The agencies requested comment on whether there are other factors that should be considered in evaluating the current appraisal threshold for residential transactions. on NARA's archives.gov. However, the agencies' final rule does not prohibit regulated institutions from using state licensed or state certified appraisers to prepare evaluations. One commenter expressed the view that a simplification would make the current existing guidance for evaluations less time consuming and complex for lower value transactions. Rec. For a transaction that does not require the services of a State certified or licensed appraiser under paragraph (a)(1), (a)(5), (a)(7), or (a)(13) of this section, the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices. As discussed in the proposal, institutions must obtain evaluations that are consistent with safe and sound banking practices. Rep. No. For the reasons set forth in the joint preamble, the OCC amends part 34 of chapter I of title 12 of the Code of Federal Regulations as follows: 1. For sales, leases, purchases, investments in or exchanges of real property, the transaction value is the market value of the real property. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA 2 requires each Agency to prescribe appropriate standards for the performance of real estate appraisals in connection with "federally related transactions," 3 which are defined as those real estate-related financial transactions that an Agency engages in, contracts for, or regulates and that require the services of an … Accordingly, the agencies proposed to require that regulated institutions entering into commercial real estate transactions at or below the proposed commercial real estate appraisal threshold obtain evaluations that are consistent with safe and sound banking practices unless the institution chooses to obtain an appraisal for such transactions. [55] The revised definition also reflects comments stating that Title XI appraisals are typically conducted for loans for construction of a single 1-to-4 family residential property regardless of whether the loan provides only financing for construction or provides “construction-to-permanent” financing. Based on the Board's analysis, and for the reasons discussed below, the final rule may have a significant positive economic impact on a substantial number of small entities. “Federal financial institutions regulatory agency” means the Board, the FDIC, the OCC, the National Credit Union Association (NCUA), and, formerly, the Office of Thrift Supervision. 8. One commenter asserted that the proposed increase would support local and regional economies, and another represented that it would assist small builders. %PDF-1.5 %���� The agencies have provided supervisory guidance for conducting evaluations in a safe and sound manner in the Interagency Appraisal and Evaluation Guidelines (Guidelines) and the Interagency Advisory on the Use of Evaluations in Real Estate-Related Financial Transactions (Evaluations Advisory, and together with the Guidelines, Evaluation Guidance). h�bbd``b`� $�@D�`o���� ��be�XK@�2��b���b�W�8w����1�b``���Ϡ� � !�. 18. [26] The OFR/GPO partnership is committed to presenting accurate and reliable Some commenters also supported an increase in the threshold due to limited availability of appraisers in their states. As discussed above, some commenters provided anecdotal evidence to show that the agencies' estimate of time savings was incorrect. that are real estate-related financial transactions and that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. See Real Estate Appraisal Reform Act of 1988, H.R. 35. 70. This table of contents is a navigational tool, processed from the By order of the Board of Governors of the Federal Reserve System, March 23, 2018. The commenter also noted that such loans are usually held in portfolio, thus increasing risk. The proposal would have defined commercial real estate transaction to include all real estate-related financial transactions, except for those secured by a 1-to-4 family residential property,[24] The agencies also invited comment on whether evaluations are currently prepared by in-house staff or outsourced to appraisers or other qualified professionals. on 12 U.S.C. Establishes appraisal policies for all federal agencies to employ when disposing of surplus real property [22] Board: The Board is providing a regulatory flexibility analysis with respect to this final rule. As discussed above, the agencies' objective in finalizing this threshold increase is to reduce the regulatory burden associated with extending credit in a safe and sound manner by reducing the number of commercial real estate transactions that are subject to the Title XI appraisal requirements. B�QU����rY-V�_~ R��!���]:��m~����ivU���2ޟ��uu|?^�dM��yp7?�}�T܇����� Փ�~}m�m�O�!�����J���� ŵ�{��x�f3�9���?�"�$�3b8�2N\��KÑ�2��!��-�e���b�C������n�6�����˨����{��i��hKq]��\=�p+R��a%�z�� ��[�qk�z*,�d�Ɩ%�K�� B�3� ���� 1, 25b, 29, 93a, 371, 1462a, 1463, 1464, 1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 5412(b)(2)(B), and 15 U.S.C. One of these commenters asserted that there is increasing risk in commercial real estate lending, particularly among smaller community and regional banks, which the commenter believed are less likely to have robust collateral risk management policies, practices and procedures. Background and Summary of the Proposed Rule, II. OCC: G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649-7152, Mitchell E. Plave, Special Counsel, Legislative and Regulatory Activities Division, (202) 649-5490, or Joanne Phillips, Attorney, Bank Activities and Structure Division, (202) 649-5500, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. One commenter noted that an increasing percentage of 1-to-4 family properties are rental properties and that the proposed definition would have excluded a class of rent-dependent real estate that should be classified as commercial real estate. For example, a Title XI appraisal must be performed by a state certified or state licensed appraiser and must conform to USPAP standards, whereas evaluations are not required to be performed by individuals with specific credentials or to conform to USPAP standards. [54] These can be useful 3311). h�Ԙmo�6��S�������@�.H�.��t���P�6luY���(��d�I\tCa�E��x���$�!�H���0w�&��0 EN��p�)�$a�2((­�P�D0+�`�PJC! Revisions to the Title XI Appraisal Regulations, Comments on the Proposed Increase to the Commercial Real Estate Appraisal Threshold, A. For the reasons described below and pursuant to section 605(b) of the RFA, the FDIC certifies that the final rule will not have a significant economic impact on a substantial number of small entities. Another commenter asserted that the agencies are required by Title XI to receive concurrence from the CFPB for a threshold change. Any commercial real estate transaction at or below the $500,000 threshold requires an evaluation. New Documents Multiple commenters asserted that the data in the proposal supports the increase in the commercial real estate threshold, and indicated that they did not know of other sources of data that the agencies should consider. Asset size and annual revenues are calculated according to SBA regulations. The use of the term “loan officer” was not intended to change standards established on appraiser independence or any implementing guidance. 34. Two commenters questioned the impact of the proposed commercial real estate appraisal threshold on appraiser shortages, one asserting that the number of commercial real estate appraisers has remained relatively steady in recent years and the other asserting that appraiser shortages are primarily related to residential property valuations. The agencies considered additional burden-reducing measures, such as increasing the commercial threshold to an amount higher than $500,000 and increasing the residential and business loan thresholds, but did not implement such measures for the safety and soundness and consumer protection reasons discussed in the proposal. 14. USPAP is written and interpreted by the Appraisal Standards Board of the Appraisal Foundation. [44] The agencies invited comment on how to make the rule easier to understand, but no such comments were received. In addition, in order to provide an adequate transition period, new regulations that impose additional reporting, disclosures, or other new requirements on IDIs generally must 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.[81]. Based on the CRE Index, a commercial property that sold for $250,000 as of June 30, 1994, would be expected to sell for $423,600 in March 2010, which was the trough of the CRE price cycle. Accordingly, the OCC certifies that the final rule will not have a significant economic impact on a substantial number of small entities. Title XI defines “written appraisal” as “a written statement used in connection with a federally related transaction that is independently and impartially prepared by a licensed or certified appraiser setting forth an opinion of defined value of an adequately described property as of a specific date, supported by presentation and analysis of relevant market information. (13) The transaction is a commercial real estate transaction that has a transaction value of $500,000 or less. By lowering valuation costs on commercial real estate transactions greater than $250,000 but less than or equal to $500,000 for small FDIC-supervised institutions, the final rule could marginally increase lending activity. See OCC: 12 CFR 34, subpart C; Board: 12 CFR 225.61(b); 12 CFR part 208, subpart E; and FDIC: 12 CFR part 323. As noted in the proposal, based on information from industry participants, the cost of third-party evaluations of commercial real estate generally ranges from $500 to over $1,500, whereas the cost of appraisals of such properties generally ranges from $1,000 to over $3,000. The numbers in this document reflect the revised CRE Index. Learn more here. 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. Comments from financial institutions and financial institutions trade associations generally supported an increase, although many requested a higher increase than proposed. Another commenter expressed concern that the potential negative consequences of raising the threshold could be exacerbated by the loosening of appraisal standards by the GSEs for some transactions. The agencies have publically articulated their interest in seeking ways to coordinate appraisal standards across various government agencies that are involved in residential mortgage lending. However, the agencies do not view the option to obtain an evaluation instead of an appraisal as a new or additional requirement for purposes of the Riegle Act. The agencies received several comments indicating that the proposed increase in the commercial real estate appraisal threshold and the increased use of evaluations would provide cost and time savings for consumers and institutions, because evaluations tend to cost less that appraisals and take less time to prepare. The commenter recommended that the agencies provide examples of these types of loans. Thus, while the precise number of transactions that will be affected and the precise cost reduction per transaction cannot be determined, the final rule is expected to have a significant positive economic impact on small entities that engage in commercial real estate lending. 63. More information and documentation can be found in our Additionally, commenters may send a copy of their comments to the OMB desk officer for the PRA Agencies by mail to the Office of Information and Regulatory Affairs, U.S. Office of Management and Budget, New Executive Office Building, Room 10235, 725 17th Street NW, Washington, DC 20503; by fax to (202) 395-6974; or by email to oira_submission@omb.eop.gov. Based in part on this analysis, the agencies conclude that the exposure of financial institutions will remain at acceptable levels with a $500,000 commercial real estate appraisal threshold. One commenter suggested that the agencies should not rely on policies of other federal entities, such as the GSEs, in making decisions about the appraisal regulations. In addition, by categorizing residential construction loans more clearly, the definition of commercial real estate transaction being adopted can facilitate compliance and enhance the burden reduction benefits of the rule.