Cautious Optimism on Appraisal Thresholds

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The following is a guest blog by Justin D. Slack, MAI, SRA, AI-GRS, AI-RRS.

While urging caution to federal regulators on raising appraisal thresholds, the Appraisal Institute is heartened by the agencies’ latest action, in which safety and soundness concerns outweigh the zeal for loan production.

The Office of the Comptroller of the Currency, National Credit Union Administration, Federal Deposit Insurance Corporation, and the Board of Governors of the Federal Reserve System on March 20 submitted a report to Congress on the results of a once every 10-year review of the Economic Growth and Regulatory Paperwork Reduction Act of 1996. The review, which technically began in 2014 with initial comment requests and included several rounds of outreach meetings into 2016, was summarized and presented in the Joint Report to Congress.

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Only One Increase

The report summarizes the results of the review relating to real estate appraisal requirements observed in comments and outreach meetings, identifying paths forward the agencies intend to pursue. With regard to appraisal requirements, the agencies reported to Congress that they intend to propose an increase in the appraisal threshold level for commercial real estate loans from $250,000 to $400,000.

However, the agencies have opted not to take any immediate action relative to the residential threshold (also at $250,000) and the business loan/owner occupied real estate threshold ($1 million). Here, the agencies are continuing to study the issues but treading carefully relative to safety and soundness.

The Appraisal Institute provided an immediate response to the report, cautioning the bank regulators on increases in the commercial real estate threshold given recent statements made by the chair of the Federal Reserve Board on the commercial real estate market and concerns that have been expressed about evaluations in the past year. AI President Jim Amorin, MAI, SRA, AI-GRS added: “We also applaud the agencies’ prudent decision to maintain the current residential threshold.”

Positive Results in Report

Taken altogether, the results of the EGRPRA report should be viewed positively by AI professionals since the agencies were understood to be exploring much broader and more aggressive increases in threshold levels, but opted to hold the line in some important areas.

The threat has not gone entirely away, however, as the discussion is moving to a new front under an executive order released by the Trump administration on regulatory relief issues. This order calls for the U.S. Department of the Treasury to undertake a broad review of regulations to provide relief to financial institutions and the economy.

The Appraisal Institute expects that some within the banking community may attempt once again to push for increases in the appraisal threshold levels or new exemptions altogether. AI will continue to raise caution and awareness about the importance of strong risk management activities relative to real estate and business lending.

AI’s Planned Action

This review need not be seen as entirely negative, though, as there are certainly areas where current regulations are hamstringing lenders and appraisers. This includes the RESPA/TILA rules relating to appraisal, which needlessly tie the hands of appraisers and lenders with regard to appraisal fee quotes. These compel appraisers to bid on appraisal assignments without understanding the complexity of the appraisal assignment. This is like asking a doctor to quote the cost of a procedure without an examination.

The Appraisal Institute intends to compile and submit a letter to the Treasury Department outlining both concerns and suggestions such as those above in line with the executive order. If you have ideas for regulatory relief for appraisers, or relief for financial institutions relating to appraisals please contact the Appraisal Institute’s Washington office: insidethebeltway@appraisalinstitute.org.

Justin D. Slack, MAI, SRA, AI-GRS, AI-RRS, is FVP, commercial appraisal manager with HomeStreet Bank, a commercial bank headquartered in Seattle, and chair of the Appraisal Institute’s Government Relations Committee. Justin Slack 2