Regulated institutions are encouraged to continue using a risk-focused approach when considering whether to order an appraisal for real estate-related financial transactions. Total Estimated Annual Burden: 43,794 hours. Another commenter suggested that entry-level properties that are lower in price and close to the threshold are more likely to have performance issues compared to more expensive properties. The Board has not identified any federal statutes or regulations that would duplicate, overlap, or conflict with the final rule. The agencies estimate that the recordkeeping burden associated with evaluations is the same as the recordkeeping burden associated with appraisals for such transactions. 1503 & 1507. Using this data, the agencies calculated the dollar amount of NFNR loans at or under the current $250,000 threshold as a percentage of the dollar amount of all NFNR loans.  The agencies also invited comment on whether evaluations are currently prepared by in-house staff or outsourced to appraisers or other qualified professionals. For transactions at or below the threshold, regulated institutions will be given the option to obtain an evaluation of the property instead of an appraisal. Data currently available to the Board do not allow for a precise estimate of the number of small entities that will be affected by the final rule because the number of small entities that will engage in commercial real estate transactions at or below the commercial real estate appraisal threshold is unknown.Start Printed Page 15032. FDIC Call Report, September 30, 2017. 12 U.S.C. Use the PDF linked in the document sidebar for the official electronic format. The agencies have an ongoing interest in public comments on its burden estimates. 19. In order to make this paragraph consistent with the other proposed changes to the appraisal regulations, the agencies proposed to change its wording to introduce the $400,000 threshold and use the term “commercial real estate transaction.” The agencies did not receive any comments on this proposed change. Finally, a possible threshold increase to $750,000 or higher may pose too great a risk to smaller institutions, as such transactions may represent a higher percentage of capital for such firms than has historically been permitted under the 1994 threshold. Public Law 104-208, Div. endstream
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The agencies have determined that, on balance, the benefits of adopting this definition of commercial real estate transaction outweigh the drawbacks of the limited inconsistency with other agency issuances relating to commercial real estate lending. 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. 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. (1) Title XI provides protection for federal financial and public policy interests in real estate related transactions by requiring real estate appraisals used in connection with federally related transactions to be performed in writing, in accordance with uniform standards, by appraisers whose competency has been demonstrated and whose professional conduct will be subject to effective supervision. § 102–75.300 to § 102–75.320 - Federal Property Management Regulations – Real Estate Disposal. Housing and Community Development Act of 1992, Pub. OCC: National banks, federal savings associations. A real estate-related financial transaction is defined as any transaction that involves: (i) The sale, lease, purchase, investment in or exchange of real property, including interests in property, or financing thereof; (ii) the refinancing of real property or interests in real property; and (iii) the use of real property or interests in real property as security for a loan or investment, including mortgage-backed securities. The 30-day delayed effective date required under the APA is waived pursuant to 5 U.S.C. Regarding an increase to the appraisal threshold for QBLs, the majority of comments received opposed an increase. This PDF is documents in the last year, 23  In addition, two commenters asked the agencies to clarify the QBL threshold relative to transactions secured by farmland. Congress amended the threshold provision to require “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.”  The Call Report data also reflect that 7.30 percent of the dollar volume of agricultural loans secured by farmland has an original amount between $1 and $250,000, while 6.05 percent have an original amount between $250,000 and $500,000. The Evaluation Guidance provides information to help ensure that evaluations provide a credible estimate of the market value of the property pledged as collateral for the loan. 3894 (amending 12 U.S.C.  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. During the 2007-2012 credit cycle, net charge-off rates reached a high of about 3.5 percent. The final rule, issued jointly by the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies), makes conforming amendments to the appraisal rules to require that banks obtain evaluations in lieu of title XI appraisals for transactions covered by the residential threshold exemption. One commenter expressed concern that the proposal would lead to increased use of automated valuations, which the commenter asserted are not adequate substitutes for appraisals, or would eliminate collateral verifications altogether. 67.  The agencies requested comment on whether the proposed effective date was appropriate. Estimated average time per response: 5 minutes. The agencies also requested comment on the type of additional guidance, if any, regulated institutions need to support the increased use of evaluations. to publish appraisal regulations for federally related transactions within its jurisdiction. Some commenters supported increasing the threshold to $500,000 and suggested that this higher figure would avoid the need for additional changes to the threshold in the near-term due to expected increases in prices. 1818, 1819(a)(Seventh and Tenth), 1831p-1 and title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) (Pub. 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. The agencies are not aware of any evidence that using an immediate effective date in connection with the 1994 amendments caused a competitive disadvantage or hardship to regulated institutions. In July 2017, the agencies invited comment on a notice of proposed rulemaking (proposal or proposed rule)  The commercial real estate appraisal threshold increase applies to certain IDIs and nonbank entities that make loans secured by commercial real estate. Many commenters opposing the proposal highlighted the benefits that state licensed or state certified appraisers bring to the process of valuing real estate collateral. Another commenter asserted that the implementation of two thresholds for 1-to-4 family residential construction loans would cause Start Printed Page 15023confusion and increase regulatory burden on financial institutions. It excludes all transactions secured by a single 1-to-4 family residential property, and thus construction loans secured by a single 1-to-4 family residential property are excluded. OCC: 12 CFR 34.43(d); Board: 12 CFR 225.63(d)(2); and FDIC: 12 CFR 323.3(d)(2). 1, at 19 (1988); 133 Cong. However, because the final rule does not contain any new recordkeeping, reporting, or compliance requirements, the final rule will not impose costs on any OCC-supervised institution. Multiplying $31.8 billion by 2.36 percent then dividing the product by an average loan amount of $375,000 equals 2,003 loans and multiplying $31.8 billion by 6.05 percent then dividing the product by an average loan amount of $375,000 equals 5,138 loans. daily Federal Register on FederalRegister.gov will remain an unofficial to the courts under 44 U.S.C. See http://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/Uniform_Standards_of_Professional_Appraisal_Practice/TAF/USPAP.aspx?hkey=a6420a67-dbfa-41b3-9878-fac35923d2af. The CoStar Comps database provides sales value data on specific commercial real estate transactions and allows for an analysis of the estimated coverage at any potential threshold level. In support of its opposition to the proposal, a commenter cited a 2012 U.S. Government Accountability Office (GAO) report, contending that the report found no Start Printed Page 15022support for raising the threshold. 38. of $250,000 or less, as well as certain real estate-secured business loans (qualifying business loans or QBLs) with a transaction value of $1 million or less, do not require Title XI appraisals. (b) Evaluations required. 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 reduction in loan origination fees could marginally increase commercial real estate lending activity for loans with an origination value greater than $250,000 and not more than $500,000. 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