Regulators are laying the base for what they believe to be a legal battle over the raising of the real estate appraisal threshold. The regulating agencies have requested comments on supplemental information added to the proposed that includes a deluge of surveys. studies and comments that favor the hike.
The decision to raise the limits to $250,000 from $100,000 appears to be a lock. But requesting comments on the supplemental information is an important formality for regulators' who are being careful to ensure they are standing on firm legal ground before approving the final rule. The information in the supplemental data constitute "the reasoning we used to justify raising the threshold," said Richard Spillenkothen, director of banking supervision and regulation for the Federal Reserve Board. Comments are due by Dec. 10.
The supplemental information the agencies have requested comments on include four surveys conducted individually by the Federal Reserve Banks, Office of the Comptroller of the Currency, Office of Thrift Supervision and the Federal Deposit Insurance Corp. Each survey supported the appraisal increase and, among other reasons, said that raising the threshold would have little or no impact on safety and soundness of banks and thrifts.
Two Government Accounting Office studies on the failure of thrifts and regulatory impediments to small business lending were also included in the supplementary package, each supporting the regulators' position.
In response to comments on the proposed appraisal regulations, Silas Keehn, president of the Federal Reserve Bank of Chicago, said the loans below the proposed thresholds wouldn't expose financial institutions to greater risks than exist with the $100, 000 threshold. He agreed with the regulators' claim that the majority of loans below $250,000 would continue to be loans secured by one-to-four family residential real estate with historically low charge-off rates.
"Many smaller rural banks have expressed frustration with the current regulation because the cost of appraisals had increased substantially," Keehn said. "They have been forced to hire appraisers from outside of their immediate trade area who are not familiar with the local real estate market conditions, and that the turnaround time required for licensed and certified appraisers had increased substantially."
Some small bankers have also "lost lending opportunities to other financial institutions not subject to similar appraisal regulations due to increased costs and time delays," he said. "The proposed changes should place banks on a more level ... playing field with other financial institutions which should, in turn, improve their capacity to provide credit."
