A proposal on real estate appraisals by the three federal banking authorities has led to a commentary showdown between the banking and appraisal industries – with the former supporting the proposal, and the latter opposing it — based on a review of letters filed and posted as of the Sept. 29 due date.
Based on the comments posted on Regulations.gov (a federal government website that posts proposed rules and comments filed in response to the proposals, across most federal agencies), those opposing the joint proposal by the Federal Deposit Insurance Corp. (FDIC), the Federal Reserve and the Office of the Comptroller of the Currency (OCC) hold a slight advantage over those supporting the proposal, by a ratio of comments of about 3-2.
Many of those commenting in favor of the proposal represented national or state banking interest groups and organizations, local bankers and even one credit union. On the other hand, many of those commenting in opposition represented national or local appraisers’ groups, or individual appraisers.
The proposal aims to increase the threshold level at or below which appraisals would not be required for commercial real estate (“CRE”) transactions from $250,000 to $400,000. While the proposal does not increase the threshold for residential real estate transactions, it does solicit feedback as to how the residential threshold may be increased, consistent with consumer protection, safety and soundness, and reduction of unnecessary regulatory burden.
Most favoring the proposal argue that it is long-time in coming given that current appraisal standards were adopted in 1994, and that a higher appraisal threshold would help make the lending process more efficient, since a continuing lack of appraisers means it takes more time to complete appraisals and process loans.
“This shortage negatively impacts borrowers as it extends turnaround times, extends rate locks, and delays closings. In certain cases, members report that they are unable to finance loans and compete in more rural markets,” The American Bankers Association wrote.
On the other hand, many opponents (largely from the appraisal industry) argued that raising the CRE appraisal threshold would create higher risk for financial markets and consumers.
“Previous relaxing of collateral underwriting requirements contributed to significant losses within the mortgage lending sector as well as catastrophic economic impact to the American consumers,” wrote the Collateral Risk Network (CRN), a group of chief appraisers, collateral risk managers, and valuation experts. “This was evidenced with the 1980s Savings and Loan crisis, where thousands of depositors lost entire life savings due to S&L failures. The most recent economic crisis that nearly brought down the entire banking system has been attributed to the continual relaxation of credit and collateral policies.”
According to Regulations.gov, about 70 comments were filed on the proposal, which was issued for comment July 31.
Comments on Real Estate Appraisals proposal (FDIC, Federal Reserve, OCC)