As we previously reported, last November the FDIC, Federal Reserve Board and Comptroller of the Currency (the federal banking agencies) proposed a rule to implement a rural residential property appraisal exemption under the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Growth Act) and also increase the appraisal exemption based on transaction value from $250,000 to $400,000. The federal banking agencies recently released a final rule to adopt the exemptions.
The exemptions relate to the requirement under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) for appraisals in connection with federal related transactions, which basically are real estate-related financial transactions for which the federal regulator of a financial institution requires the services of an appraiser.
The exemption based on a transaction value of $400,000 or less is available for residential real estate transactions, which is defined as a real estate-related financial transaction that is secured by a single 1-to-4 family residential property. The $250,000 appraisal threshold was set in 1994. As required by FIRREA to increase the threshold to $400,000, the federal banking agencies (1) determined that increasing the appraisal threshold for residential real estate will not threaten the safety and soundness of financial institutions, and (2) received concurrence from the CFPB that such threshold level provides reasonable protection for consumers who purchase 1-to-4 unit single-family residences. A copy of the concurrence letter from the CFPB was released along with the final rule.
The federal banking agencies implemented the rural residential property appraisal exemption by simply referencing the statutory exemption added to FIRREA by the Growth Act. A property qualifies for the statutory exemption if the following conditions are satisfied: The property is located in a rural area; the transaction value is less than $400,000; the institution retains the loan in portfolio, subject to exceptions, and; not later than three days after the Closing Disclosure is given to the consumer, the mortgage originator or its agent has contacted not fewer than three state-licensed or state-certified appraisers, as applicable, and documented that no such appraiser, as applicable, was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments, as documented by the mortgage originator or its agent. Note that the increase of the appraisal transaction value exemption for residential transactions to $400,000 significantly reduces the practical effect of the rural residential property exemption.
Although under both the transaction value and rural residential property exemptions an appraisal will not be required, an institution still will need to obtain an appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices.
The final rule also implements a requirement under the Dodd-Frank Act that appraisals are subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice (USPAP).
The final rule will be effective the day after publication in the Federal Register, except for the evaluation requirement for transactions exempted by the rural residential property exemption and the requirement to subject appraisals to appropriate review for compliance with USPAP. These requirements are effective January 1, 2020.