Appraisals and ValuationsMortgage

OCC seeks public comment on raising appraisal exemption threshold

Would be first increase since 1994

The three federal banking agencies announced they are seeking public comment on a recent proposal to raise the threshold for residential real estate transactions that require an appraisal.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency recently released a proposal that would increase the appraisal requirement from $250,000 to $400,000, meaning that certain home sales of $400,000 and below would no longer require an appraisal. This would be the first increase to the threshold since 1994.

The agencies explained they believe an increase would provide burden relief without posing a threat to the safety and soundness of financial institutions.

All three agencies have approved the proposal, with the FDIC and the OCC acting on November 20. Comments will be accepted until 60 days after publication in the Federal Register.

The appraisal exemption would not apply to loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban DevelopmentDepartment of Veterans AffairsFannie Mae, or Freddie Mac. According to the OCC, the new rules would apply to approximately 40% of home sales.

Click here to read more on how much this change will impact the housing industry.

The federal agencies explained that the proposal responds, in part, to comments the agencies received during their recent review of regulations that the current exemption level for residential transactions had not kept pace with price appreciation.

Rather than requiring an appraisal for transactions exempted by the threshold, the proposal would require the use of an evaluation consistent with safe and sound banking practices. Evaluations provide an estimate of the market value of real estate but could be less burdensome than appraisals because the agencies’ appraisal regulations do not require evaluations to be prepared by state licensed or certified appraisers. In addition, evaluations are typically less detailed and costly than appraisals. 

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