The Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Board of Governors of the Federal Reserve System (collectively, the “Agencies”) have adopted a final rule which increases the threshold at or below which appraisals would not be required for residential real estate transactions under section 1112(b) of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). A residential real estate transaction is defined in the final rule as “a real estate-related financial transaction that is secured by a single 1-to-4 family residential property.”
The threshold, which has not changed since 1994, is increasing from $250,000 to $400,000. The change will go into effect as soon as the final rule is recorded and published in the Federal Register, which should occur within days, as all three agencies have approved the change.
For real estate-related financial transactions that fall below the threshold or are exempt, the final rule states that FIRREA still requires an “appropriate evaluation of the real property collateral that is consistent with safe and sound banking practices.” The Agencies expect the increased threshold of $400,000 to result in an increased use of evaluations, thereby reducing time and costs associated with residential real estate transactions and reducing the burden for financial institutions and consumers.
The Agencies received approval of the final rule from the Consumer Financial Protection Bureau (CFPB). In a letter to the Agencies, CFPB Director Kathleen Kraninger states that “the Bureau concurs that the Threshold provides reasonable protection for consumers who purchase 1-4 unit single-family residences.”
The final rule notes it does not apply to “regulated transactions” which includes transactions originated by regulated institutions but sold to a government -sponsored agency (GSE) or otherwise insured or guaranteed by a U.S. government agency (Federal Housing Administration, Department of Veterans Affairs, and Department of Housing and Urban Development). The threshold change also does not impact separate regulatory requirements for appraisals, such as the appraisal requirement for Higher-Priced Mortgage Loans.
