New Residential Appraisal Threshold

Issue/Inquiry

Does the change to the appraisal regulation concerning the $400,000 limitation only apply to 1-to-4 residential mortgage loans, or does such apply to complex consumer loans as well?

Response Summary

The $400,000 threshold exemption for 1-to-4 residential mortgage loans also applies to complex residential real estate transactions.

Response Detail

The new rule raises the threshold for residential real estate transactions requiring an appraisal prepared by a state licensed or certified appraiser to $400,000. A “residential real estate transaction” is a transaction secured by a single 1-to-4 family residence.

For complex residential real estate transactions, an appraisal must only be prepared by a state certified or licensed appraiser if the transaction is more than $400,000. A “complex residential real estate transaction” is one in which the property to be appraised, the form of ownership, or market conditions are atypical. 83 Federal Register 63120.

Other transactions exempted from the requirement to obtain an appraisal prepared by a state certified or licensed appraiser include the following:

• A lien on real estate taken as collateral in an abundance of caution
• A transaction not secured by real estate
• A lien on real estate taken for purposes other than the real estate’s value
• A business loan with a transaction value of $1 million or less that is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment
• A lease of real estate, unless the lease is the economic equivalent of a purchase or sale of the leased real estate
• 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, even with the advancement of new monies; or there is no advancement of new monies, other than funds necessary to cover reasonable closing costs
• A transaction involving the purchase, sale, investment in, exchange of, or extension of credit secured by a loan or interest in a loan, pooled loans, or interests in real property, including mortgaged-backed securities, in which each loan or interest in a loan, pooled loan, or real property interest meets Board regulatory requirements for appraisals at the time of origination
• A transaction that is wholly or partially insured or guaranteed by a United States government agency or United States government sponsored agency or qualifies for sale to such an agency
• A transaction in which the Board 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
• A commercial real estate transaction that has a transaction value of $500,000 or less
• A transaction that is subject to the rural residential exemption. 12 CFR §225.63(a)

An evaluation consistent with safe and sound banking practices must be obtained for real estate transactions exempted from the appraisal requirement by the $400,000 threshold or as a business loan of $1 million or less, an existing loan, a commercial real estate transaction of $500,000 or less, or rural residential property. 12 CFR §225.63(b).

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, October 21st, 2019 at 6:00 am.