The federal banking agencies issued an interim final rule April 14 temporarily defer real estate-related appraisals and evaluations under the agencies’ interagency appraisal regulations.
The Federal Reserve Board (FRB), the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC) said they were providing this temporary relief to allow regulated institutions to extend financing to creditworthy households and businesses quickly in the wake of the national emergency declared in connection with COVID-19, according to their released statement.
The agencies are deferring certain appraisals and evaluations for up to 120 days after closing of residential or commercial real estate loan transactions. Transactions involving acquisition, development, and construction of real estate are excluded from this interim rule. These temporary provisions will expire Dec. 31, 2020, unless extended by the federal banking agencies.
The National Credit Union Administration (NCUA) will consider a similar proposal April 16.
In addition, the federal banking agencies, together with NCUA and the Consumer Financial Protection Bureau and in consultation with the Conference of State Bank Supervisors, issued a joint statement to address challenges relating to appraisals and evaluations for real estate-related financial transactions affected by COVID-19.
“The interagency statement outlines other flexibilities in industry appraisal standards and in the agencies’ appraisal regulations and describes temporary changes to Fannie Mae and Freddie Mac appraisal standards that can assist lenders during this challenging time. The agencies will continue to communicate with the industry, as appropriate, as this situation evolves,” the release said.
The appraisal regulations issued by the OCC, FRB and FDIC provide at least 14 exceptions to the requirement for an appraisal by a certified or licensed appraiser. Exceptions that lenders may find the most useful during the COVID-19 emergency for real-estate related financial transactions include:
- The transaction is a residential real estate transaction with a transaction value of $400,000 or less;
- The transaction is a commercial real estate transaction with a transaction value of $500,000 or less;
- The transaction is a business loan that has a transaction value of $1 million or less where the loan does not depend on the sale of, or rental income derived from, real estate as the primary source of repayment;
- The transaction involves an existing extension of credit at the lending institution, provided that:
- There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies; or there is no advancement of new monies, other than funds necessary to cover reasonable closing costs;
- The transaction is wholly or partially insured or guaranteed by a U.S. government agency or U.S. government sponsored agency; and
- The transaction either:
- Qualifies for sale to a U.S. government agency or government sponsored agency; or
- Involves a residential real estate transaction where the appraisal conforms to the Fannie Mae or Freddie Mac appraisal standards.
In addition, the FDIC, FRB, and OCC issued an interim final rule temporarily amending their appraisal regulations to provide that the completion of appraisals and evaluations required under the agencies’ appraisal regulations may be deferred by a regulated institution for up to 120 days from the date of closing.
The temporary deferrals apply to all residential and commercial real estate secured transactions, including loans for new money or refinancing transactions, but excluding transactions for acquisition, development, and construction of real estate, and will be effective upon publication in the Federal Register.
The appraisal regulations issued by the NCUA provide nine exceptions to the appraisal requirements for an appraisal by a certified or licensed appraiser. Exceptions that institutions may find the most useful during the COVID-19 emergency for real estate related financial transactions include:
- The transaction is a residential real estate transaction with a transaction value of less than $250,000;
- The transaction is a residential real estate transaction with a transaction value greater than $250,000, but less than $1 million, and the portion of the transaction value that is insured or guaranteed by a U.S. government agency or U.S. government sponsored agency is $250,000 or more;
- The transaction is a commercial real estate transaction with a transaction value of less than $1 million;
- The transaction involves an existing extension of credit at the lending credit union, provided that:
- There is no advancement of new monies, other than funds necessary to cover reasonable closing costs; or there has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the credit union's real estate collateral protection after the transaction, even with the advancement of new monies; and
- The transaction either:
- Qualifies for sale to a U.S. government agency or U.S. government sponsored agency; or
- Involves a residential real estate transaction in which the appraisal conforms to the Fannie Mae or Freddie Mac appraisal standards applicable to that category of real estate.
“The agencies encourage financial institutions to make use of these exceptions. The use of an existing appraisal or evaluation for subsequent transactions may be particularly relevant during the COVID-19 emergency,” the statement read. “A financial institution can use an existing evaluation or appraisal instead of obtaining a new appraisal for a subsequent transaction in certain circumstances if the institution can confirm that the evaluation or appraisal remains valid.
“The passage of time is a criterion that institutions can consider when determining whether an appraisal remains valid. If the institution determines that the appraisal still reflects market value, the institution may rely on the appraisal based on an acceptable level of risk as evidenced by a loan’s LTV ratio and other underwriting criteria,” the statement went on to state. “The agencies understand that it may be appropriate for institutions to have different criteria for assessing the validity of an appraisal or evaluation for purposes of subsequent transactions during major disasters or other emergencies. The institution’s determination of the validity of existing appraisals and evaluations used for subsequent transactions conducted during the COVID-19 emergency will not be subject to examiner criticism if it is consistent with safe and sound practices.”