, Title XI directs each federal financial institutions regulatory agency  During the 2007-2012 credit cycle, net charge-off rates reached a high of about 3.5 percent. Based on this estimate, loan review costs would decline between $67,391 (2,003 loans multiplied by 30 minutes and multiplied by $67.29 per hour) and $172,868 (5,138 loans multiplied by 30 minutes and multiplied by $67.29 per hour). 23. Comments may be sent to: Legislative and Regulatory Activities Division, Office of the Comptroller of the Currency, Attention: 1557-0190, 400 7th Street SW, Suite 3E-218, Mail Stop 9W-11, Washington, DC 20219. and other agency guidance, 45. Open for Comment, Economic Sanctions & Foreign Assets Control, Withdrawal of Certain Federal Water Quality Criteria Applicable to Maine, National Industrial Security Program Operating Manual, Draft Versatile Test Reactor Environmental Impact Statement, Use of Derivatives by Registered Investment Companies and Business Development Companies, Increasing Economic and Geographic Mobility, Providing for the Closing of Executive Departments and Agencies of the Federal Government on December 24, 2020, Office of the Comptroller of the Currency, I. Some commenters represented that relief would be particularly beneficial for lending in Start Printed Page 15030rural communities that often have shortages in state licensed and state certified appraisers. The agencies requested comment on whether there are other factors that should be considered in evaluating the current appraisal threshold for residential transactions. which uses repeat sale regression analysis of 1.7 million commercial property sales records to compare the change in price for the same property between its most recent and previous sale transactions. In the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), In evaluating the final rule, the agencies considered these concerns. Commenters supporting a threshold increase stated that an increase would be appropriate, given the increases in real estate values since the current threshold was established, the cost and time savings to lenders and borrowers the higher threshold would provide, and the burden relief it would provide to financial institutions in rural and other areas where there are reported shortages of state licensed or state certified appraisers, which may have caused transaction delays and increased lending costs. One commenter recommended a six-month to one-year implementation period, while the other suggested an effective date 180 days after the final rule is published. 1681s, 1681w, 6801 and 6805. 04/06/2018 at 8:45 am. The agencies examined data reported on the Call Report and data from the CoStar Comps database to estimate the volume of commercial real estate transactions covered by the existing threshold and increased thresholds. First, the agencies have decided to increase the commercial real estate appraisal threshold to $500,000 rather than $400,000 as proposed. is a direct measure of the changes in commercial real estate prices in the United States. , For real estate-related financial transactions that are exempt from the Title XI appraisal requirement because they are at or below the applicable thresholds or qualify for the exemption for certain existing extensions of credit, As previously discussed, the Board estimates that the percentage of commercial real estate transactions that would be exempted by the threshold is expected to increase by approximately 16 percent under the final rule. In this Issue, Documents Residential construction loans secured by more than one 1-to-4 family residential property will be considered commercial real estate transactions subject to the higher threshold. (B) The board periodically shall transmit to the appraisal subcommittee as defined in Section 40-60-20(6), a roster of individuals who have become state licensed real estate appraisers and state certified real estate appraisers and shall collect and transmit any information or fees established under Public Law 101-73, Title XI, Real Estate Appraisal Reform Amendments. In the event that the agencies amend their appraisal regulations, the Federal This subpart is issued under 12 U.S.C. They also annually report the dollar amount of all NFNR loans, including those over $1 million. are not part of the published document itself. Another commenter suggested there should be no need for a review of internal evaluations where the direct lender did not complete the evaluation. 553(d)(1), which provides a waiver when a substantive rule grants or recognizes an exception or relieves a restriction. Act of 1989 (FIRREA) as a vehicle for appraisal reform; and he inserted his bill as a separate amendment known as Title XI in FIRREA. The Board's final rule applies to state chartered banks that are members of the Federal Reserve System (state member banks), as well as bank holding companies and nonbank subsidiaries of bank holding companies that engage in lending. Requiring regulated institutions to procure the services of a state licensed or state certified appraiser to prepare evaluations for commercial real estate transactions at or below the threshold could impose significant additional costs on lenders and borrowers without materially increasing the safety and soundness of the transactions. However, based on information available to the Board, it is likely that small entities and borrowers engaging in commercial real estate transactions could experience significant cost reductions. Even when the transaction amount is at or below the threshold, the Evaluation Guidance encourages regulated institutions to obtain Title XI appraisals when necessary for risk management and to preserve the safety and soundness of the institution. Several commenters generally supported the proposal that regulated institutions obtain evaluations for commercial real estate transactions at or below the threshold. However, the agencies do not view the option to obtain an evaluation instead of an appraisal as a new or additional requirement for purposes of the Riegle Act. Board: Constance Horsley, Deputy Associate Director, (202) 452-5239, or Carmen Holly, Senior Supervisory Financial Analyst, (202) 973-6122, Division of Supervision and Regulation; or Gillian Burgess, Senior Counsel, (202) 736-5564, Matthew Suntag, Counsel, (202) 452-3694, or Kirin Walsh, Attorney, (202) 452-3058, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. For commercial real estate transactions exempted from the Title XI appraisal requirements by the final rule, regulated institutions will still be required to obtain an evaluation to justify the transaction amount. headings within the legal text of Federal Register documents. The agencies have made this safety and soundness determination and a detailed analysis is provided below. 55. Document Drafting Handbook Commenters advocated a range of increases from $1.5 million to $3 million. Some commenters also supported an increase in the threshold due to limited availability of appraisers in their states. OCC Bulletin 2016-8 (March 4, 2016); Board SR Letter 16-05 (March 4, 2016); and Supervisory Expectations for Evaluations, FDIC FIL-16-2016 (March 4, 2016). publication in the future. As noted in the proposal, increases in commercial property values over time have required regulated institutions to obtain Title XI appraisals for a larger proportion of commercial real estate transactions than in 1994 when the current $250,000 threshold was established. The final rule increases the number of commercial real estate transactions that would require an evaluation by raising the appraisal threshold from $250,000 to $500,000. , The agencies have no evidence that increasing the appraisal threshold to $500,000 for commercial real estate transactions will materially increase the risk of loss to financial institutions. It is not an official legal edition of the Federal 15. The agencies recognize that certain evaluations may take longer to review than others; however, this variation was taken into account in the agencies' estimate of the average time savings that are expected to occur. The agencies estimate that the recordkeeping burden associated with evaluations is the same as the recordkeeping burden associated with appraisals for such transactions. One of these commenters asserted that there is increasing risk in commercial real estate lending, particularly among smaller community and regional banks, which the commenter believed are less likely to have robust collateral risk management policies, practices and procedures. 4. Based on the CRE Index, a commercial property that sold for $250,000 as of June 30, 1994, would be expected to sell for $423,600 in March 2010, which was the trough of the CRE price cycle.  Among other proposals developed through the EGRPRA process, the agencies recommended increasing the commercial real estate appraisal threshold to $400,000. These real estate-related financial transactions are not federally related transactions under the statutory or regulatory definitions, because they do not require the services of an appraiser.. The agencies proposed this conservative approach, due to the volatility of commercial real estate prices over time. Under Title XI, all Federally Related Transactions (FRTs) are required to have a state-certified or state-licensed appraisal that is consistent with safe banking practices (with few exceptions) and apply to both commercial and residential transactions. According to the Call Report 2,950 small entities reported holding some volume of real estate-related financial transactions that meet the final rule's definition of a commercial real estate transaction. Total Estimated Annual Burden: 28,911 hours; 2,531 hours. In support of its position that an increase would not threaten safety and soundness, one of these commenters asserted that there is less risk in the homogenous loan pool of 1-to-4 family residential loans than there is in commercial real estate. In designing the scope of the threshold increase, the agencies chose to largely align the definition of commercial real estate transaction with industry practice, regulatory guidance, and the categories used in the Call Report in order to reduce the administrative burden of determining which transactions were exempted by the rule. Commercial real estate transactions with transaction values above $250,000, but at or below $500,000, are likely to involve smaller and less complex properties, and appraisals and evaluations on such properties would likely be at the lower end of the cost range. Board: The Board is providing a regulatory flexibility analysis with respect to this final rule.  An evaluation is not required when real estate-related financial transactions meet the threshold criteria and also qualify for another exemption from the appraisal requirements where no evaluation is required by the regulation. Another commenter asserted that the inclusion of construction loans extended to consumers as commercial real estate transactions would magnify risk, as the commenter viewed such loans as particularly risky. Removing the word “or” at the end of paragraph (a)(11); The revisions and addition read as follows: (12) The OCC determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution; or. OCC: The Regulatory Flexibility Act (RFA), 5 U.S.C. including, at a minimum, that appraisals be: (1) Performed in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP);  In the proposal, the agencies also invited comment on how having three threshold levels ($250,000 for all transactions, $400,000 for commercial real estate transactions, and $1 million for QBLs) rather than the two threshold levels applicable to Title XI appraisals ($1 million for QBLs and $250,000 for all other transactions) would affect burden on regulated institutions. See FFIEC, Joint Report to Congress: Economic Growth and Regulatory Paperwork Reduction Act, (March 2017), (EGRPRA Report), available at https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf. Regulated institutions are expected to maintain records that demonstrate that appraisals used in their real estate-related lending activities comply with these regulatory requirements. The Board publishes data on the flow of funds and levels of financial assets and liabilities, by sector and financial instrument; full balance sheets, including net worth, for households and nonprofit organizations, nonfinancial corporate businesses, and nonfinancial noncorporate businesses; Integrated Macroeconomic Accounts; and additional supplemental detail. The OCC may, from time to time, impose additional qualification criteria for certified appraisers performing appraisals in connection with federally related transactions within its jurisdiction. Three commenters supported the proposal, noting that having three thresholds would have minimal impact on operations. 74. The other banking agencies’ Title XI appraisal regulations define “business loan” to mean “a loan or extension of credit to any corporation, general or limited partnership, business trust, joint venture, pool, syndicate, sole proprietorship, or other business entity.” OCC: 12 CFR 34.42(d); Fed: 12 CFR 225.62(d); and FDIC: 12 CFR 323.2(d). One of these commenters asserted that appraisers serve a necessary function in real estate lending and expressed concerns that bypassing them to create a more streamlined valuation process could lead to fraud and another real estate crisis. on This same commenter urged the agencies to consider more regional data in deciding whether to make future changes to the threshold for residential transactions. Several of these commenters asserted that the increased risk would not be justified by burden relief. Some commenters supported increasing the threshold to $500,000 and suggested that this higher figure would avoid the need for additional changes to the threshold in the near-term due to expected increases in prices. For loans and extensions of credit, the transaction value is the amount of the loan or extension of credit. Analysis of supervisory experience concerning losses on commercial real estate transactions suggests that faulty valuations of the underlying real estate collateral since 1994 have not been a material cause of losses in connection with transactions at or below $250,000. The analysis of supervisory experience and available data presented in the proposal indicated that the proposed threshold level of $400,000 for commercial real estate transactions would not have posed a threat to the safety and soundness of financial institutions. 35.  B�QU����rY-V�_~
B�3� ���� 1, at 19 (1988); 133 Cong. The Riegle Act requires that each of the agencies, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on IDIs, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. Additionally, the Riegle Community Development and Regulatory Improvement Act of 1994, Public Law 103-325, 108 Stat.  3331-3351). on Asset size and annual revenues are calculated according to SBA regulations. 450 0 obj
Another commenter asserted that the implementation of two thresholds for 1-to-4 family residential construction loans would cause Start Printed Page 15023confusion and increase regulatory burden on financial institutions. A Title XI appraisal would satisfy the requirement for an “appropriate evaluation of real property collateral that is consistent with safe and sound banking practices;” thus, regulated institutions that choose to obtain Title XI appraisals for real estate-related financial transactions that require evaluations are not in violation of the Title XI appraisal regulations. The agencies proposed increasing the commercial real estate appraisal threshold from $250,000 to $400,000. documents in the last year, 309 Housing and Community Development Act of 1992, Pub. 36. The proposed regulations are similar to section 3.02(2) of Notice 2006-96, except that the 41 C.F.R. See 60 FR 51889 (October 4, 1995) and 66 FR 58656 (November 23, 2001). For example, a Title XI appraisal must be performed by a state certified or state licensed appraiser and must conform to USPAP standards, whereas evaluations are not required to be performed by individuals with specific credentials or to conform to USPAP standards. National banks, federal savings associations, SMBs and nonbank subsidiaries of BHCs, insured state nonmember banks and state savings associations, and insured state branches of foreign banks. Many of these commenters asserted that an increase would produce cost and time savings that would benefit regulated institutions and consumers without threatening the safety and soundness of financial institutions. There are approximately 601 state member banks and 35 nonbank lenders regulated by the Board that meet the SBA definition of small entities and would be subject to the proposed rule. corresponding official PDF file on govinfo.gov. Consequently, the amendment in this final rule meets the requirements for waiver set forth in the APA. These are the numbers the agencies used to support their conclusion that the data related to charge-offs from 2007 to 2012 was no worse than that from the years 1991 to 1994. Title XI of FIRREA . Because commercial real estate prices have increased since 1994, when the current $250,000 threshold was established, a smaller percentage of commercial real estate transactions are currently exempted from the Title XI appraisal requirements than when the threshold was established. Do the agencies’ appraisal regulations apply to FHA, VA… Republican control of Washington DC will mean one of two things: A scaling back of Dodd-Frank, or; The elimination of Dodd-Frank; Like it or not, one of these two scenarios will play itself out in 2017 or 2018. The agencies invited comment on their preliminary finding and the data used. Another commenter asserted that commercial borrowers tend to be larger entities, with the capital to withstand detrimental financial events and shifts in the market. 2163 (Riegle Act) provides that rules imposing additional reporting, disclosures, or other new requirements on IDIs generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form. This threshold adjustment is intended to reduce the regulatory burden associated with extending credit secured by commercial real estate in a manner that is consistent with the safety and soundness of financial institutions. The President of the United States issues other types of documents, including but not limited to; memoranda, notices, determinations, letters, messages, and orders. The agencies received comments from appraisers, appraiser-related groups and individuals opposing the proposed increase, many of whom asserted that appraisals are key to preserving the safety and soundness of financial institutions and the economy. Another commenter recommended that “construction-to-permanent” loans be included in the definition of commercial real estate transaction to increase the financing available for new home construction, indicating that strict underwriting and active engagement among the bank, home builder, and home buyer alleviate risks for these loans. The agencies invited comment on the proposed level for the commercial real estate appraisal threshold. Total Estimated Annual Burden: 43,794 hours.  A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. requires the agencies to use plain language in all proposed and final rules published after January 1, 2000. “Federal financial institutions regulatory agency” means the Board, the FDIC, the OCC, the National Credit Union Association (NCUA), and, formerly, the Office of Thrift Supervision. FDIC: You may submit comments, which should refer to “Real Estate Appraisals, 3064-0103” by any of the following methods: Public Inspection: All comments received will be posted without change to http://www.fdic.gov/regulations/laws/federal/ including any personal information provided. In doing so, the agencies balanced the need for some financial institutions to update policies and procedures to incorporate evaluations for transactions exempted by the revised threshold with the benefit of an immediate effective date, which will enable institutions to benefit from lower costs and regulatory relief upon or shortly after the effective date of the final rule. Most comments were not supportive of the proposed treatment of loans to finance the construction of 1-to-4 family residential properties. An evaluation is not required to be completed by a state licensed or state certified appraiser, but may be completed by an employee of the regulated institution or by a third party, as addressed in the Evaluations Advisory. Evaluations may be performed by a lender's own employees and are not required to comply with USPAP. Appraisals required; transactions requiring a State certified or licensed appraiser. Indeed, the Title XI appraisal regulations, appraiser independence requirements, and the Guidelines emphasize the importance of an independent opinion of collateral value in the process of real estate lending. One commenter noted that an increasing percentage of 1-to-4 family properties are rental properties and that the proposed definition would have excluded a class of rent-dependent real estate that should be classified as commercial real estate. The final rule, issued jointly by the OCC, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies), makes conforming amendments to the appraisal rules to require that banks obtain evaluations in lieu of title XI appraisals for transactions covered by the residential threshold exemption. Revise the authority citation for part 323 to read as follows: Authority: 1817(j)(13), 1818, 1828(o), 1831i, 1831p-1, 1843(c)(8), 1844(b), 1972(l), 3106, 3108, 3310, 3331-3351, 3906, 3907, and 3909; 15 U.S.C. The OFR/GPO partnership is committed to presenting accurate and reliable Section 722 of the Gramm-Leach-Bliley Act  The final rule also is likely to reduce the loan origination costs associated with real estate appraisals for commercial real estate borrowers. Board: Nuha Elmaghrabi, Federal Reserve Clearance Officer, Office of the Chief Data Officer, Mail Stop K1-148, Board of Governors of the Federal Reserve System, Washington, DC 20551, with copies of such comments sent to the Office of Management and Budget, Paperwork Reduction Project (7100-0250), Washington, DC 20503. to publish appraisal regulations for federally related transactions within its jurisdiction. 12 U.S.C. As discussed above, the agencies' objective in finalizing this threshold increase is to reduce the regulatory burden associated with extending credit in a safe and sound manner by reducing the number of commercial real estate transactions that are subject to the Title XI appraisal requirements. 1503 & 1507. OCC: G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649-7152, Mitchell E. Plave, Special Counsel, Legislative and Regulatory Activities Division, (202) 649-5490, or Joanne Phillips, Attorney, Bank Activities and Structure Division, (202) 649-5500, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. OCC: 12 CFR 34.43(d); Board: 12 CFR 225.63(d)(2); and FDIC: 12 CFR 323.3(d)(2). Number of Respondents: 828 SMBs; 1,215 nonbank subsidiaries of BHCs. Background and Summary of the Proposed Rule, II. See OCC: 12 CFR 34.43(a)(5); Board: 12 CFR 225.63(a)(5); and FDIC: 12 CFR 323.3(a)(5). The goal of the agencies with this increase is to provide flexibility to regulated institutions in approaching property valuation. The agencies collectively received over 200 comments from appraisers, appraiser trade organizations, financial institutions, financial institutions trade organizations, and individuals. The agencies appreciate the issues raised by the commenters relating to the thresholds for residential transactions and QBLs.  Based on supervisory experience and available data, the agencies published the proposal to accomplish these goals without posing a threat to the safety and soundness of financial institutions. for better understanding how a document is structured but These tools are designed to help you understand the official document The agencies collectively received over 560 comments regarding the proposal to increase the residential real estate appraisal threshold that addressed a variety of issues. The OMB control number for the OCC is 1557-0190, the Board is 7100-0250, and the FDIC is 3064-0103, which will be extended, without revision. See GAO, “Real Estate Appraisals: Appraisal Subcommittee Needs to Improve Monitoring Procedures,” GAO-12-147 (January 2012). For the pooling of loans or interests in real property for resale or purchase, the transaction value is the amount of each loan or the market value of each real property, respectively. As described in more detail below, the effective date for the rule will be the date of its publication in the Federal Register. About the Federal Register 79. Multiple commenters noted a 2015 appraiser trade association survey of appraisal industry professionals, including chief appraisers and appraisal managers at financial institutions, which showed that the majority of those surveyed opposed increasing the current $250,000 threshold and believed that increases to the threshold could increase risk to lenders. 33313351]- as amended by the Dodd-Frank Reform Act § 1101. 3339. In response to the agencies' question regarding regulated institutions' experiences in applying the QBL threshold, a commenter asserted that many loan officers are poorly trained in classifying loans as either real estate or business. developed by the Appraisal Standards Board of the Appraisal Foundation. [FR Doc. 38. These commenters, who were appraisers or their trade associations, cautioned against a loosening of standards that could raise safety and soundness concerns. Using this data, the agencies calculated the dollar amount of NFNR loans at or under the current $250,000 threshold as a percentage of the dollar amount of all NFNR loans. has no substantive legal effect. 29. informational resource until the Administrative Committee of the Federal The Board is not aware of any other significant alternatives that would reduce burden on small entities without sacrificing the safety and soundness of financial institutions or consumer protections. regulations, appraisal standards and statutes/ordinances (i.e., Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, or “FIRREA,” as amended, the Uniform Standards of Professional Appraisal Practice, or “USPAP,” etc.). 1639h. Rep. No. As described in the proposal, the CRE Index  See, 75 FR 77450 (December 10, 2010); OCC Bulletin 2016-8 (March 4, 2016); Board SR Letter 16-5 (March 4, 2016); and Supervisory Expectations for Evaluations, FDIC FIL-16-2016 (March 4, 2016). 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