Banking regulators announced they have mutually agreed to raise the required threshold for real estate appraisals to $250,000 to relieve the regulatory burden on banks, but granted the appraisal industry a minor concession by removing barriers to allow appraisers to perform less meticulous evaluations.
Regulators announced the hike during a May 3 FDIC board meeting. The FDIC was the second regulator to approve the rule and once the final two regulating bodies - the OTS and OCC - officially approve the joint policy, it will become effective after publication in the Federal Register. The Fed approved similar rules March 9.
The threshold level required for a licensed and certified appraisal now increases to $250,000, a full $150,000 higher than the previous limit. The rule also exempts business loans of $1 million or less from appraisal requirements where the sale of rental or real estate is not the primary source of repayment.
The rule will allow banks to save time and money by permiting an evaluator - who may now be an appraiser performing more limited research - to conduct only a portion of the standard three-part appraisal. In many cases, such as a refinancing, bankers who don't have a need for full appraisals may opt for just a portion of one. For example, the income-based approach can be used in the assessment rather than the market- or cost-based approaches that usually accompany most appraisals as a whole.
Regulators also announced the expansion and clarification of other exemptions from appraisal requirements, such as those for renewals of existing loans, certain loan purchases, and loans that qualify for sale or are guaranteed by the government or government-sponsored agency.
The key provision in the rule - at least as far as appraisers are concerned - is the regulators' decision to implement the Uniform Standards of Professional Appraisal Practice's departure provision, a standard that allows for abbreviated appraisals based on customer needs. Appraisers had been prevented from performing lesser appraisals, or "evaluations," because federal regulations didn't authorize use of the USPAP provision.
The rule's effect on the mortgage lending industry, however, appears minimal. Mortgage banks and a growing number of thrifts and commercial banks sell their loans into the secondary market where Fannie Mae and Freddie Mac still require a full appraisal as a loan purchase condition. Some portfolio lenders and banks specializing in commercial loans will reap the most benefits from the hike.