared on Public Inspection on § 5565(a)(2)(G), Defendants are banned from participation in the Mortgage Industry as follows: i Defendants are prohibited from contacting, soliciting, or otherwise dealing (2) Commercial real estate transactions of more than $500,000. [46] In fact, the NCUA's supervisory experience shows that many FICUs still use appraisals for situations when only a written estimate of market value was required. 47. 17 documents in the last year, 356 Thank you again to John Russell for answering our questions and giving us some insight. 11. No comments were received regarding the proposed conforming amendment to the NCUA's appraisal regulations explicitly incorporating the Dodd Frank Act amendment to Title XI that appraisals be subject to appropriate review for compliance with USPAP. Buzz: Thank you for joining us. [47] Consumer Protection Considerations 5. on [35] This period, which included two major recessionary periods, shows the prior threshold changes in 1995 and 2001 did not have a negative impact on loan performance. The NCUA reviewed a sample of open examinations across all of its regional offices for a defined, limited period to gather feedback on typical FICU practices for real estate appraisals under the $250,000 threshold. As an additional safeguard, under Title XI, the NCUA must receive CFPB concurrence that the residential appraisal threshold level provides reasonable protection for consumers who purchase “1-4 unit single-family residences.” [29] Title XI expressly authorizes the NCUA to establish dollar threshold levels at or below which Title XI appraisals are not required if: (1) The NCUA determines, in writing, that the threshold does not represent a threat to the safety and soundness of financial institutions; and (2) the NCUA receives concurrence from the Consumer Financial Protection Bureau (CFPB) that such threshold level provides reasonable protection for consumers who purchase “1-4 unit single-family residences.” [18] With regard to how well consumers have understood written estimates of market value and any related concerns the Board should take into account, two appraisal organizations stated that appraisals are more standardized than written estimates of market value, thus, making it easier for consumers to understand and compare appraisals. By letter dated April 8, 2020, the CFPB Director provided this concurrence. Discussion of Public Comments Received on the Proposed Rule, In November 2019, the Board invited comment on a notice of proposed rulemaking [1] The final rule is effective April 30, 2020. By the National Credit Union Administration Board on April 16, 2020. [8] What is, and isn’t, an FRT, and why does it matter? Commenters also noted that, with appraisals consumers have a direct mechanism for lodging a complaint for a faulty appraisal. documents in the last year, by the National Oceanic and Atmospheric Administration Discussion of Specific Comments on the Proposed Rule, D. Assessment of Federal Regulations and Policies on Families, E. Small Business Regulatory Enforcement Fairness Act, https://www.federalregister.gov/d/2020-08433, MODS: Government Publishing Office metadata, https://www.reginfo.gov/​public/​do/​eAgendaViewRule?​pubId=​201910&​RIN=​3133-AE23. Had the parties involved understood how little the world would change under the waiver process, they may have chosen a different course of action in dealing with their issues regarding appraiser availability. Title XI defines a “federally related transaction” as a real estate-related financial transaction that is regulated or engaged in by a federal financial institutions regulatory agency and requires the services of an appraiser. A credit union trade association noted favorably that the rule is flexible enough that consumers and FICUs would still have the option of ordering an appraisal. In proposing the increase in the appraisal threshold, the Board stated that while appraisals can provide protection to consumers by facilitating the informed use of credit and helping to ensure that the estimated value of the property supports the loan amount, written estimates of market value have also provided these benefits for FICUs and borrowers for transactions below the current $250,000 threshold. (3) Complex appraisals for residential real estate transactions of more than $400,000. Interagency Guidelines at 77461. State certification as an appraiser is mandatory if an appraiser performs appraisal services for federally related transactions, which are real estate related financial transactions that are regulated by one or more of the federal bank regulatory agencies (Federal Deposit Insurance Corporation, Federal Reserve, the Office of the Comptroller of the Currency, National Credit Union Administration, or the Consumer … The NCUA's current appraisal regulation requires FICUs to obtain written estimates of market value for all real-estate related transactions that do not require an appraisal pursuant to Title XI (Title XI appraisal), unless explicitly exempted from written estimates of market value requirements. Use the PDF linked in the document sidebar for the official electronic format. The Board estimated that the proposed rule would exempt from appraisal requirements approximately 46,000 residential real estate transactions, worth a combined $14 billion, equating to approximately 0.9 percent of FICU assets. (c) Be subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice. This final rule follows publication of the November 29, 2019, proposed rule. One appraisal organization stated that the proposal would lead more consumers to lose out on the benefits of an appraisal that has been conducted in accordance with the USPAP. Using evaluations for renewals. 7100 0261). He has a Juris Doctor from the Syracuse University College of Law, a Bachelor of Arts in Broadcasting and Mass Communications from the State University of New York at Oswego, and an honorary Designated Appraiser Residential credential from CNAREA. 1376, codified at 12 U.S.C. One commenter noted that it serves a community in which there is no appraiser within 100 miles, and thus appraisers will often wait for enough transactions to justify the travel necessary to conduct a physical inspection of the property. Another commenter, however, raised the possibility of a valuation contingency clause in future residential contracts.51 The NCUA has exercised this authority by exempting several categories of real estate-related financial transactions from the Title XI appraisal requirements, including transactions at or below certain designated dollar thresholds. All federally related transactions that are commercial real estate transactions having a transaction value of more than $500,000 shall require an appraisal prepared by a State certified appraiser. Even though the threshold has increased, the proposal will not result in a change in burden. “At or below” Standard. The NCUA recognizes that it decided against proposing a residential appraisal threshold increase during the EGRPRA process due to safety and soundness and consumer protection concerns. on The ASC also maintains national 4 The GSEs include Fannie Mae, Freddie Mac, and the Federal Home Loan Banks (FHLBs). Buzz: In what ways have you seen change between 2016 and today? [39] For a divorce appraisal, however, the property owner and the person paying the appraiser is the spouse, but the party engaging the appraiser might be the spouse’s attorney acting on behalf of the spouse. The NCUA used HMDA data to determine the number of transactions and dollar volume of transactions that would be affected relative to: (1) Total FICU originations reported in the HMDA data; and (2) transactions originated by NCUA-insured institutions that were not sold to a government-sponsored enterprise (GSE) or otherwise insured or guaranteed by a U.S. government agency (regulated transactions). In addition to requesting comment on all aspects of the rule, the Board asked particularly about specific aspects of consumer protection raised by the proposal. (c) * * * (1) An appraisal performed by a state-certified appraiser or a state-licensed appraiser is required for any real estate-related financial transaction not exempt under paragraph (a) of this section in which the transaction is not complex, involves a residential real estate transaction, and $400,000 or more of the transaction value is not insured or guaranteed by a United States government agency or United States government sponsored agency. Interagency Guidelines, Appendix A. USPAP does not prescribe a model form, but institutions often use template forms, such as Fannie Mae Form 1004/Freddie Mac Form 70, known as the Uniform Residential Appraisal Report. Instead of an appraisal, and consistent with the requirement for other transactions that fall below applicable appraisal thresholds, the proposal would require FICUs to obtain written estimates of market value of the real estate collateral consistent with safe and sound practices. documents in the last year, by the Education Department 1503 & 1507. This commenter did not reference written estimates of market value, but, as noted above, both appraisals and written estimates of market value provide a reliable estimate of the market value of a property and must be performed by qualified individuals. Rec. 4. 2020-21 USPAP, Advisory Opinion 2 at 69. About the Federal Register Moreover, although limited in scope, the higher priced mortgage loan rule (HPML rule), requires lenders for certain HPMLs secured by a consumer's principal dwelling to obtain an appraisal—and in some cases, two appraisals—that include an interior property visit, and provide free copies to the consumer. In the event a borrower requires further information about the physical condition of a property, the borrower always retains the option of engaging a licensed property or building inspector. The reason, I think, we see so much attention paid to FRTs now is that many corners in housing finance are pushing for alternatives to traditional appraisals and see the current definition of FRT as a loophole through which to push those alternatives. Another commenter stated that the average price of an appraisal is $331 with an average turnaround time of 5 days. One commenter asked the Board to provide additional guidance for credit unions on what constitutes an adequate written estimate of market value. In the agency's supervisory experience, written estimates of market value have provided sufficient information to enable FICUs to make prudent lending decisions. 12/22/2020, 296 The Board was also interested in knowing how well consumers have understood written estimates of market value and whether there are any concerns in this area that the Board should take into account. Several commenters expressly agreed with the safety and soundness considerations discussed in the proposed rule. Interagency Appraisal and Evaluations Guidelines at 75 FR 77458 (Dec. 10, 2010). The preparation of an appraisal involves research into appropriate market areas; the assembly and analysis of information pertinent to a property; and the knowledge, experience, and professional judgment of the appraiser. With this final rule, the percentage of transactions exempted from the appraisal requirement would be restored to the same level following the last threshold increase in 2001. As additional independent analysis, the NCUA reviewed the current residential real estate underwriting practices of over 120 FICUs [40] Section 722.3(a) is also issued under 15 U.S.C. documents in the last year, 29 These commenters stated that it is difficult to get an appraisal for a reasonable cost and in a reasonable time in rural areas. electronic version on GPO’s govinfo.gov. documents in the last year, 110 The NCUA has determined that this final rule does not constitute a policy that has federalism implications for purposes of the executive order.Start Printed Page 23917. An appraisal is a professional appraisers opinion of value. to publish appraisal regulations for federally related transactions within its jurisdiction. As USPAP states, “the appraiser's inspection commonly is limited to those things readily observable without the use of special testing or equipment.” [36] In response to the comments concerning on-site inspections of real estate, the Board notes that USPAP does not require an on-site inspection of the subject property. The Board believes that adopting such a regional approach would only add unnecessary regulatory burden and complexity by introducing numerous threshold levels across the country. 5. Through the EGRRCPA amendment, Congress mandated that rural transactions meeting specific statutory criteria be exempted from the appraisal regulations; however, there is no indication that Congress intended to restrict the NCUA's authority to provide additional exemptions pursuant to its existing authority. Therefore, the NCUA cannot estimate how many small entities may be affected by the increased threshold and how significant the reduction in burden may be for such small entities. [6] The NCUA has determined that this final rule will not affect family well-being within the meaning of Section 54 of the Treasury and General Government Appropriations Act of 1999. According to A White Paper on the Federal Banking Agencies’ Arbitrary and Capricious Efforts to Exempt the Vast Majority of Federal Real Estate Related Financial Transactions from Title XI of FIRREA’s Appraisal Reform, published by ASA and NAIFA in 2016, “The banking agencies…[take] the position that the vast majority of real estate related financial transactions in which the government has a safety and soundness or a consumer protection responsibility are exempt from Title XI.” We sat down with John Russell, Senior Director of Government Relations and Business Development for the American Society of Appraisers, for some more information on this hot topic. 1639e(k); 15 U.S.C. documents in the last year, 988 The plain language of the 1994 regulations makes it clear that the reason for such broad carve outs from the definition of FRT at the time was to clarify when an agency or entity compliant appraisal would suffice in lieu of one that complied with Title XI of FIRREA. Feedback from commenters is consistent with the Board's experience as appraisals for properties in high cost of living areas and rural areas tend to be more expensive than in low cost of living and urban areas. This is consistent with the NCUA's longstanding regulatory requirement that federal credit unions may not consider lending policies which have the effect of discriminating on the basis of certain characteristics of the borrower, or rely on appraisals that they know or should know are based upon criteria, as enumerated in the NCUA's regulations, that have a discriminatory effect. Accounting for regional variations. However, one appraisal organization commented that many of these consumer-facing tools are not necessarily useful to consumers or lenders in determining property values—rather they are designed for marketing purposes. 1766, 1789, and 3331 et seq. Federally related transaction means a real-estate-related transaction that (a) requires the services of an appraiser and (b) is engaged in, contracted for, or regulated by a federal financial institution regulatory agency. Separately, an appraisal organization strongly suggested that the Board conduct hearings to solicit more views. Nevertheless, one credit union league stated that many of its members would continue to use appraisals even on loans eligible for written estimates of market value. Such exempt real estate-related financial transactions are not federally related transactions under the statutory or regulatory definitions because they are not required to have Title XI appraisals.[16]. The NCUA has authority to determine those real estate-related financial transactions that do not require the services of a state-certified or state-licensed appraiser and are therefore exempt from the Title XI appraisal requirements. 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