Real Estate Appraisals
| Citation | 84 FR 53579 |
| Record Number | 2019-21376 |
| Published date | 08 October 2019 |
| Section | Rules and Regulations |
| Court | Federal Deposit Insurance Corporation,The Comptroller Of The Currency Office |
53579
Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Rules and Regulations
DEPARTMENT OF AGRICULTURE
Farm Service Agency
7 CFR Part 718
Commodity Credit Corporation
7 CFR Part 1412
RIN 0560–AI45
[Docket ID FSA–2019–0008]
Agriculture Risk Coverage and Price
Loss Coverage Programs; Correction
AGENCY
: Commodity Credit Corporation
and Farm Service Agency, USDA.
ACTION
: Final rule; correction and
correcting amendment.
SUMMARY
: The Commodity Credit
Corporation (CCC) is correcting a final
rule that was published in the Federal
Register on September 3, 2019, which
revised the Agriculture Risk Coverage
(ARC) and Price Loss Coverage (PLC)
Programs. That document inadvertently
failed to include the relevant counties in
Nebraska that have been established as
having a history of double-cropping
covered commodities or peanuts with
fruits, vegetables, or wild rice and
incorrectly listed the previous
Regulation Identifier Number (RIN).
DATES
: Effective: October 8, 2019.
FOR FURTHER INFORMATION CONTACT
:
Mary Ann Ball; telephone: (202) 720–
4283, email address: maryann.ball@
usda.gov. Persons with disabilities who
require alternative means for
communication should contact the
USDA Target Center at (202) 720–2600
(voice only).
SUPPLEMENTARY INFORMATION
:
Correction to Preamble
In the published final rule beginning
on page 45877, in the 3rd column, in the
Federal Register of Monday, September
3, 2019 (84 FR 45877–45895), correct
the ‘‘RIN’’ heading to read: RIN 0560–
AI45.
Correcting Amendment to Regulations
In addition, the final rule
inadvertently omitted the list of
counties for Nebraska in 7 CFR
1412.46(f). The listing of counties in
§ 1412.46(f) specifies which counties
have been determined to be regions
having a history of double-cropping
covered commodities or peanuts with
fruits, vegetables, or wild rice. The FSA
State committees establish the counties
as regions within their respective States.
During the development of the final
rule, the list of counties for Nebraska
was intended to be added as: Box Butte,
Dawes-North Sioux, Morrill, and
Sheridan. Instead, the final rule did not
list any counties in Nebraska. This
correction adds the list of Nebraska
counties.
List of Subjects in 7 CFR Part 1412
Cotton, Feed grains, Oilseeds,
Peanuts, Price support programs,
Reporting and recordkeeping
requirements, Rice, Soil conservation,
Wheat.
For the reasons discussed above, CCC
corrects 7 CFR part 1412 as follows:
PART 1412—AGRICULTURE RISK
COVERAGE, PRICE LOSS COVERAGE,
AND COTTON TRANSITION
ASSISTANCE PROGRAMS
■1. The authority citation for part 1412
continues to read as follows:
Authority: 7 U.S.C. 1508b, 7911–7912,
7916, 8702, 8711–8712, 8751–8752, and 15
U.S.C. 714b and 714c.
Subpart D—ARC and PLC Contract
Terms and Enrollment Provisions for
Covered Commodities
■2. In § 1412.46:
■a. Revise paragraph (f)(28).
■b. In paragraph (g), remove the cross-
reference ‘‘paragraph (h)’’ and add the
cross-reference ‘‘paragraph (i)’’ in its
place.
The revision reads as follows:
§ 1412.46 Planting flexibility.
* * * * *
(f) * * *
(28) Nebraska. Box Butte, Dawes-
North Sioux, Morrill, and Sheridan.
* * * * *
Robert Stephenson,
Executive Vice President, Commodity Credit
Corporation.
Richard Fordyce,
Administrator, Farm Service Agency.
[FR Doc. 2019–21604 Filed 10–7–19; 8:45 am]
BILLING CODE 3410–05–P
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 34
[Docket No. OCC–2019–0038]
RIN 1557–AE57
FEDERAL RESERVE SYSTEM
12 CFR Part 225
[Docket No. R–1639]
RIN 7100–AF30
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Part 323
RIN 3064–AE87
Real Estate Appraisals
AGENCY
: Office of the Comptroller of the
Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (Board); and Federal Deposit
Insurance Corporation (FDIC).
ACTION
: Final rule.
SUMMARY
: The OCC, Board, and FDIC
(collectively, the agencies) are adopting
a final rule to amend the agencies’
regulations requiring appraisals of real
estate for certain transactions. The final
rule increases the threshold level at or
below which appraisals are not required
for residential real estate transactions
from $250,000 to $400,000. The final
rule defines a residential real estate
transaction as a real estate-related
financial transaction that is secured by
a single 1-to-4 family residential
property. For residential real estate
transactions exempted from the
appraisal requirement as a result of the
revised threshold, regulated institutions
must obtain an evaluation of the real
property collateral that is consistent
with safe and sound banking practices.
The final rule makes a conforming
change to add to the list of exempt
transactions those transactions secured
by residential property in rural areas
that have been exempted from the
agencies’ appraisal requirement
pursuant to the Economic Growth,
Regulatory Relief, and Consumer
Protection Act. The final rule requires
evaluations for these exempt
transactions. The final rule also amends
the agencies’ appraisal regulations to
require regulated institutions to subject
appraisals for federally related
transactions to appropriate review for
compliance with the Uniform Standards
of Professional Appraisal Practice.
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Federal Register / Vol. 84, No. 195 / Tuesday, October 8, 2019 / Rules and Regulations
1
83 FR 63110 (December 7, 2018).
2
12 U.S.C. 3331 et seq.
3
Public Law 115–174, 132 Stat. 1296, Title I,
section 103, codified at 12 U.S.C. 3356.
4
Public Law 111–203, 124 Stat. 1376, codified at
12 U.S.C. 3339(3).
5
The term ‘‘Federal financial institutions
regulatory agencies’’ means the Board, the FDIC, the
OCC, the National Credit Union Administration
(NCUA), and, formerly, the Office of Thrift
Supervision. 12 U.S.C. 3350(6).
6
These interests include those stemming from the
federal government’s roles as regulator and deposit
insurer of financial institutions that engage in real
estate lending and investment, guarantor or lender
on mortgage loans, and as a direct party in real-
estate related financial transactions. These federal
financial and public policy interests have been
described in predecessor legislation and
accompanying Congressional reports. See Real
Estate Appraisal Reform Act of 1988, H.R. Rep. No.
100–1001, pt. 1, at 19 (1988); 133 Cong. Rec. 33047–
33048 (1987).
7
12 U.S.C. 3331.
8
12 U.S.C. 3339.
9
The third minimum requirement was added to
Title XI by section 1473(e) of the Dodd-Frank Act,
as noted supra, and is being implemented by this
rulemaking. See infra, Section II.C.
10
12 U.S.C. 3350(5). A real estate-related
financial transaction is defined as any transaction
that involves: (i) The sale, lease, purchase,
investment in or exchange of real property,
including interests in property, or financing thereof;
(ii) the refinancing of real property or interests in
real property; and (iii) the use of real property or
interests in real property as security for a loan or
investment, including mortgage-backed securities.
11
12 U.S.C. 3350(4).
DATES
: This final rule is effective on
October 9, 2019, except for the
amendments in instructions 4, 5, 9, 10,
14, and 15, which are effective on
January 1, 2020.
FOR FURTHER INFORMATION CONTACT
:
OCC: G. Kevin Lawton, Appraiser
(Real Estate Specialist), (202) 649–7152;
Mitchell E. Plave, Special Counsel, (202)
649–5490; or Joanne Phillips, Counsel,
Chief Counsel’s Office (202) 649–5500;
Office of the Comptroller of the
Currency, 400 7th Street SW,
Washington, DC 20219. For persons
who are deaf or hearing impaired, TTY
users may contact (202) 649–5597.
Board: Anna Lee Hewko, Associate
Director, (202) 530–6260; Virginia
Gibbs, Manager, Policy Development
Section, (202) 452–2521; Carmen Holly,
Lead Financial Institution Policy
Analyst, (202) 973–6122, Division of
Supervision and Regulation; Laurie
Schaffer, Associate General Counsel,
(202) 452–2272; Matthew Suntag,
Counsel, (202) 452–3694; Derald Seid,
Counsel, (202) 452–2246; or Trevor
Feigleson, Senior Attorney, (202) 452–
3274, Legal Division, Board of
Governors of the Federal Reserve
System, 20th and C Streets NW,
Washington, DC 20551. For the hearing
impaired only, Telecommunications
Device for the Deaf (TDD) users may
contact (202) 263–4869.
FDIC: Beverlea S. Gardner, Senior
Examination Specialist, Division of Risk
Management and Supervision, (202)
898–3640, BGardner@FDIC.gov;
Benjamin K. Gibbs, Counsel, Legal
Division, (202) 898–6726; Mark Mellon,
Counsel, Legal Division, (202) 898–
3884; or Navid Choudhury, Legal
Division, (202) 898–6526, Federal
Deposit Insurance Corporation, 550 17th
Street NW, Washington, DC 20429. For
the hearing impaired only, TDD users
may contact (202) 925–4618.
SUPPLEMENTARY INFORMATION
:
Table of Contents
I. Introduction
A. Background
B. Summary of Proposed Rule
C. Overview of Comments
II. Revisions to the Title XI Appraisal
Regulations
A. Threshold Increase for Residential Real
Estate Transactions
1. Definition of Residential Real Estate
Transaction
2. Threshold Level
3. Safety and Soundness Considerations for
Raising the Residential Real Estate
Threshold
4. Consumer Protection Considerations
5. Reducing Burden Associated With
Appraisals
B. Incorporation of the Rural Residential
Appraisal Exemption Under Section 103
of the Economic Growth, Regulatory
Relief, and Consumer Protection Act
C. Addition of Appraisal Review
Requirement
D. Conforming and Technical Amendments
III. Effective Date
IV. Regulatory Analysis
A. Regulatory Flexibility Act Analysis
B. Paperwork Reduction Act
C. Riegle Community Development and
Regulatory Improvement Act of 1994
D. Solicitation of Comments on Use of
Plain Language
E. OCC Unfunded Mandates Reform Act of
1995 Determination
Regulatory Text
I. Introduction
A. Background
In December 2018, the agencies
invited comment on a notice of
proposed rulemaking (proposal or
proposed rule)
1
that would amend the
agencies’ appraisal regulations
promulgated pursuant to Title XI of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (Title XI).
2
Specifically, the proposal would
increase the monetary threshold at or
below which financial institutions that
are subject to the agencies’ appraisal
regulations (regulated institutions)
would not be required to obtain
appraisals in connection with
residential real estate transactions
(residential real estate appraisal
threshold) from $250,000 to $400,000.
In addition, the proposal would add to
the list of exempt transactions those
transactions that are secured by
residential property in rural areas that
have been exempted from the agencies’
appraisal requirement pursuant to the
Economic Growth, Regulatory Relief,
and Consumer Protection Act
(EGRRCPA)
3
(rural residential appraisal
exemption). The proposal would require
regulated institutions to obtain
evaluations for transactions exempt
from the agencies’ appraisal
requirements due to the increase in the
residential real estate appraisal
threshold or the rural residential
appraisal exemption. Finally, the
proposal would amend the agencies’
appraisal regulations to require
regulated institutions to subject
appraisals for federally related
transactions to appropriate review for
compliance with the Uniform Standards
of Professional Appraisal Practice
(USPAP), as required under section
1473(e) of the Dodd-Frank Wall Street
Reform and Consumer Protection Act
(the Dodd-Frank Act).
4
Title XI directs each Federal financial
institutions regulatory agency
5
to
publish appraisal regulations for
federally related transactions within its
jurisdiction. The purpose of Title XI is
to protect federal financial and public
policy interests
6
in real estate-related
transactions by requiring that real estate
appraisals used in connection with
federally related transactions (Title XI
appraisals) be performed in accordance
with uniform standards by individuals
whose competency has been
demonstrated and whose professional
conduct will be subject to effective
supervision.
7
Title XI directs the agencies to
prescribe appropriate standards for Title
XI appraisals under the agencies’
respective jurisdictions.
8
At a
minimum, the statute provides that Title
XI appraisals must be: (1) performed in
accordance with USPAP; (2) written
appraisals, as defined by the statute; and
(3) subject to appropriate review for
compliance with USPAP.
9
All federally related transactions must
have Title XI appraisals. Title XI defines
a federally related transaction as a real
estate-related financial transaction
10
that the agencies or a financial
institution regulated by the agencies
engages in or contracts for, that requires
the services of an appraiser under Title
XI and the interagency appraisal rules.
11
The agencies have authority to
determine those real estate-related
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Real estate-related financial transactions that
the agencies have exempted from the appraisal
requirement are not federally related transactions
under the agencies’ appraisal regulations.
13
See OCC: 12 CFR 34.43(a); Board: 12 CFR
225.63(a); FDIC: 12 CFR 323.3(a). The agencies have
determined that these categories of transactions do
not require appraisals by state certified or state
licensed appraisers in order to protect federal
financial and public policy interests or to satisfy
principles of safe and sound banking.
14
12 U.S.C. 3341(b).
15
While the $250,000 threshold explicitly applies
to all real estate-related financial transactions with
transaction values of $250,000 or less, it effectively
only applies to residential real estate transactions
because all other real estate-related financial
transactions are subject to higher thresholds.
16
For loans and extensions of credit, the
transaction value is the amount of the loan or
extension of credit. For sales, leases, purchases,
investments in or exchanges of real property, the
transaction value is the market value of the real
property. 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. See OCC:
12 CFR 34.42(m); Board: 12 CFR 225.62(m); FDIC:
12 CFR 323.2(m).
17
Qualifying business loans are business loans
that are real estate-related financial transactions and
that are not dependent on the sale of, or rental
income derived from, real estate as the primary
source of repayment. The 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. See OCC: 12 CFR 34.42(d); Board:
12 CFR 225.62(d); FDIC: 12 CFR 323.2(d).
18
See OCC: 12 CFR 34.43(a)(1), (5), and (13);
Board: 12 CFR 225.63(a)(1), (5), and (14); and FDIC:
12 CFR 323.3(a)(1), (5), and (13).
19
See 59 FR 29482 (June 7, 1994). The OCC,
Board, and FDIC had previously set the appraisal
threshold at $100,000. OCC: 57 FR 12190–02 (April
9, 1992); Board: 55 FR 27762 (July 5, 1990); FDIC:
57 FR 9043–02 (March 16, 1992).
20
Transactions that involve an existing extension
of credit at the lending institution are exempt from
the agencies’ appraisal requirement, but are
required to have evaluations, 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. See
OCC: 12 CFR 34.43(a)(7) and (b); Board: 12 CFR
225.63(a)(7) and (b); FDIC: 12 CFR 323.3(a)(7) and
(b).
21
See OCC: 12 CFR 34.43(b); Board: 12 CFR
225.63(b); FDIC: 12 CFR 323.3(b). An evaluation is
not required when real estate-related financial
transactions meet the threshold criteria and also
qualify for another exemption from the agencies’
appraisal requirement where no evaluation is
required by the regulation.
22
Evaluations are not required to be performed in
accordance with USPAP or by state certified or state
licensed appraisers by federal law. For additional
information on evaluations, see infra notes 23 and
24.
23
The agencies proposed the Guidelines for
public comment in 2008, see 73 FR 69647
(November 19, 2008), and adopted the final
Guidelines in 2010, see 75 FR 77450 (December 10,
2010).
24
Interagency Advisory on the Use of Evaluations
in Real Estate-Related Financial Transactions
(March 4, 2016), OCC Bulletin 2016–8; Board SR
Letter 16–5; FDIC FIL–16–2016.
25
Public Law 115–174, Title I, section 103,
codified at 12 U.S.C. 3356. Effective May 24, 2018,
section 103 provides that a Title XI appraisal is not
required if the real property or interest in real
property is located in a rural area, as described in
12 CFR 1026.35(b)(2)(iv)(A), and if the transaction
value is $400,000 or less. In addition, the mortgage
originator or its agent, directly or indirectly must
have contacted not fewer than three state certified
or state licensed appraisers, as applicable, on the
mortgage originator’s approved appraiser list in the
market area, in accordance with 12 CFR part 226,
not later than three days after the date on which the
Closing Disclosure was provided to the consumer
and documented that no state certified or state
licensed appraiser, as applicable, was available
within five business days beyond customary and
reasonable fee and timeliness standards for
comparable appraisal assignments.
financial transactions that do not
require Title XI appraisals.
12
The
agencies have exercised this authority
by exempting several categories of real
estate-related financial transactions
from the agencies’ appraisal
requirement, including transactions at
or below certain designated
thresholds.
13
Title XI expressly authorizes the
agencies to establish thresholds at or
below which Title XI appraisals are not
required if: (1) The agencies determine
in writing that the threshold does not
represent a threat to the safety and
soundness of financial institutions; and
(2) the agencies receive concurrence
from the Consumer Financial Protection
Bureau (CFPB) that such threshold level
provides reasonable protection for
consumers who purchase 1-to-4 unit
single-family residences.
14
Under the
current thresholds, residential real
estate transactions
15
with a transaction
value
16
of $250,000 or less, certain real
estate-secured business loans
(qualifying business loans)
17
with a
transaction value of $1 million or less,
and commercial real estate (CRE)
transactions with a transaction value of
$500,000 or less do not require Title XI
appraisals.
18
The appraisal threshold
applicable to residential real estate
transactions has not been changed since
1994.
19
For real estate-related financial
transactions at or below the applicable
thresholds and for certain existing
extensions of credit exempt from the
agencies’ appraisal requirement,
20
the
Title XI appraisal regulations require
regulated institutions to obtain an
appropriate evaluation of the real
property collateral that is consistent
with safe and sound banking
practices.
21
An evaluation should
contain sufficient information and
analysis to support the regulated
institution’s decision to engage in the
transaction.
22
The agencies have
provided supervisory guidance for
conducting evaluations in a safe and
sound manner in the Interagency
Appraisal and Evaluation Guidelines
(Guidelines)
23
and the Interagency
Advisory on the Use of Evaluations in
Real Estate-Related Financial
Transactions (Evaluations Advisory,
24
and together with the Guidelines,
Evaluation Guidance).
In 2018, Congress amended Title XI
by adding the rural residential appraisal
exemption to provide relief for financial
institutions engaging in residential real
estate transactions in certain rural areas.
The exemption provides that residential
transactions in certain rural areas do not
require Title XI appraisals if the
financial institution documents that
appraisers are not available for the
transaction within reasonable time and
cost parameters.
25
The statute does not
specifically require that real estate
evaluations be performed when
financial institutions utilize this
exemption.
B. Summary of Proposed Rule
As noted in the proposed rule,
residential property values have
increased over time, but the appraisal
threshold has not been adjusted since
1994. The agencies believe rising market
prices of residential properties have
contributed to increased burden for
regulated institutions and consumers in
terms of transaction time and costs,
given that the threshold has remained
the same since 1994. The proposed rule
was intended to reduce regulatory
burden consistent with federal financial
and public policy interests in residential
real estate-related financial transactions.
Based on supervisory experience and
available data, the agencies published
the proposed rule to accomplish these
goals without posing a threat to the
safety and soundness of financial
institutions.
The agencies proposed to increase the
threshold level at or below which
appraisals are not required for
residential real estate transactions from
$250,000 to $400,000. Residential real
estate transaction would be defined as a
real-estate related financial transaction
that is secured by a single 1-to-4 family
residential property. For residential real
estate transactions exempted from the
appraisal requirement as a result of the
revised threshold, regulated institutions
would be required to obtain an
evaluation of the real property collateral
that is consistent with safe and sound
banking practices.
The agencies also proposed to make
conforming changes to add the rural
residential appraisal exemption to the
appraisal regulations. The agencies
proposed that evaluations be required
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26
Public Law 111–203, 124 Stat. 1376.
27
The agencies received five comments
suggesting that the agencies hold public hearings
regarding the proposed rule. The agencies denied
these requests on grounds that holding a public
hearing would not elicit relevant information that
could not be conveyed through the notice and
comment process.
28
Public Law 104–208, Div. A, Title II, section
2222, 110 Stat. 3009–414, (1996) (codified at 12
U.S.C. 3311).
29
The agencies note the rural residential
appraisal exemption does not require a safety and
soundness determination by the agencies or a
concurrence by the CFPB. 12 U.S.C. 3341(b).
for these transactions. In addition, the
agencies proposed to amend the
agencies’ appraisal regulations to
require regulated institutions to subject
appraisals for federally related
transactions to appropriate review for
compliance with USPAP, pursuant to
Title XI, as amended by the Dodd-Frank
Act.
26
The agencies also proposed
several conforming and technical
amendments to their appraisal
regulations. The agencies invited
comment on all aspects of the proposal.
C. Overview of Comments
The agencies collectively received
over 560 comments regarding the
proposal to increase the residential real
estate appraisal threshold that
addressed a variety of issues. Comments
from financial institutions, financial
institution trade associations, and state
banking regulators generally supported
the proposed increase. Comments from
appraisers, appraiser trade
organizations, individuals, and
consumer advocate groups generally
opposed the proposal to increase the
threshold. The agencies also received a
few comments that are addressed
separately below concerning the
proposed requirement to obtain
evaluations for transactions that qualify
for the rural residential appraisal
exemption or to subject certain
appraisals to appropriate review for
compliance with USPAP.
27
Commenters supporting the proposed
threshold increase asserted that an
increase would be appropriate given the
increases in real estate values since the
current threshold was established as
well as the cost and time savings to
lenders and borrowers that the higher
threshold would provide. Supportive
commenters also indicated that a
threshold increase would provide
burden relief for financial institutions
without sacrificing safe and sound
banking practices. Many of these
commenters saw evaluations as
appropriate substitutes for appraisals
and institutions as having appropriate
risk management controls in place to
manage the proposed threshold change
responsibly. Some commenters in
support of the proposal indicated that
the proposed threshold increase would
benefit consumers, arguing that costs
and delays due to appraisals could be
reduced. These commenters asserted
that expedited valuations could make
the residential mortgage market more
efficient and lower closing costs.
Commenters opposing an increase to
the residential real estate appraisal
threshold asserted that the proposal
would elevate risks to borrowers,
financial institutions, the financial
system, and taxpayers. Several
commenters asserted that the increased
risk would not be justified by burden
relief resulting from a threshold
increase. As described in more detail
below, many commenters in opposition
asserted that the proposal would
negatively impact consumers. Many of
these comments focused on views that
evaluations are inadequate substitutes
for appraisals.
Many commenters opposing the
proposal highlighted the benefits that
state licensed or state certified
appraisers bring to the real estate
valuation process. 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. Many commenters
asserted that appraisers are the only
unbiased party in the valuation process,
in contrast to buyers, agents, lenders,
and sellers, who each have an interest
in the underlying transactions. Several
commenters rejected assertions that
there was an appraiser shortage
warranting regulatory relief.
Several commenters questioned the
proposal in light of the agencies’
previous decision not to propose an
increase to the residential real estate
appraisal threshold during the
regulatory review process required by
the Economic Growth and Regulatory
Paperwork Reduction Act (EGRPRA).
28
A few commenters also questioned
whether the proposed threshold
increase is consistent with
Congressional intent, given that the
rural residential real estate exemption
was made available only to transactions
meeting certain criteria, while the
proposed threshold increase would
exempt all residential transactions at or
below $400,000.
II. Revisions to the Title XI Appraisal
Regulations
After carefully considering the
comments and conducting further
analysis, the agencies are adopting the
final rule as proposed, and are
increasing the residential real estate
appraisal threshold from $250,000 to
$400,000. As discussed in the proposal
and further detailed below, increasing
the residential real estate appraisal
threshold will provide meaningful
regulatory relief for financial
institutions without threatening the
safety and soundness of financial
institutions.
The agencies are authorized to
increase the threshold based on express
statutory authority to do so upon
making a determination in writing that
the threshold does not represent a threat
to the safety and soundness of financial
institutions and receiving concurrence
from the CFPB that the threshold level
provides reasonable protection for
consumers who purchase 1-to-4 unit
single-family residences.
29
As detailed below, the agencies have
determined that a residential real estate
appraisal threshold of $400,000 will not
threaten the safety and soundness of
financial institutions and have received
concurrence from the CFPB that this
threshold level provides reasonable
protection for consumers who purchase
1–4 unit single-family residences.
The agencies recognize that they
decided against proposing a residential
appraisal threshold increase during the
EGRPRA process. The agencies have
reconsidered this decision based on
continued comments received from
financial institutions and state bank
regulatory agencies that increasing the
residential appraisal threshold would
provide meaningful burden relief, as
well as further analysis regarding safety
and soundness and consumer protection
factors related to the proposal, as
detailed below. The agencies also
recognize that Congress recently
amended Title XI to provide a narrow,
self-effectuating appraisal exemption for
rural transactions meeting certain
requirements. However, the agencies
also observe that Congress did not
amend the agencies’ long-standing
authority in Title XI to establish a
threshold level at or below which a
certified or licensed appraiser is not
required to perform an appraisal in
connection with federally related
transactions. Through the EGRRCPA
amendment, Congress mandated that
rural transactions meeting specific
statutory criteria be exempted from the
appraisal regulations; however, there is
no indication that Congress intended to
restrict the agencies’ authority to
provide additional exemptions pursuant
to their existing statutory authority.
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30
83 FR 15019–01 (April 9, 2018) (‘‘commercial
real estate transaction’’ is defined as a ‘‘real estate-
related financial transaction that is not secured by
a single 1-to-4 family residential property’’).
31
The agencies believe that federally related
transactions secured by single 1-to-4 family
residential properties are currently the only real
estate transactions subject to the $250,000 appraisal
threshold.
32
82 FR 35478, 35482 (July 31, 2017); 83 FR at
15029–15030.
33
The Case-Shiller Index reflects changes in
home prices from a base of $250,000 in June 1994,
based on the Standard & Poor’s Case-Shiller Home
Price Index. See Standard & Poor’s CoreLogic Case-
Shiller Home Price Indices, available at https://
us.spindices.com/index-family/real-estate/sp-
corelogic-case-shiller.
34
The FHFA Index reflects changes in home
prices from a base of $250,000 in June 1994, based
on the FHFA House Price Index. See FHFA House
Price Index, available at https://www.fhfa.gov/
DataTools/Downloads/Pages/House-Price-
Index.aspx.
35
The CPI, which is published by the Bureau of
Labor Statistics, is a measure of the average change
over time in the prices paid by urban consumers for
a market basket of goods and services. See https://
www.bls.gov/cpi/.
The agencies are also finalizing as
proposed the requirement to obtain an
evaluation for transactions that qualify
for the rural residential appraisal
exemption and the requirement that
appraisals for federally related
transactions be subject to appropriate
review for compliance with USPAP. The
final rule also makes several technical
and conforming changes to the appraisal
regulations. These changes are
discussed in more detail below, in the
order in which they appear in the rule.
The effective date for the rule will be
the first day after its publication in the
Federal Register, other than the
evaluation requirement for transactions
exempted by the rural residential
appraisal exemption and the appraisal
review provision, which will become
effective on January 1, 2020.
A. Threshold Increase for Residential
Real Estate Transactions
1. Definition of Residential Real
Estate Transaction. The agencies
proposed to define a residential real
estate transaction as a real estate-related
financial transaction secured by a single
1-to-4 family residential property and
specifically asked commenters whether
the proposed definition is appropriate.
The agencies received one comment
generally supporting the proposed
definition and one comment generally
opposing the definition, neither of
which included any detail regarding the
reasoning for the position. This
definition is consistent with current
references to appraisals for residential
real estate in the agencies’ appraisal
regulations and in Title XI, and the
definition of commercial real estate
transaction that was created in the
recent rulemaking to increase the
appraisal threshold for commercial real
estate (CRE) transactions (CRE
rulemaking).
30
Adding this definition
does not change any substantive
requirement, but provides clarity to the
regulation.
31
Therefore, the agencies are
adopting the definition of a residential
real estate transaction as proposed.
2. Threshold Level. The agencies
proposed increasing the residential real
estate appraisal threshold from $250,000
to $400,000. In determining the level of
increase, the agencies considered
increases in housing prices and general
inflation across the economy since the
current threshold was established in
1994. The agencies also considered
comments received during the EGRPRA
process and in response to questions
posed about the residential threshold in
the CRE rulemaking.
32
As discussed in
the proposal, the agencies analyzed the
Standard & Poor’s Case-Shiller Home
Price Index (Case-Shiller Index)
33
and
the FHFA Index
34
to determine changes
in house prices since 1994. The agencies
also analyzed general measures of
inflation by reviewing the Consumer
Price Index (CPI).
35
A residential property that sold for
$250,000 as of June 30, 1994, would be
expected to sell in March 2019 for
$643,750 according to the Case-Shiller
Index and $621,448 according to the
FHFA Index (see Table 1 below). The
agencies also considered housing prices
over the most recent financial cycle
which were generally at a low point in
2011. During the low point of the cycle,
in December 2011, a house that sold for
$250,000 in 1994 would have been
expected to sell for $445,152 in
December 2011, according to the Case-
Shiller Index and $414,629 according to
the FHFA Index.
T
ABLE
1—H
OUSE
P
RICE AND
I
NFLA
-
TION
A
DJUSTMENTS OF
$250,000
AT
J
UNE
30, 1994,
FOR THE
C
ASE
-
S
HILLER
I
NDEX AND THE
FHFA
I
NDEX
,
AND
J
ULY
1, 1994
FOR THE
CPI I
NDEX
Table 1
year Case-
Shiller FHFA CPI
1994 ...... 250,000 250,000 250,000
2006 ...... 578,813 511,636 341,109
2011 ...... 445,152 414,629 379,997
2019 ...... 643,750 621,448 429,240
The agencies adopted a conservative
approach and proposed a threshold of
$400,000 to approximate housing prices
based on the low point during the most
recent cycle. The proposed threshold
level is also consistent with general
measures of inflation across the
economy reflected in the CPI since
1994. The agencies invited comment on
the proposed level for the residential
real estate appraisal threshold.
The agencies received a number of
comments agreeing that the proposed
threshold level would be justified by
changes in real estate prices, inflation,
and the data presented by the agencies
in the proposal. Other commenters
supporting a threshold increase
supported a higher threshold, such as
$500,000. These commenters generally
asserted that doing so would be more
consistent with the data presented.
Some commenters also cited
consistency with the CRE appraisal
threshold as a justification for
increasing the residential real estate
threshold to $500,000. One commenter
supporting a higher threshold
questioned why the agencies did not
adjust from the lowest point in the most
recent cycle to account for price
appreciation up to a more recent date,
as was done in the CRE rulemaking.
Several commenters supportive of
increasing the threshold recommended
that the agencies either commit to
adjusting the threshold periodically, or
automatically adjust the threshold
periodically, to reflect changes in
housing values, market conditions or
inflation.
Some commenters opposing the
increase asserted that inflationary
changes are inadequate justifications for
increasing the appraisal threshold.
Some opposing commenters suggested
the agencies should either maintain the
current $250,000 threshold or lower the
threshold, with suggested ranges from
$100,000 or under to $275,000. Some
commenters suggested eliminating the
residential appraisal threshold
exemption entirely and requiring
appraisals for all residential real estate
transactions. A few commenters
suggested lower thresholds and that
transactions under the current and
proposed thresholds often pose risk to
financial institutions and to consumers.
Some of these commenters asserted that
many transactions involving defaults or
foreclosures are transactions below
$400,000.
Some commenters asserted that the
threshold should vary based on market
values in specific geographic areas, and
that a national threshold level is
inappropriate given differences in
property values across the country.
Some commenters suggested doing so
by basing the threshold on the GSE
conforming loan limits for specific
geographic areas. Several commenters
asserted that inflationary measures such
as the CPI are inappropriate measures
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12 U.S.C. 3341(b).
37
83 FR at 63116–63119.
38
Single-family properties include 1-to-4 family
and manufactured housing property types.
39
Transactions originated by regulated
institutions but sold to the GSEs or otherwise
insured or guaranteed by a U.S. government agency
are separately exempted from the agencies’
appraisal requirement. See OCC: 12 CFR 34.43(a)(9);
Board: 12 CFR 225.63(a)(9); FDIC: 12 CFR
323.3(a)(9). As described in the proposal, the
214,000 additional exempted transactions represent
only three percent of total HMDA originations in
2017 and, as also reflected in Table 2, 16 percent
of regulated transactions.
40
Numbers and dollar volumes are based on 2017
HMDA data. Originations with loan amounts greater
than $20 million are excluded. Subtotals may not
add to totals due to rounding.
on which to base the threshold because
they are not accurate indicators of
housing prices. One of these
commenters suggested that the
threshold be based on wage growth and
housing affordability. Two commenters
asserted that adjusting the $250,000
threshold based on changes in prices
would be inappropriate because that
level was not itself the result of an
inflation adjustment and was either
arbitrary or improper.
After carefully considering the
comments received, and for the reasons
discussed previously, the agencies have
decided to increase the residential real
estate appraisal threshold to $400,000,
as proposed. Increasing the appraisal
threshold for residential real estate
transactions to $400,000 approximates
more recent house prices and provides
an inflation adjustment to a threshold
that has not been increased since 1994.
The agencies based the beginning point
for this analysis on $250,000 because, as
discussed below, supervisory
experience with the $250,000 threshold
indicates that this threshold level did
not threaten the safety and soundness of
financial institutions.
The agencies acknowledge that the
data presented indicates that a house
sold in 1994 would sell for higher than
$400,000 today; however, the agencies
believe the more conservative approach
is appropriate. Setting the threshold
level to the low point of the most recent
cycle takes into consideration potential
price fluctuations to which financial
institutions that engage in residential
real estate lending could be exposed.
This approach also considers that a high
percentage of residential real estate
transactions is already captured by the
existing residential real estate threshold,
as reflected below in Table 2.
The agencies also concluded that
automatic adjustments to the threshold
or agency commitments to set timetables
for future threshold increases would not
be appropriate. The agencies already
periodically review their regulations to
identify outdated or unnecessary
regulatory requirements, such as
through the EGRPRA process, and can
consider any comments concerning the
thresholds through that process. In
addition, the agencies are required by
Title XI to weigh safety and soundness
implications regarding any proposed
threshold increase and obtain CFPB
concurrence. The other alternative
proposals suggested, such as varying the
threshold based on local housing prices
or wages, would add unnecessary
regulatory burden and complexity by
introducing numerous threshold levels
across the country.
3. Safety and Soundness
Considerations for Raising the
Residential Real Estate. Threshold.
Under Title XI, the agencies may set a
threshold at or below which a Title XI
appraisal is not required if they
determine in writing that such a
threshold level does not pose a threat to
the safety and soundness of financial
institutions.
36
In the proposal, the
agencies preliminarily determined that
the proposed threshold level for
residential real estate transactions
would not pose a threat to the safety and
soundness of financial institutions. The
preliminary determination was based on
supervisory experience regarding causes
of losses at financial institutions,
analysis of available Home Mortgage
Disclosure Act (HMDA) data, and the
fact that evaluations would be required
for transactions below the proposed
threshold.
37
The agencies invited
comment on their preliminary finding
that the proposed threshold would not
pose a threat to the safety and
soundness of financial institutions, as
well as the data used to support the
finding. After taking into account the
comments, discussed below, and
analyzing a range of data and
information, the agencies have
determined that the threshold level of
$400,000 for residential real estate
transactions does not represent a threat
to the safety and soundness of financial
institutions.
Agency staff used HMDA data to
estimate the number and dollar volume
of institutions’ residential real estate
transactions that would be affected by
the increased threshold. Table 2 below
shows the number and dollar volume of
transactions in 2017 that: (i) Would
have been exempted under the current
threshold; (ii) would be newly
exempted under the proposed threshold
increase; (iii) in total would be
exempted as a result of the proposed
threshold increase; and (iv) would not
be exempted following the proposed
threshold increase. The data are limited
to first-lien, single-family mortgage
originations
38
on residential properties
by FDIC-insured institutions and
affiliated institutions that are not sold to
the GSEs or otherwise insured or
guaranteed by a U.S. government agency
(‘‘regulated transactions’’).
39
T
ABLE
2—2017 HMDA
40
Regulated
transactions by transaction amount
Exempted by
current
threshold of
$250,000
Newly exempted
by proposed
increase to
$400,000
Total exempted
by proposed
increase to
$400,000
Total not
exempted by
proposed
increase to
$400,000
Number of Transactions .......................................................... 750,000 214,000 965,000 379,000
% of Total ................................................................................ 56% 16% 72% 28%
Dollar Volume ($billions) .......................................................... 96 68 164 305
% of Total ................................................................................ 20% 14% 35% 65%
The 2017 HMDA data suggests that
the $250,000 threshold currently
exempts approximately 20 percent of
the total dollar volume of regulated
transactions. Raising the threshold to
$400,000 will exempt an additional
estimated 14 percent of the dollar
volume, thus increasing the share of the
dollar volume of regulated transactions
that are exempt to approximately 35
percent.
The agencies reviewed HMDA data to
measure the percent of regulated
transactions exempted in 1994 when the
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In both the 1994 and 2017 HMDA analyses, the
agencies excluded transactions originated by
nonbanks or transactions sold to the GSEs or
otherwise insured or guaranteed by a U.S.
government agency because those transactions are
already subject to other exemptions in the appraisal
regulations. When discussing the impact of the
threshold increase from $100,000 to $250,000, the
preamble to the 1994 rule noted that information
from the National Association of Realtors, the
Census Bureau, and the Department of Housing and
Urban Development indicated that 85 percent of the
dollar volume of mortgages financing new homes
and 82 percent of the volume of mortgages
financing purchases of existing homes would fall
below the $250,000 threshold. See 59 FR at 29486.
The agencies reviewed the data used in 1994 and
determined that the information reviewed by the
agencies did not appear to exclude transactions
originated by nonbanks or transactions sold to the
GSEs or otherwise insured or guaranteed by a U.S.
government agency, thus, necessitating the
additional analysis.
42
As noted above, in estimating the impact of the
threshold increase on institutions, the agencies
attempted to exclude from the HMDA data analysis
residential transactions that were already exempt
from the appraisal regulations, including those sold
to the GSEs. The agencies recognize that the
analysis may not have excluded all GSE-related
transactions exempted from the appraisal
regulations, as the regulations exempt not just
transactions sold to the GSEs, but all transactions
that qualify for sale to a GSE or U.S. government
agency. OCC: 12 CFR 34.43(a)(10)(i); Board: 12 CFR
225.63(a)(10)(i); FDIC: 12 CFR 323.3(a)(10)(i). The
agencies do not currently have the ability to
accurately determine which transactions not sold to
a GSE or U.S. government agency actually qualified
for sale. Even assuming that a number of
transactions fall into this category, the agencies
believe the threshold increase will produce burden
relief for regulated institutions.
43
For the purposes of the HMDA analysis, a
property is considered to be located in a ‘‘rural’’
area if it is in a county that is neither in a
metropolitan statistical area nor in a micropolitan
statistical area that is adjacent to a metropolitan
statistical area, based on 2013 Urban Influence
Codes (UIC) published by the United States
Department of Agriculture. Any loans from Census
tracts that are missing geographical identifiers or
undefined in the 2013 UIC have been excluded
from the analysis of burden relief in rural areas.
44
See OCC: 12 CFR 34.43(b); Board: 12 CFR
225.63(b); FDIC: 12 CFR 323.3(b).
threshold was raised from $100,000 to
$250,000 as compared to raising the
threshold from $250,000 to $400,000.
The data show that increasing the
threshold from $100,000 to $250,000 in
1994 resulted in an estimated 77 percent
of the total dollar volume of regulated
transactions being exempt.
41
By
comparison, as referenced above in
Table 2, 2017 HMDA data indicates that
increasing the threshold from $250,000
to $400,000 will result in an estimated
35 percent of the total dollar volume of
regulated transactions being exempt. As
stated in the proposal, the threshold
increase will exempt a much smaller
percentage of regulated transactions by
dollar volume.
In the proposal, the agencies
requested comment on whether the
proposed level of $400,000 for the
threshold would be appropriate from a
safety and soundness perspective, and
on what sources of data would be
appropriate for the safety and soundness
analysis. In general, commenters who
supported the proposed increase in the
threshold viewed the data presented in
the proposed rule as supporting the
increase, while commenters opposed to
the increase found the data insufficient.
A number of commenters noted that
the scope of the threshold had
decreased significantly since it was
established in 1994 due to inflation in
home values. As such, they argued that
an increase in the threshold would be
justified to align the threshold with its
1994 scope. Other commenters
expressed concern that the proposed
threshold level would exempt too high
a percentage of residential transactions
from the protections provided by
appraisals. These commenters focused
on the percentage of residential
transactions that would be affected,
either on a national basis or based on
specific geographic areas. Many such
commenters cited data indicating that
the proposed threshold of $400,000 is
well above median home prices
nationally and would exempt a large
majority of residential transactions in
specific areas. One commenter indicated
that only 17 metropolitan statistical
areas have a median sales price for
single-family homes that exceeds
$400,000. Several commenters cited to
sources of data that indicated lower
median home prices than the sources
cited in the proposal.
A number of commenters requested
that the agencies conduct alternative
analyses and pointed out that the
agencies did not analyze the local or
regional markets affected by the increase
nor the impact on particular borrowers
or communities. Some commenters
called for further study of home prices
by region and metro area and for the
agencies to show which markets would
be most affected by the threshold
increase. In particular, commenters
requested that the agencies analyze the
effect of the proposed increase in the
threshold in dynamic markets and
compare its effect in urban versus rural
areas. One commenter indicated that
HMDA data are the wrong source of
information for evaluating the impact of
the threshold on rural areas, given that
certain low volume originators in rural
areas are not required to report HMDA
data.
Based on the agencies’ supervisory
experience and analysis, as discussed in
more detail below, the current threshold
has not negatively impacted safety and
soundness, and the agencies do not
believe raising the threshold to $400,000
will present a safety and soundness
concern. Although several commenters
were concerned that the agencies had
not analyzed the effects on local markets
or particular communities, the agencies’
supervisory experience with the current
threshold since 1994 suggests that this
incremental increase will not negatively
affect safety and soundness on the local
or national level based on loss rates for
residential real estate loans as discussed
below and observations during
examinations.
Moreover, the 2017 HMDA data also
suggests that, though the impact on the
total dollar volume of exempted
transactions would be somewhat
limited, the number of exempted
transactions would increase materially
and provide cost savings and regulatory
burden relief for financial institutions.
As shown in table 2 above, the agencies
estimate that the increase would exempt
an additional 214,000 transactions and
thus raise the share of the number of
regulated transactions that would be
exempt from 56 percent to 72 percent.
This analysis of the 2017 HMDA data
indicates that the increased threshold
will affect a low aggregate dollar volume
but a material number of transactions,
suggesting the potential for financial
savings and burden relief with limited
additional risk.
42
Further, as covered in the proposal,
the 2017 HMDA data show that the rule
would provide significant burden relief
in rural areas. The agencies estimate
that increasing the appraisal threshold
to $400,000 would potentially increase
the share of exempted transactions from
82 percent to 91 percent of the number,
and from 43 percent to 58 percent of the
dollar volume, of regulated transactions
that were secured by residential
property located in a rural area.
43
a. Use of Evaluations. The Title XI
appraisal regulations require regulated
institutions to obtain evaluations for
several categories of real estate-related
financial transactions that the agencies
have determined do not require a Title
XI appraisal, including transactions at
or below the current thresholds.
44
Accordingly, the agencies proposed to
require that regulated institutions
entering into residential real estate
transactions at or below the proposed
residential real estate appraisal
threshold obtain evaluations that are
consistent with safe and sound banking
practices unless the institution chooses
to obtain an appraisal for such
transactions. The agencies requested
comment on use of evaluations instead
of appraisals for residential real estate
transactions.
In general, commenters who
supported the increase in the threshold
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12 U.S.C. 3354(b).
46
An evaluation is not necessary if the
transaction qualifies both for the new threshold and
for another exemption that does not require an
evaluation.
47
OCC: 12 CFR 34.43(b); Board: 12 CFR
225.63(b); FDIC: 12 CFR 323.3(b).
48
See supra notes 23 and 24. See also Frequently
Asked Questions on the Appraisal Regulations and
the Interagency Appraisal and Evaluation
Guidelines (October 16, 2018), OCC Bulletin 2018–
39; Board SR Letter 18–9; FDIC FIL–62–2018.
49
Y–14 data. Bank holding companies and
intermediate holding companies with $50 billion or
more in total consolidated assets are required to
submit a quarterly Capital Assessments and Stress
Testing (FR Y–14M) reports and schedules, which
collect granular data on institutions’ various asset
classes, including residential real estate loans.
50
15 U.S.C. 1631; 12 CFR 226.42.
51
12 CFR 226.42.
52
Guidelines, Section V.
53
See Supervisory Guidance on Model Risk
Management (April 4, 2011), OCC Bulletin 2011–12;
Board SR Letter 11–7; FDIC FIL–22–2017 (adopted
by the FDIC in 2017 with technical and conforming
also viewed evaluations as providing
sufficient valuation information and
analysis for financial institutions and
consumers to engage in safe and sound
residential real estate transactions.
Those opposed to the increase in the
threshold generally argued that
evaluations would not provide enough
support for these transactions and
would pose a threat to financial
institutions and consumers.
Commenters in support of the
proposal asserted that there would be
little impact to safety and soundness by
relying on evaluations instead of
appraisals. Some financial institutions
commented that they had found
evaluations to generally contain
sufficient information and analysis to be
the basis for lending decisions. Several
commenters noted that financial
institutions are only allowed to use
evaluations when doing so is consistent
with safety and soundness and that the
institution always retains the discretion
to seek an appraisal. Some of these
commenters also asserted that they have
adequate programs and policies to
ensure that evaluations are used
prudently.
Many commenters opined that
appraisals are more accurate and
reliable sources of valuation information
than evaluations because they are done
by professionals with strict training
requirements and who are subject to
state credentialing and disciplinary
review for poor quality work. In
contrast, commenters noted there are no
standardized requirements for those
who perform evaluations. Commenters
also noted that appraisals are required
to follow established requirements as
provided by USPAP, which guarantees
a certain level of information and
quality, whereas evaluations lack
standard requirements for information
or structure. Some of these commenters
expressed particular concern about
homes in rural areas that tend to have
unusual features or fewer comparable
properties and thus are harder to value.
Some commenters also raised concerns
about the use of evaluations on homes
that may need repairs, suggesting that
evaluations may not uncover these
issues.
Many commenters argued that
appraisers are the only independent
third party in a real estate transaction
and that only appraisers’ opinions are
independent and unbiased. These
commenters represented that those who
perform evaluations often do not have
the same level of independence from the
transaction. Some commenters asserted
that appraisals provide more accuracy
than evaluations because they include a
physical inspection of the property. In
contrast, some commenters who were
providers of evaluation services
indicated that they typically include a
physical inspection of the property in
their product. A few commenters
suggested that evaluations are subject to
less regulatory scrutiny than appraisals.
Commenters also opined about the
use of automated valuation models
(AVMs) in the performance of
evaluations. Many commenters felt that
AVMs are unreliable and expressed
concern that raising the threshold could
lead to greater reliance on AVMs. Some
of these commenters asserted that it
would be inappropriate for the agencies
to expand the residential real estate
transaction threshold before issuing
quality control standards for AVMs, as
required by Title XI.
45
In contrast, some
commenters believed that AVMs could
provide valuable information, and that
improvements in technology and greater
availability of information has improved
the quality of evaluations. One
commenter indicated that AVMs are
more predictive of default than
appraisals. Another indicated that
evaluations based on AVMs are
generally more objective than appraisals
because they are not skewed by
knowledge of the contract price.
The agencies are adopting this aspect
of the final rule without change. As is
the case currently for transactions under
the threshold exemptions, evaluations
will be required for transactions
exempted by the new threshold that do
not receive appraisals.
46
Although the
agencies recognize, as many
commenters noted, that evaluations are
not subject to the same uniform
standards as appraisals in terms of
structure and content or the preparer’s
training and credentialing requirements,
evaluations must be consistent with safe
and sound banking practices.
47
The
agencies have provided the Evaluation
Guidance to assist institutions in
complying with this requirement.
48
The
Evaluation Guidance provides
information to help ensure that
evaluations provide a credible estimate
of the market value of the property
pledged as collateral for the loan. For
instance, the Evaluation Guidance states
that, generally, evaluations should be
performed by persons who are
competent, independent of the
transaction, and have the relevant
experience and knowledge of the
market, location, and type of real
property being valued.
Although some commenters
expressed concern that raising the
threshold would cause financial
institutions to feel pressured to use
evaluations whenever possible in order
to remain competitive, data analyzed by
the agencies suggests that financial
institutions are generally using caution
when determining when evaluations are
suitable for a given transaction. A five-
year review of supervisory information
on the use of appraisals and evaluations
by large financial institutions found
larger lenders obtained appraisals on 74
percent of portfolio residential real
estate originations at or below the
current $250,000 threshold.
49
These
data suggest that financial institutions
are often exercising discretion in
determining when to use evaluations
and are not automatically using
evaluations whenever permitted.
Further, individuals performing
evaluations are expected to be
independent of the transaction. The
agencies note that many evaluations of
residential properties that are a
consumer’s principal dwelling are
covered by the valuation independence
requirements of section 1472 of the
Dodd-Frank Act and its implementing
regulation.
50
Among other
requirements, this regulation prohibits
conflicts of interest and coercion in the
preparation of any opinion of value and
prohibits preparers of opinions of value
from materially misrepresenting the
value of the property.
51
In addition, the
agencies have issued guidance to help
institutions ensure that they have the
proper controls to fulfill independence
expectations.
52
Regarding concerns about AVM use,
the agencies note that, while financial
institutions may use AVMs in preparing
evaluations, any evaluation in which
they are used must be consistent with
safe and sound practices. The agencies
have published guidance to help ensure
that financial institutions’ use of AVMs
is consistent with this requirement.
53
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changes)); Guidelines, Appendix B. The agencies
note that many commenters suggested that
appraisers, unlike those who perform evaluations,
cannot be employees of the financial institution
making the loan. However, appraisers are permitted
to be employees of the lender provided that the
independence requirements in the agencies’ rules
are met. OCC: 12 CFR 34.45(a); Board: 12 CFR
225.65(a); FDIC: 12 CFR 323.5(a).
54
The Reports of Examination data reviewed
related to both commercial and residential real
estate lending valuations and valuation programs of
supervised institutions.
55
Guidelines, Section XI.
56
Evaluations Advisory at 2.
b. Analysis of Loss Rates. When
considering the threshold increase’s
potential impact on safety and
soundness, the agencies considered a
loss analysis of aggregate net charge-off
rates for residential real estate loans
after the last increase in the appraisal
threshold in 1994. The agencies’
analysis of the charge-off rates offered
no evidence that increasing the
appraisal threshold to $400,000 for
residential real estate transactions
would materially increase the risk of
loss to financial institutions. The
agencies requested comment on this
analysis of the charge-off data.
Several commenters noted that the
agencies’ loss analysis did not reflect
any significant change in the loss
history for residential real estate
transactions after the threshold was
increased from $100,000 to $250,000 in
1994. Other commenters requested
alternative analyses of charge-off rates,
specifically data on foreclosures and
losses based on loan amount, as
opposed to aggregate net charge-off data.
These commenters asserted that the
aggregate data could include loans not
eligible for the exemption or loans
exempted on other grounds. A few
commenters recommended that the
agencies compare loan-level foreclosure
rates for their use of appraisals and
evaluations to determine if a correlation
exists between the use of evaluations
and foreclosures.
As noted in the proposal, a historical
review of loss data demonstrates that
the net charge-off rate for residential
real estate transactions did not increase
after the appraisal threshold was raised
from $100,000 to $250,000 in June 1994,
indicating the 1994 threshold increase
did not have a negative impact on the
safety and soundness of regulated
institutions. The historical loss
information in the Reports of Condition
and Income (Call Reports) also shows
that the net charge-off rate for
residential real estate transactions
remained relatively unchanged after the
increase in the threshold in 1994
through year-end 2007. While the net
charge-off rate for residential real estate
transactions escalated significantly from
2008 through 2013 during the financial
crisis, the agencies primarily attribute
this to weak underwriting standards in
the lead up to the crisis.
Based on the net charge-off data,
which suggest that the increase in the
appraisal threshold in 1994 did not have
a material effect on the loss experience
associated with residential real estate
loans, the agencies believe the increase
to $400,000 will not lead to increases in
charge-off rates.
c. Supervisory Experience. In addition
to analyzing net charge-off rates for
residential real estate transactions, the
agencies also considered their own
supervisory experience with appraisals
and evaluations. The agencies’
experience in supervising appraisal and
evaluation programs and practices since
the enactment of FIRREA indicates that
increasing the threshold would not
threaten the safety and soundness of
financial institutions. The agencies have
found that both appraisals and
evaluations prepared properly can be
credible tools to support real estate
lending decisions.
As part of the agencies’ consideration
of the safety and soundness
implications of the proposed threshold
increased, the agencies reviewed safety
and soundness Reports of Examination.
Regarding examination experience, the
agencies reviewed Reports of
Examination of their respective
supervised institutions from January
2017 to December 2018 for examiner
findings regarding appraisals and
evaluations.
54
Both appraisals and
evaluations were cited in examiner
findings, however, the overall amount
and nature of valuation-related
examination findings support a
conclusion that the proposed threshold
increase would not threaten the safety
and soundness of financial institutions.
The agencies have a long history with
evaluations as an alternative valuation
tool. The agencies have implemented
examination procedures to frame their
review of an institution’s valuation
practices and the sufficiency of the
supporting information in evaluations,
as appropriate for the size and nature of
the institution’s residential real estate
lending activities. The agencies have
used these procedures to assess the use
of evaluations and ensure that they are
prepared according to safety and
soundness principles and will continue
to examine institutions’ evaluation
policies and practices. The fact that
evaluations, which will continue to be
subject to supervisory oversight, will be
required for transactions at or below the
increased threshold supports the
conclusion that increasing the
residential real estate appraisal
threshold to $400,000 will not pose a
threat to safety and soundness.
d. Additional Protections. In
proposing to raise the residential real
estate appraisal threshold, the agencies
noted that institutions may elect to
obtain appraisals for transactions that
fall under the threshold, even though an
evaluation would also be permitted. In
the supervisory experience of the
agencies, a financial institution may
choose to obtain appraisals for exempt
transactions based on the risks
associated with a particular transaction
or to preserve the flexibility to sell
residential loans in the secondary
market. The agencies requested
comment on the question of whether
and when institutions use appraisals
even if not required to do so by the
appraisal regulations.
Several commenters indicated that
institutions follow risk-based internal
policies to determine whether to obtain
an appraisal, including for transactions
that fall under one of the exemptions
from the appraisal regulations. One
commenter provided survey data
suggesting that the majority of lenders
in one state often obtain appraisals for
loans that fall below the current
threshold. On the other hand, some
commenters asserted that lenders would
feel competitive pressure to use more
evaluations if the threshold were raised
and that the agencies lacked data on
how often lenders use evaluations when
permitted.
The agencies expect regulated
institutions to continue using a risk-
focused approach when considering
whether to order an appraisal for
transactions that fall below the
threshold. The Guidelines encourage
institutions to establish appropriate
policies and procedures for determining
when to obtain an appraisal in
connection with transactions for which
an evaluation is permitted.
55
Similarly,
the Evaluations Advisory suggests it
would be prudent to obtain an appraisal
rather than an evaluation when an
institution’s portfolio risk increases or
for higher-risk transactions.
56
As
detailed above, data reviewed by the
agencies found that lenders often choose
to obtain appraisals, even when
evaluations are permitted for
transactions at or below the current
$250,000 threshold.
In addition to the additional safety
and soundness protection provided by
the risk-based approach to valuations,
the agencies note that each agency has
the ability under the appraisal
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57
OCC: 12 CFR 34.43(c); Board: 12 CFR 225.63(c);
FDIC: 12 CFR 323.3(c).
58
OCC: 12 CFR 34.43(b); Board: 12 CFR
225.63(b); FDIC: 12 CFR 323.3(b).
59
Guidelines, Section XIII.
60
Evaluations Advisory at 2.
61
Guidelines, Section V.
regulations to require an appraisal
whenever it is necessary to address
safety and soundness concerns.
57
This
authority allows the agencies to require
appraisals for exempt transactions, for
example, where an institution
demonstrates weakness in the safe and
sound use of evaluations for exempt
transactions.
4. Consumer Protection
Considerations. In proposing the
increase in the appraisal threshold for
residential transactions, the agencies
noted that evaluations can provide
consumer protections. The agencies
noted that evaluations have long been
required for below-threshold
transactions; must be consistent with
safe and sound banking practices;
58
and
should contain sufficient information
and analysis to support the decision to
engage in the transaction,
59
although
they may be less structured than
appraisals. In the proposal, the agencies
also highlighted that the Guidelines and
the Evaluations Advisory
60
provide that
individuals preparing evaluations
should be qualified, competent, and
independent of the transaction and the
loan production function of the
institution.
61
For these reasons, the
agencies posited that evaluations could
provide a level of consumer protection
for transactions at or below the
proposed appraisal threshold.
The agencies requested comment
generally regarding any implications of
the proposed rule on consumer
protection. In addition, the agencies
asked commenters for specific
information about the potential cost and
time savings to consumers that may
result from the increased use of
evaluations versus appraisals and
whether information in evaluations
would be sufficiently clear to enable the
consumer to make an informed
decision. The agencies also requested
comment on the availability of valuation
information to consumers through
public sources and whether information
from those sources help provide
consumers with additional protection in
residential transactions. Finally, the
agencies requested comment on
challenges, if any, that financial
institutions may have in meeting the
requirements and standards for
independence for evaluations prepared
by internal staff or external third parties.
In general, commenters that
supported the proposed threshold and
commented on consumer protection
issues indicated that evaluations
provide consumers with sufficient
protection in a residential real estate
transaction. Many commenters who
opposed the increased threshold
indicated that evaluations are
inadequate substitutes for appraisals
and therefore an increased threshold
would pose a threat to consumer
protection.
Many commenters opposed to an
increase in the threshold argued that
appraisers are the only objective and
unbiased party in a transaction and
bring checks, balances, and oversight to
the mortgage lending process. Some of
these commenters based this assertion
on the legal requirement for appraiser
independence and the professional
standards to which appraisers are held.
These commenters also argued that
individuals preparing evaluations are
often not disinterested third parties
because they are employed by the
lender. Several commenters asserted
that evaluations are usually performed
by individuals who, unlike appraisers,
are not credentialed valuation
professionals subject to standardized
training and experience requirements.
A number of commenters suggested
that inadequate property valuations and
undue influence on appraisers
contributed to property overvaluation
during the most recent financial crisis,
with adverse impacts for consumers.
They indicated that the Dodd-Frank Act
strengthened protections regarding
appraisals, including federal oversight
provisions, and that a number of these
protections do not apply to evaluations
that are not conducted by appraisers. On
the other hand, commenters who
supported the proposed increase in the
threshold argued that evaluations are a
safe alternative to appraisals, with some
noting that individuals who prepare
evaluations are also required to be
independent under federal law, as
discussed further below.
Many commenters who opposed a
threshold increase on consumer
protection grounds asserted that
evaluations are not subject to uniform
standards and are not a meaningful
substitute for an appraisal that must be
conducted in compliance with USPAP.
A number of commenters questioned
the reliability of valuation methods
other than appraisals, particularly
AVMs and evaluations. Other
commenters suggested that the proposal
would cause consumers to lose the
benefit of appraisers performing a
physical inspection and an analysis of
specific property features, including
property maintenance and repair issues
that can affect the property value.
Some commenters in favor of a
threshold increase asserted that
evaluations protect consumers by
helping to ensure the property’s value
supports the purchase price. In this
regard, one commenter indicated that
evaluations must be consistent with safe
and sound banking practices and,
according to agency guidelines, they
should provide supporting information
and an estimate of market value. One
commenter in favor of a threshold
increase raised concerns that appraisals
may provide a false sense of protection
to consumers who incorrectly assume
their property can be sold for the
appraised market value if they
encounter financial difficulties. A few
commenters that supported an increase
argued that neither appraisals nor
evaluations are consumer protection
tools for homebuyers, asserting that both
are received after prospective buyers
have entered into a purchase and sale
agreement (PSA) to purchase the
residential property at a specified price.
Some commenters that opposed an
increase in the residential threshold
argued that, unlike for faulty appraisals,
consumers do not have any recourse for
faulty evaluations. Some commenters
noted that consumers may file an
official complaint with a state’s
appraiser board to address an inaccurate
appraisal, which is not an option for
addressing an inaccurate evaluation
performed by a non-appraiser. In
addition, one commenter questioned
whether evaluations could be used to
renegotiate or cancel PSAs under an
appraisal contingency clause.
A number of commenters opposed to
a threshold increase asserted that
appraisals are easier for consumers to
understand than evaluations. Some
commenters noted the standardized
requirements of a USPAP-compliant
appraisal report provide information in
a consistent manner and ensure that the
user has enough information to
understand the conclusions in the
report. Some commenters opposed to an
increase raised concerns that free online
valuation information and tools may be
flawed due to, for example, their
reliance on public records with data
entry errors.
One commenter in favor of an
increased threshold indicated that
evaluations are often easier for
consumers to read and understand,
asserting that they typically explain the
comparisons with other recent sales in
‘‘plain English.’’ Some commenters
generally in favor of an increase noted
that consumers have access to a wide
array of readily available valuation
information, and may also voluntarily
obtain appraisals.
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62
In the Dodd-Frank Act, Congress amended the
threshold provision to require ‘‘concurrence from
the Bureau of Consumer Financial Protection that
such threshold level [established by the agencies]
provides reasonable protection for consumers who
purchase 1–4 unit single-family residences.’’ 12
U.S.C. 3341(b).
63
See Interim Final Rule for Valuation
Independence, 75 FR 66554 (October 28, 2010) and
75 FR 80675 (December 23, 2010), Board: 12 CFR
226.42; CFPB: 12 CFR 1026.42 (implementing
valuation independence amendments to the Truth
in Lending Act (TILA), 15 U.S.C. 1601 et seq., by
Dodd-Frank Act section 1472, 15 U.S.C. 1639e).
64
Board: 12 CFR 226.42(c)(1); CFPB: 12 CFR
1026.42(c)(1).
65
See Board: 12 CFR 226.42(c)(2), (d); CFPB: 12
CFR 1026.42(c)(2), (d).
66
Valuation management functions include:
‘‘Recruiting, selecting, or retaining a person to
prepare a valuation’’; ‘‘contracting with or
employing a person to prepare a valuation’’;
‘‘managing or overseeing the process of preparing
a valuation, including by providing administrative
services such as receiving orders for and receiving
a valuation, submitting a completed valuation to
creditors and underwriters, collecting fees from
creditors and underwriters for services provided in
connection with a valuation, and compensating a
person that prepares valuations’’; and ‘‘reviewing or
verifying the work of a person that prepares
valuations.’’ 12 CFR 1026.42(b)(4).
67
See 15 U.S.C. 1640.
68
Guidelines, Section XII.
69
See 12 CFR 1002.14, 78 FR 7216 (January 31,
2013) (implementing amendments to the Equal
Credit Opportunity Act (ECOA), 15 U.S.C. 1691 et
seq., by Dodd-Frank Act section 1474, 15 U.S.C.
1691(e)).
Numerous commenters opposed to a
threshold increase asserted that an
increase to the appraisal threshold
would have a disproportionately
negative impact on more at-risk
consumers, such as low-income
individuals, members of certain
minority groups, or first-time
homebuyers, because at-risk borrowers
are more likely to purchase homes
priced in lower ranges and, therefore,
are more likely to enter into residential
transactions without the benefit of an
appraisal. Some commenters asserted
that first-time homebuyers are among
the consumers least able to manage
financial risk, and are most in need of
consumer protections. According to
several of these commenters, this is
because first-time homebuyers typically
use a substantial portion of their savings
for the down payment or obtain
mortgages with high loan-to-value
ratios.
In adopting the threshold increase for
residential mortgage loans as proposed,
the agencies appreciate and have
considered the consumer protection
issues and concerns raised by the
commenters. Based on their supervisory
experience with evaluations since 1994,
the agencies have found that both
appraisals and evaluations can protect
consumers by facilitating the informed
use of credit and helping to ensure the
estimated value of the property supports
the purchase price and mortgage
amount. Further, the agencies consulted
with the CFPB throughout the
development of the proposal and final
rule and, as required by Title XI,
62
have
received concurrence from the CFPB
that the residential real estate appraisal
threshold being adopted provides
reasonable protection for consumers
who purchase 1–4 unit single-family
residences.
In response to the comments
concerning valuation independence, the
agencies have long recognized that
evaluations prepared by competent and
independent preparers can provide
credible valuation information for
residential real estate transactions. In
addition, the Dodd-Frank Act contained
provisions that addressed independence
requirements applicable to ‘‘valuations’’
for consumer-purpose mortgages
secured by a consumer’s principal
dwelling. The Valuation Independence
Rule,
63
which implements the Dodd-
Frank Act independence provisions,
states that ‘‘no covered person shall or
shall attempt to directly or indirectly
cause the value assigned to the
consumer’s principal dwelling to be
based on any factor other than the
independent judgment of a person that
prepares valuations, through coercion,
extortion, inducement, bribery, or
intimidation of, compensation or
instruction to, or collusion with a
person that prepares valuations or
performs valuation management
functions.’’
64
Additionally, the rule
prohibits mischaracterizations of
property value and conflicts of interest
for persons preparing valuations or
performing valuation management
functions.
65
These independence
requirements extend to appraisals,
evaluations, and other estimations of
value and encompass not only
individuals preparing such valuations
but also those performing valuation
management functions.
66
The failure to
comply with the independence
requirements in the Valuation
Independence Rule can result in civil
liability.
67
In response to comments concerning
on-site inspections of real estate, the
agencies note that USPAP does not
require appraisers to inspect the subject
property and that some appraisers use
third parties to conduct inspections. As
such, not all appraisals include
inspections. As with appraisals, the
agencies note that when financial
institutions obtain an evaluation, the
evaluation will often include a physical
property inspection, which can provide
a prospective buyer with relevant
information about a property’s
condition. Evaluations, like appraisals,
should contain sufficient information
and analysis to support the institution’s
decision to engage in a credit decision,
including information relating to the
actual physical condition and
characteristics of the property, as
discussed in the Guidelines.
68
The
individual who is performing the
evaluation should determine whether a
physical property inspection is
necessary to support the property’s
value. Based on the agencies’
supervisory experience with appraisals
and evaluations since 1994, the agencies
believe that property inspections done
by appropriately trained individuals for
either appraisals or evaluations can
provide prospective buyers with
detailed information regarding a
property’s condition and features, may
provide consumer protection, and can
help ensure that appraisals or
evaluations are consistent with safe and
sound banking practices.
The agencies recognize that some
consumers may seek to include
appraisal contingency clauses in PSAs.
However, the threshold exemption does
not affect the ability to enter into these
arrangements. One commenter
suggested that evaluations may not
constitute appraisals for purposes of
appraisal contingency clauses and may
cause confusion to consumers opting for
these contingencies. The agencies are
not aware of any such issues regarding
the current threshold, which already
exempts a significant portion of
residential real estate transactions. In
this regard, the agencies do not have
reason to believe that the incremental
increase in exempted transactions will
create consumer protection concerns
related to PSAs. With respect to
consumer recourse for faulty
evaluations, available information from
entities that use or provide evaluations
indicates that lenders often order
appraisals when disputes arise with
evaluations, so the agencies do not
expect the proposal to materially affect
options for consumer recourse.
Regarding the impact of the threshold
increase on consumers’ understanding
of and access to valuation information,
the agencies note that lenders must
provide a copy of all appraisals and
written valuations developed in
connection with an application for a
first-lien loan secured by a dwelling,
69
which includes both appraisals and
evaluations. In addition, although all
sources of publicly available valuation
information might not always accurately
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OCC: 12 CFR part 34, subpart G; Board: 12 CFR
226.43; FDIC (through adoption of CFPB rule): 12
CFR 1026.35(c). The FDIC adopted the HPML Rule
as published in the CFPB’s regulation. See 78 FR
10368–01, 10370 (December 26, 2013). Exemptions
from the requirements of the HPML Rule include,
among others, ‘‘qualified mortgages’’ under 15
U.S.C. 1639c (implemented by the CFPB at 12 CFR
1026.43); reverse mortgages subject to 12 CFR
1026.33; and certain refinancings. See OCC: 12 CFR
34.203(b); Board: 12 CFR 226.43(b); FDIC (through
adoption of CFPB rule): 12 CFR 1026.35(c)(2).
Exemptions from the requirement for two appraisals
for certain transactions include, among others,
extensions of credit that finance a consumer’s
acquisition of property located in a rural county, as
defined in 12 CFR 1026.35(b)(2)(iv)(A). See OCC: 12
CFR 34.203(d)(7)(H); Board: 12 CFR 226.43(d)(7)(H);
FDIC (through adoption of CFPB rule): 12 CFR
1026.35(c)(4)(vii)(H).
71
See Guidelines, Section XI.
reflect the market value of a particular
property, consumers can use a variety of
available information to learn more
about the availability of and the
potential range of values for properties
in a particular area or market. Moreover,
although limited in scope, the higher-
priced mortgage loan rule (HPML
rule),
70
as adopted by the agencies,
requires lenders for certain HPMLs
secured by a consumer’s principal
dwelling to obtain an appraisal—and in
some cases two appraisals—that include
an interior property visit, and provide
free copies to the consumer. The HPML
Rule applies to certain higher-risk
transactions. Thus, for a select group of
loans, the HPML Rule assures that the
information in an appraisal will be
available for some of the consumers
who might be more likely to fall into the
at-risk categories mentioned by
commenters as being most affected by
the threshold increase.
Finally, the agencies note that even
when the transaction amount is at or
below the threshold, the Guidelines
71
encourage regulated institutions to
establish policies and procedures for
obtaining Title XI appraisals when
necessary for risk management. As
discussed above, the FR Y–14M data
reviewed by the agencies found that
lenders included in the data obtained
appraisals on 74 percent of residential
real estate loans of $250,000 and below
that were held in portfolio. These
empirical data indicate that lenders
generally obtain appraisals for a
majority of residential real estate
transactions for which the agencies’
appraisal regulations permitted an
evaluation. These data are also
consistent with some commenters’
assertions that lenders would continue
to use a risk-based approach in
determining whether to obtain an
evaluation or an appraisal for a
particular transaction, regardless of the
threshold amount. Further, consumers
may voluntarily obtain appraisals
regardless of whether the regulated
institution is required to do so.
5. Reducing Burden Associated with
Appraisals. In proposing the increase in
the residential appraisal threshold, the
agencies considered that the increased
use of evaluations would likely reduce
the time and costs associated with
residential real estate transactions,
which in turn would reduce burden for
financial institutions and consumers.
The agencies invited comment on the
cost and time associated with
performing and reviewing evaluations
as compared to Title XI appraisals. The
agencies also invited comment on the
appropriateness of the data used in the
proposal and requested any suggestions
for alternative sources of data.
The agencies received a number of
comments indicating that the proposed
increase in the residential real estate
appraisal threshold would result in cost
and time savings for consumers and
regulated institutions. Several
commenters concurred with the
agencies’ cost estimates in the proposal.
One commenter indicated that
evaluation tools provide accurate
valuation information at approximately
half the cost of an appraisal. Another
commenter estimated that an evaluation
could cost between 20 and 50 percent of
the price of a comparable appraisal, and
that an evaluation can generally be
delivered in one to five days while an
appraisal may take between five and
twenty-one days. Another commenter
asserted that evaluations typically cost
about $100 less than appraisals. One
commenter noted that evaluations are
often performed by bank employees, in
which case the customer is not typically
charged for the service, and that when
the lender obtains an evaluation from a
third-party provider (as opposed to
using its own employee), borrowers may
still save approximately 50 percent.
Some commenters also asserted that the
proposed threshold increase would
reduce the time needed for appraisal
review. The agencies received several
comments from financial institutions,
financial institution trade associations,
and state regulators asserting that the
proposals would particularly reduce
delays and costs in rural areas that may
be experiencing a shortage of state
licensed or state certified appraisers.
Two of these commenters specifically
asserted that a broadly applicable
threshold increase to $400,000, rather
than the more limited rural residential
appraisal exemption, is appropriate
because it would provide additional
burden relief by eliminating
unnecessary qualifying criteria. One of
these commenters, a financial
institution trade association from a large
state, asserted that the rural residential
appraisal exemption would not apply to
transactions in areas representing 86
percent of the state’s population, and
that the proposed threshold increase
thus would provide additional burden
relief in the state beyond what was
provided by the rural residential
appraisal exemption.
Other commenters questioned how
much relief the proposal would provide.
Some commenters noted the agencies’
acknowledgement that there is limited
information on the cost and time burden
of evaluations versus appraisals and
urged the agencies to obtain additional
data to quantify any expected savings.
Several commenters noted that the cost
of an appraisal is relatively small
compared to other financing costs in the
transaction such as the fees charged by
banks and brokers. Some of these
commenters also suggested that any cost
savings to consumers would be
outweighed by the financial harm that
could result from purchasing a home
without an estimate of value provided
by an appraiser. One commenter
indicated that evaluations may take
longer to review than appraisals.
Another argued that even if an appraisal
takes longer to review, the time
difference is not significant and would
not delay a loan closing. Some
commenters questioned the need for,
and appropriateness of, the proposed
threshold increase in light of the rural
residential appraisal exemption.
Several commenters challenged the
agencies use in the proposal of the
Department of Veterans Affairs (VA)
appraisal fee schedule as support for
their analysis of potential cost savings,
arguing that the $600 average cost noted
in the proposal based on the VA fee
schedule likely overstates the cost of
appraisals. One commenter noted the
VA’s underwriting requirements exceed
USPAP standards, which increases
costs. Some of these commenters cited
alternative sources for fee data,
including several state-specific studies.
One such commenter referred to a
survey showing that VA fees are higher
than the norm, indicating that the
median cost of an appraisal is $450,
with 89 percent of those surveyed
stating the typical cost of an appraisal
is below $600. This commenter also
questioned whether the cost and time to
receive an appraisal were burdensome,
as its survey reflected that appraisals
represented less than 0.2 percent of the
total transaction cost and that the
typical wait time for an appraisal in
2018 was only 7 days.
A number of commenters disputed
that there are appraiser shortages
warranting regulatory relief outside of
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72
Public Law 115–174, Title I, section 103,
codified at 12 U.S.C. 3356.
73
12 U.S.C. 3356. The mortgage originator must
be subject to oversight by a Federal financial
institutions regulatory agency, as defined in Title
XI. Further, the exemption does not apply to loans
that are high-cost mortgages, as defined in section
103 of TILA, or if a Federal financial institutions
regulatory agency requires an appraisal because it
believes it is necessary to address safety and
soundness concerns.
74
Evaluations Advisory at 3.
rural areas, with some offering
supporting data from the Appraisal
Subcommittee of the Federal Financial
Institutions Examination Council and
the Appraisal Foundation. Several
commenters identified appraisal
management companies (AMCs) as a
significant source of unnecessary costs
and delays, and suggested that appraiser
shortages are due to the low appraisal
fees AMCs offer, resulting in appraisers
being unwilling to work for AMCs.
The agencies considered these
comments in evaluating the rule’s
potential impact. As discussed further
below, available data and analysis
indicate that, while there is limited
information available to compare the
cost and time savings related to
performing appraisals versus
evaluations, raising the residential
threshold, and the corresponding
increased use of evaluations, will lead
to some level of cost savings for
consumers and institutions. The
agencies also conclude that raising the
threshold is likely to reduce the time
needed to find appropriate personnel to
perform the valuation, particularly in
areas experiencing shortages of certified
or licensed appraisers.
As noted in the proposal, and
according to data submitted by
commenters, the cost of obtaining an
evaluation can be substantially less than
the cost of obtaining an appraisal, with
estimates ranging from evaluations
costing $100 less than the cost of an
appraisal or less than half (with one
estimate of 20 percent) of the cost of an
appraisal. The agencies acknowledge
the limitations in relying on the VA
appraisal fee schedule, which may
reflect appraisal fees that are higher
than average across the industry.
However, even if the average appraisal
cost is less than the $375 to $900 range
suggested in the proposal, the agencies
believe expanding the use of evaluations
will produce time and cost savings.
Some commenters indicated that, while
the cost of an appraisal is generally
passed on to the borrower, an evaluation
performed by in-house staff may be
provided at no cost to the borrower.
When a borrower pays for an evaluation
outsourced to a third-party, the cost may
still be significantly less than for a
comparable appraisal.
The agencies also note that regulated
institutions generally need less time to
review evaluations than Title XI
appraisals because the content of the
report can be less comprehensive than
an appraisal report. Institutions are
more likely to obtain an evaluation,
where permitted, for transactions with a
lower dollar value, that are less
complex, or that are subsequent to a
previous transaction for which a Title XI
appraisal was obtained. As a result,
evaluations are often simpler and take
less time to review than appraisals.
Based on supervisory experience, the
agencies have previously estimated that,
on average, the time to review
evaluations takes approximately 30
minutes less than the time to review
appraisals. While the precise time and
cost reduction per transaction is
difficult to determine, the agencies
conclude that the increased threshold is
likely to result in some level of cost and
time savings for regulated institutions
that engage in residential real estate
lending and for consumers.
In considering the aggregate effect of
this rule, the agencies also considered
the number of transactions likely to be
affected by the increased threshold. As
discussed above, the agencies’ analysis
of 2017 HMDA data suggests that
increasing the residential threshold
from $250,000 to $400,000 would
exempt an additional 214,000
residential real estate originations at
regulated institutions from the agencies’
appraisal requirement, representing an
additional 16 percent of all regulated
transactions. While the supervisory data
discussed above suggest that use of
evaluations is lower than it could be,
the agencies expect that raising the
residential appraisal threshold will still
provide burden relief because it will
provide flexibility in those situations
where obtaining an appraisal would
significantly delay the transaction and
the financial institution determines that
an evaluation would be sufficient for the
safety and soundness of the particular
transaction.
B. Incorporation of the Rural Residential
Appraisal Exemption Under Section 103
of the Economic Growth, Regulatory
Relief, and Consumer Protection Act
As discussed above, in section 103 of
EGRRCPA, Congress amended Title XI
in 2018 to add a rural residential
appraisal exemption.
72
Under this new
exemption, a financial institution need
not obtain a Title XI appraisal if the
property is located in a rural area; the
transaction value is less than $400,000;
the financial institution retains the loan
in portfolio, subject to exceptions; and
not later than three days after the
Closing Disclosure Form is given to the
consumer, the financial institution or its
agent has contacted not fewer than three
state certified or state licensed
appraisers, as applicable, and has
documented that no such appraiser was
available within five business days
beyond customary and reasonable fee
and timeliness standards for comparable
appraisal assignments.
73
The proposed rule would have
amended the agencies’ appraisal
regulations to reflect the rural
residential appraisal exemption under
section 103 of EGRRCPA in the list of
transactions that are exempt from the
agencies’ appraisal requirement. The
amendment to this provision would
have been a technical change that would
not alter any substantive requirement,
because the statutory provision is self-
effectuating and the proposed threshold
increase to $400,000 would encompass
loans that would otherwise qualify for
the section 103 rural residential
appraisal exemption. In addition, the
proposed rule would have required
evaluations for transactions that are
exempt from the agencies’ appraisal
requirement under the rural residential
appraisal exemption under section 103
of EGRRCPA. The agencies proposed
that financial institutions obtain
evaluations for these transactions
because evaluations protect the safety
and soundness of financial institutions.
In the proposed rule, the agencies
specifically asked what challenges, if
any, would be posed by requiring
lenders to obtain evaluations where the
rural residential appraisal exemption
under section 103 of EGRRCPA is used.
The agencies received very few
comments on the proposed evaluation
requirement. A few commenters
asserted that the preparation of both
appraisals and evaluations on properties
located in rural areas may be affected by
the limited comparable sales data
available in rural areas.
After considering the comments
received, the agencies have decided to
implement the requirement for
regulated institutions to obtain
evaluations when the rural residential
appraisal exemption is used. The
agencies recognize that the scarcity of
comparable sales data in rural areas has
been a long-standing issue and issued
guidance in 2016 to assist institutions in
obtaining evaluations in rural areas with
few or no recent comparable sales.
74
Since the early 1990s, the agencies’
appraisal regulations have required that
regulated institutions obtain evaluations
for certain other exempt residential real
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75
Dodd-Frank Act, section 1473, Public Law 111–
203, 124 Stat. 1376.
76
See Guidelines, Section XV.
77
See id.
78
See OCC: 12 CFR 34.44(b); Board: 12 CFR
225.64(b); FDIC: 12 CFR 323.4(b).
79
See Guidelines, Section XV.
80
See id.
81
OCC: 12 CFR 34.43(d)(3); Board: 12 CFR
225.63(d)(3); FDIC: 12 CFR 323.3(d)(3).
82
See supra note 3.
estate transactions (which in practice
are generally retained in their
portfolios). Requiring evaluations for
transactions exempted by the rural
residential appraisal exemption reflects
the agencies’ long-standing view that
safety and soundness principles require
institutions to obtain an understanding
of the value of real estate collateral
underlying most real estate-related
transactions they originate.
For clarity, the agencies note that
under the final rule, creditors operating
in rural areas could opt to rely on the
more broadly applicable exemption for
transactions of $400,000 or less in lieu
of the rural residential appraisal
exemption and will not need to meet the
additional criteria required under the
rural residential appraisal exemption.
This is because the broader exemption
for transactions of $400,000 or less
adopted in this final rule encompasses
the more narrow exemption under
EGRRCPA section 103. An evaluation is
required regardless of which of these
exemptions is relied upon. By
specifying that an evaluation is required
for transactions in which all of the
criteria under EGRRCPA section 103 are
met, the agencies seek to streamline the
exemption rules and eliminate
confusion for creditors operating in
rural areas.
C. Addition of the Appraisal Review
Requirement
Section 1473(e) of the Dodd-Frank Act
amended Title XI to require that the
agencies’ appraisal regulations include a
requirement that Title XI appraisals be
subject to appropriate review for
compliance with USPAP.
75
The
proposed rule would have made a
conforming amendment to add this
statutory requirement for appraisal
review to the appraisal regulations. The
agencies proposed to mirror the
statutory language for this standard. The
agencies also indicated in the proposal
that the Guidelines provide more
information to assist financial
institutions in the appropriate review of
appraisals and evaluations.
76
In the proposal, the agencies
specifically asked what concerns, if any,
would be posed by requiring lenders to
conduct appropriate reviews of Title XI
appraisals for compliance with USPAP.
The agencies received very few
comments addressing the appraisal
review proposal. One commenter
indicated that appraisal review provides
significant consumer and lender
safeguards. Another commenter
expressed concern that a requirement
for appraisal review would force some
financial institutions to outsource the
review process, given that many small
institutions do not have staff trained in
USPAP standards, which would add
considerable overhead expense for
financial institutions. This commenter
also requested clarification of whether
evaluations must be reviewed for
compliance with USPAP.
In response to these comments, the
agencies note that the appraisal review
proposed is statutorily required by Title
XI. In addition, the agencies have long
recognized that appraisal review is
consistent with safe and sound banking
practices, as outlined in the Guidelines,
and should be employed as part of the
credit approval process to ensure that
appraisals comply with USPAP, the
appraisal regulations, and a financial
institution’s internal policies.
77
As
noted in the Guidelines, appraisal
reviews should help ensure that an
appraisal contains sufficient
information and analysis to support the
decision to engage in the transaction, as
required by the appraisal regulations.
78
Through the review process, the
institution should be able to assess the
reasonableness of the valuation method,
the assumptions, and whether data
sources are appropriate and well-
supported.
79
As a reflection of the long-standing
guidance on appraisal review, many
financial institutions may already have
review processes in place for these
purposes. With respect to the question
concerning evaluations and appraisal
review, the agencies note that
evaluations need not comply with
USPAP. While financial institutions
should continue to conduct safety and
soundness reviews of evaluations to
ensure that an evaluation contains
sufficient information and analysis to
support the decision to engage in the
transaction, the USPAP review
requirement in Title XI does not apply
to such a review.
After carefully considering the
comments received, the agencies have
decided to implement the requirement
that financial institutions review
appraisals for federally related
transactions for compliance with
USPAP. The agencies encourage
regulated institutions to review their
existing appraisal review policies and
incorporate additional procedures for
subjecting appraisals for federally
related transactions to appropriate
review for compliance with USPAP, as
needed. Financial institutions may refer
to the Guidelines for more information
to assist them in the appropriate review
of appraisals and evaluations.
80
D. Conforming and Technical
Amendments
The agencies’ appraisal regulations
require that all complex 1-to-4 family
residential property appraisals rendered
in connection with federally related
transactions shall have a state certified
appraiser if the transaction value is
$250,000 or more.
81
In order to make
this paragraph consistent with the other
proposed changes to the agencies’
appraisal regulations, the agencies
proposed changes to its wording to
incorporate the proposed definition of
‘‘residential real estate transaction,’’ to
introduce the $400,000 threshold, and
to make other technical and conforming
changes. The agencies also proposed to
amend the definitional term ‘‘complex
1-to-4 family residential property
appraisal’’ to ‘‘complex appraisal for a
residential real estate transaction’’ to
conform to the definition of residential
real estate transaction. The proposed
amendments to these provisions would
have been conforming changes that
would not alter any substantive
requirements.
The agencies received one comment
on these conforming changes seeking
clarification as to whether certified
appraisers would be required for
complex appraisals for residential real
estate transactions above $400,000 or
transactions at or above $400,000. As
provided in the rule text, the
requirement will only apply to
transactions above $400,000. The
agencies did not receive further
comment on these proposed technical
and conforming changes and are
adopting the proposed technical
changes as final.
III. Effective Date
All provisions of the rule, other than
the evaluation requirement for
transactions exempted by the rural
residential appraisal exemption
82
and
the requirement to subject appraisals to
appropriate review for compliance with
USPAP (as discussed below) are
effective the first day after publication
of the final rule in the Federal Register.
The 30-day delayed effective date
required under the Administrative
Procedure Act is waived for all other
amendments to the regulation, pursuant
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83
As discussed below, new requirements on
insured depository institutions (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. See 12
U.S.C. 4802(b).
84
The OCC bases this estimate of the number of
small entities on the SBA’s size thresholds for
commercial banks and savings institutions, and
trust companies, which are $600 million and $41.5
million, respectively. Consistent with the General
Principles of Affiliation, 13 CFR 121.103(a), the
OCC includes the assets of affiliated financial
institutions when determining whether to classify
an OCC-supervised institution as a small entity. The
OCC used December 31, 2018, to determine size
because a ‘‘financial institution’s assets are
determined by averaging the assets reported in its
four quarterly financial statements for the preceding
year.’’ See footnote 8 of the U.S. Small Business
Administration’s Table of Size Standards.
85
See EGRPRA Report, available at https://
www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-
Report_to_Congress.pdf.
86
5 U.S.C. 601 et seq.
to 5 U.S.C. 553(d)(1), which provides an
exception to the 30-day delayed
effective date requirement when a
substantive rule grants or recognizes an
exemption or relieves a restriction. The
amendments to increase the residential
appraisal threshold exempts additional
transactions from the agencies’ appraisal
requirement, which would have the
effect of relieving restrictions.
Consequently, all provisions of this rule,
except the evaluation requirement for
transactions exempted by the rural
residential appraisal exemption and the
appraisal review provision, meet the
criteria to waive the 30-day delayed
effective date requirement set forth in
the Administrative Procedure Act.
The provisions for the evaluation
requirement for transactions exempted
by the rural residential appraisal
exemption and for the appraisal review
will be effective on January 1, 2020. The
delayed effective date will provide
regulated institutions adequate time to
implement procedures for obtaining an
evaluation for certain residential
transactions secured by property in a
rural area that are exempt from the
appraisal requirements and for
subjecting appraisals for federally
related transactions to appropriate
review for compliance with USPAP.
83
The agencies did not receive any
comments on the proposed effective
date.
IV. Regulatory Analysis
A. Regulatory Flexibility Act
OCC: The Regulatory Flexibility Act
(RFA), 5 U.S.C. 601 et seq., generally
requires that, in connection with a
rulemaking, an agency prepare and
make available for public comment a
regulatory flexibility analysis that
describes the impact of the rule on small
entities. However, the regulatory
flexibility analysis otherwise required
under the RFA is not required if an
agency certifies that the rule will not
have a significant economic impact on
a substantial number of small entities
(defined in regulations promulgated by
the Small Business Administration
(SBA) to include commercial banks and
savings institutions, and trust
companies, with assets of $600 million
or less and $41.5 million or less,
respectively) and publishes its
certification and a brief explanatory
statement in the Federal Register
together with the rule.
The OCC currently supervises 1,211
institutions (commercial banks, trust
companies, federal savings associations,
and branches or agencies of foreign
banks) of which approximately 782 are
small entities.
84
The OCC estimates that
the final rule may impact approximately
734 of these small entities. The final
rule to increase the residential threshold
may result in cost savings for impacted
institutions.
For transactions at or below the new
residential threshold, regulated
institutions will be given the option to
obtain an evaluation of the property
instead of an appraisal. While the cost
of obtaining appraisals and evaluations
can vary and may be passed on to
borrowers, evaluations generally cost
less to perform than appraisals, given
that evaluations are not required to
comply with USPAP. In addition to
costing less than an appraisal,
evaluations may require less time to
review than appraisals because
evaluations typically contain less
detailed information than appraisals. In
addition to savings relating to the
relative costs associated with appraisals
and evaluations, the final rule may also
reduce burden for institutions in areas
with appraiser shortages. In the course
of the agencies’ most recent EGRPRA
review, commenters contended that it
can be difficult to find state certified
and licensed appraisers, particularly in
rural areas, which results in delays in
completing transactions and sometimes
increased costs for appraisals.
85
For this
reason, substituting evaluations for
appraisals may reduce burden for
institutions in areas with appraiser
shortages. While the increased
residential threshold may decrease costs
for institutions, the extent to which
institutions will employ evaluations
instead of appraisals is uncertain, given
that institutions retain the option of
using appraisals for below-threshold
transactions.
The requirement in the final rule that
institutions obtain an evaluation for
transactions that qualify for the rural
residential appraisal exemption could
be viewed as a new mandate. However,
because the final rule increases the
residential threshold to $400,000 for all
residential transactions, institutions will
not need to comply with the detailed
requirements of the rural residential
appraisal exemption in order for such
transactions to be exempt from the
agencies’ appraisal requirement.
Therefore, complying with the
evaluation requirement for below-
threshold transactions will be
significantly less burdensome than
complying with the requirements of the
rural residential appraisal exemption.
The requirement that Title XI
appraisals be subject to appropriate
review for USPAP compliance could
also be viewed as a new mandate. The
OCC does not believe, however, that this
requirement will impose a significant
burden or economic impact on regulated
institutions because Title XI and the
agencies’ appraisal regulations already
require that Title XI appraisals be
performed in compliance with USPAP.
In addition, many financial institutions
already have review processes in place
to ensure that appraisals comply with
USPAP. Finally, the OCC notes that the
requirement for appraisal review is
statutorily mandated by Title XI.
Because the final rule does not
contain any new recordkeeping,
reporting, or significant compliance
requirements, the OCC anticipates that
costs associated with the final rule, if
any, will be de minimis. Therefore, the
OCC certifies that the final rule will not
have a significant economic impact on
a substantial number of small entities.
FRB: The RFA
86
generally requires
that an agency prepare and make
available a final regulatory flexibility
analysis in connection with a final
rulemaking that the agency expects will
have a significant economic impact on
a substantial number of small entities.
The regulatory flexibility analysis
otherwise required under the RFA is not
required if an agency certifies that the
rule will not have a significant
economic impact on a substantial
number of small entities and publishes
its certification and a brief explanatory
statement in the Federal Register
together with the rule.
The agencies are increasing the
threshold from $250,000 to $400,000 at
or below which a Title XI appraisal is
not required for residential real estate
transactions in order to reduce
regulatory burden in a manner that is
consistent with the safety and
soundness of financial institutions. To
ensure that the safety and soundness of
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87
5 U.S.C. 601 et seq.
88
The SBA defines a small banking organization
as having $600 million or less in assets, where an
organization’s ‘‘assets are determined by averaging
the assets reported on its four quarterly financial
statements for the preceding year.’’ See 13 CFR
121.201 (as amended by 84 FR 34261, effective
August 19, 2019). In its determination, the ‘‘SBA
counts the receipts, employees, or other measure of
size of the concern whose size is at issue and all
of its domestic and foreign affiliates.’’ See 13 CFR
121.103. Following these regulations, the FDIC uses
a covered entity’s affiliated and acquired assets,
averaged over the preceding four quarters, to
determine whether the covered entity is ‘‘small’’ for
the purposes of RFA.
89
FDIC-supervised institutions are set forth in 12
U.S.C. 1813(q)(2).
90
Call Report, March 31, 2019.
91
HMDA data, December 2015–2017.
92
HMDA data, December 2017.
regulated institutions are protected, the
agencies will require evaluations for
transactions that are exempted by the
increased residential appraisal
threshold. The final rule also requires
evaluations for transactions exempted
by the rural residential appraisal
exemption. In order to fulfill the
agencies’ statutory responsibility under
the Dodd-Frank Act, the agencies are
also adding to the appraisal regulations
a requirement that appraisals be subject
to appropriate review for compliance
with USPAP.
The Board’s 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. There are approximately 529
state member banks and 232 nonbank
lenders regulated by the Board that meet
the SBA definition of small entities and
are subject to the final rule. Data
currently available to the Board do not
allow for a precise estimate of the
number of small entities that are
affected by the threshold increase or the
evaluation requirement for transactions
exempted by the rural residential
appraisal exemption, because the
number of small entities that engage in
residential real estate transactions
qualifying for these exemptions is
unknown.
The increased threshold level for
residential transactions is expected to
produce cost and time savings for
financial institutions without imposing
any burden, since it will permit
institutions to use evaluations instead of
appraisals for a greater number of
transactions, and evaluations generally
cost less and take less time to conduct
and review than appraisals. The cost
and time savings produced for
institutions by obtaining evaluations
versus appraisals is difficult to quantify
because of limited available data and
variation based on the type and
complexity of the transaction. Costs of
appraisals and evaluations may also be
passed on to borrowers.
With respect to transactions that
qualify for the rural residential appraisal
exemption, the requirement that
institutions obtain evaluations for such
transactions could be viewed as an
additional burden. However, because
the final rule increases the residential
threshold to $400,000 for all residential
transactions, institutions, including
small entities, will not need to comply
with the detailed requirements of the
rural residential appraisal exemption in
order for such transactions to be exempt
from the agencies’ appraisal
requirement. Complying with the
evaluation requirement for transactions
below the residential appraisal
threshold is likely to be less
burdensome than complying with the
requirements of the rural residential
appraisal exemption. Overall, the Board
does not believe this requirement will
have a significant economic impact on
small institutions.
The requirement that Title XI
appraisals be subject to appropriate
review for USPAP compliance applies
to all small entities regulated by the
Board that engage in real estate lending.
However, the Board does not believe
this requirement would impose a
significant burden or economic impact
on such institutions because the
agencies’ appraisal requirements already
require that Title XI appraisals be
performed in compliance with USPAP.
Further, many financial institutions
already have review processes in place
to ensure that appraisals comply with
USPAP.
The final rule does not contain any
new recordkeeping, reporting, or
significant compliance requirements.
Based on information available to the
Board, the final rule is not expected to
impose any significant cost or burden
on small entities, and small entities and
borrowers engaging in residential real
estate transactions could experience
cost reductions; however, the overall
economic impact on small entities is not
expected to be significant. The Board
certifies that the final rule will not have
a significant economic impact on a
substantial number of small entities
supervised by the Board.
FDIC: The RFA generally requires
that, in connection with a final
rulemaking, an agency prepare and
make available a final regulatory
flexibility analysis describing the
impact of the rule on small entities.
87
However, a regulatory flexibility
analysis is not required if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities.
The SBA has defined ‘‘small entities’’ to
include banking organizations with total
assets of less than or equal to $600
million.
88
Generally, the FDIC considers
a significant effect to be a quantified
effect in excess of 5 percent of total
annual salaries and benefits per
institution, or 2.5 percent of total non-
interest expenses. The FDIC believes
that effects in excess of these thresholds
typically represent significant effects for
FDIC-supervised institutions. For the
reasons described below and under
section 605(b) of the RFA, the FDIC
certifies that this rule will not have a
significant economic effect on a
substantial number of small entities.
The FDIC supervises 3,465 depository
institutions,
89
of which 2,705 are
defined as small entities by the terms of
the RFA.
90
In 2017, 1,139 small, FDIC-
supervised institutions reported
originating residential real estate loans.
However, beginning in 2017, FDIC-
supervised institutions ceased reporting
residential loan origination data in
compliance with HMDA if they
originated less than 25 loans per year.
Therefore, in order to more accurately
assess the number of institutions that
could be affected by this rule we
counted the number of existing
institutions who reported any
residential loan originations in 2015,
2016, or 2017. By that measure, 1,430
(52.9 percent) are estimated to be
affected by this rule.
91
The final rule is likely to reduce loan
valuation-related costs for small,
covered institutions. By increasing the
residential real estate appraisal
threshold, the rule is expected to
increase the number of residential real
estate loans eligible for an evaluation,
instead of an appraisal. The FDIC
estimates that, on average, the review
process for an appraisal would take
approximately forty minutes, but only
ten minutes, on average, for an
evaluation. Therefore, the FDIC
estimates that the rule would reduce
loan valuation-related costs for small,
FDIC-supervised institutions by 30
minutes per transaction, on average.
According to 2017 HMDA data, 13.3
percent of residential real estate loans
originated by small, FDIC-supervised
institutions and affiliated institutions
are subject to the Title XI appraisal
requirements and have loan amounts
between $250,000 and $400,000.
92
Additionally, of the 1,430 small, FDIC-
supervised institutions that reported
residential loan originations, a total of
163,148 residential real estate loans
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93
Id.
94
0.5 hours *15 originations = 7.5 hours.
95
7.5 hours * $69.22 per hour = $519.15 The
FDIC estimates that the average hourly
compensation for a loan officer is $69.22 an hour.
The hourly compensation estimate is based on
published compensation rates for Credit Counselors
and Loan Officers ($44.30). The estimate includes
the May 2017 75th percentile hourly wage rate
reported by the Bureau of Labor Statistics, National
Industry Specific Occupational Employment and
Wage Estimates for the Depository Credit
Intermediation sector. These wage rates have been
adjusted for changes in the Consumer Price Index
for all Urban Consumers between May 2017 and
December 2018 (3.59 percent) and grossed up by
50.8 percent to account for non-monetary
compensation as reported by the December 2018
Employer Costs for Employee Compensation Data.
96
Call Report, March 31 2019.
97
See https://www.benefits.va.gov/HOMELOANS/
appraiser_fee_schedule.asp.
98
Call Report data, March 31, 2019.
99
Id.
100
See supra, Section II.
101
Median home price in the United States as of
January 2019 is estimated at $307,700 by the
Federal Reserve Bank of St. Louis. See https://
fred.stlouisfed.org/series/MSPUS. $375/$307,700 =
.001218, $900/$307,700 = .002925.
102
44 U.S.C. 3501–3521.
were originated,
93
and the average
number of originations per year was
approximately 128. Assuming that 13.3
percent of originations by small, FDIC-
supervised institutions fall in the
$250,000 to $400,000 range and are
subject to the Title XI appraisal
requirement, approximately 21,699
originations per year, or an average of 15
per small, FDIC-supervised institution,
would have the option of an evaluation
rather than an appraisal as a result of
this rule. Thus, by using evaluations
instead of appraisals a small, FDIC-
supervised institution may reduce its
total annual residential real estate
transaction valuation-related labor
hours by 7.5 hours.
94
The FDIC
estimates this will result in a potential
cost savings for small, FDIC-supervised
institutions of $519.15 per year, per
institution.
95
The estimated reduction
in costs would be smaller if lenders opt
to not utilize an evaluation and require
an appraisal on a residential real estate
transaction greater than $250,000 but
not more than $400,000. These
estimated savings would not exceed 5
percent of annualized salary expense or
2.5 percent of annualized noninterest
expense for any small, FDIC-supervised
institutions.
96
This rule is likely to reduce
residential real estate transaction
valuation-related costs for the parties
involved. By increasing the residential
real estate appraisal threshold, the rule
is expected to increase the number of
residential real estate loans eligible for
an evaluation, instead of an appraisal.
As discussed in the proposal, the United
States Department of Veterans Affairs’
appraisal fee schedule
97
for a single-
family residence generally ranges from
$375 to $900, depending on the location
of the property. While the FDIC does not
have definitive data on the cost of
evaluations, some of the comments from
financial institutions and their trade
associations represented that
evaluations are less costly than
appraisals. Making more residential real
estate transactions eligible for
evaluations rather than appraisals is
likely to reduce transaction valuation-
related costs. However, the FDIC
assumes that most, if not all, of these
cost reductions would be passed on to
residential real estate buyers. Therefore,
this aspect of the rule is likely to have
little or no effect on small, FDIC-
supervised entities.
The FDIC does not expect the rule to
have any substantive effects on the
safety and soundness of small, FDIC-
supervised institutions. Analysis of
HMDA data shows that the rule would
newly exempt from appraisal
requirements an estimated 13.3 percent
of transactions, and 23 percent of the
dollar volume of transactions, among
small, FDIC-supervised institutions.
Assuming that loans secured by
residential properties with values from
$250,000 to $400,000 represent the same
percentage of the residential real estate
loan portfolios of small, FDIC-
supervised institutions as they do of the
dollar volume of new originations, such
loans do not represent more than 19.5
percent of total assets for any small,
FDIC-supervised institutions.
98
The
aggregate value of such loans for all
small, FDIC-supervised institutions
represents approximately four percent
of assets, assuming that 23 percent of
each institution’s portfolio of loans
secured by first liens on one- to four-
family residential mortgages is made up
of loans with a value at origination of
$250,000 to $400,000.
99
While
exempted transactions would not
require an appraisal, they would still
require an evaluation that is consistent
with safe and sound banking practices.
As previously discussed in the
Revisions to the Title XI Appraisal
Regulations section,
100
supervisory
experience indicates that appraisals and
evaluations are both credible tools to
support real estate lending decisions, so
the FDIC does not expect that increasing
the threshold for appraisals will affect
the safety and soundness of small, FDIC-
supervised institutions. Further,
historical loss information in the Call
Reports reflects that the net charge-off
rate for residential transactions did not
increase after the increase in the
appraisal threshold from $100,000 to
$250,000 in June 1994, or during and
after the recession in 2001 through year-
end 2007. During this timeframe, the net
charge-off rate for small, FDIC-
supervised institutions ranged from 1
basis point to 9 basis points. However,
the net charge-off rate for residential
transactions increased significantly from
2008–2013, which was during and
immediately after the recent recession,
ranging from 3 basis points to 55 basis
points. As discussed earlier, the
agencies attribute the increase in the net
charge-off rate for loans secured by
single 1-to-4 family residential real
estate during the recent recession to
weak underwriting standards in the lead
up to the crisis. Therefore, the FDIC
believes the proposed rule is unlikely to
pose significant safety and soundness
risks for small, FDIC-supervised entities.
The rule is likely to pose relatively
larger residential real estate valuation-
related transaction cost reductions for
rural buyers and small, FDIC-supervised
institutions lending in rural areas;
however, these effects are difficult to
accurately estimate. Home prices in
rural areas are generally lower than
those in suburban and urban areas.
Therefore, residential real estate
transactions in rural areas are likely to
utilize evaluations more than appraisals,
under the proposed rule. Additionally,
there may be less delay in finding
qualified personnel to perform an
evaluation than to perform a Title XI
appraisal, particularly in rural areas.
Finally, by potentially reducing
valuation-related costs associated with
residential real estate transactions for
properties greater than $250,000 but not
more than $400,000, the proposed rule
could result in a marginal increase in
lending activity of small, FDIC-
supervised institutions for properties of
this type. However, the FDIC believes
that this effect is likely to be negligible
given that the potential cost savings of
using an evaluation, rather than an
appraisal, represents between 0.12–0.29
percent of the median home price.
101
For the reasons described above and
under section 605(b) of the RFA, the
FDIC certifies that the proposed rule
will not have a significant economic
impact on a substantial number of small
entities.
B. Paperwork Reduction Act
In accordance with the requirements
of the Paperwork Reduction Act of
1995
102
(PRA), the agencies may not
conduct or sponsor, and a respondent is
not required to respond to, an
information collection unless it displays
a currently valid Office of Management
and Budget (OMB) control number. The
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103
12 U.S.C. 4802(a).
104
Id. at 4802(b).
105
See supra note 25.
106
Public Law 106–102, section 722, 113 Stat.
1338, 1471 (1999).
107
The OCC estimates the UMRA inflation
adjustment using the change in the annual U.S.
GDP Implicit Price Deflator between 1995 and 2018,
which is the most recent available annual data. The
deflator was 71.868 in 1995, and 110.382 in 2018,
resulting in an inflation adjustment factor of 1.54
(110.382/71.868 = 1.54, and $100 million × 1.54 =
$154 million).
agencies have reviewed this final rule
and determined that it would not
introduce any new or revise any
collection of information pursuant to
the PRA. In addition, the agencies
received no comments on the PRA
analysis in the proposal. Therefore, no
submissions will be made to OMB for
review.
C. Riegle Community Development and
Regulatory Improvement Act of 1994
Pursuant to section 302(a) of the
Riegle Community Development and
Regulatory Improvement Act
(RCDRIA),
103
in determining the
effective date and administrative
compliance requirements for new
regulations that impose additional
reporting, disclosure, or other
requirements on IDIs, each Federal
banking agency must 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. In addition,
section 302(b) of RCDRIA requires new
regulations and amendments to
regulations that impose additional
reporting, disclosures, or other new
requirements on IDIs generally to 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.
104
The agencies recognize that the
requirement to obtain an evaluation for
transactions exempted by the rural
residential appraisal exemption
105
could be considered by IDIs to be a new
requirement, despite the longstanding
requirements for IDIs to obtain
evaluations for transactions exempt
from agencies’ appraisal requirement
under a threshold exemption. The
agencies also recognize that the
requirement for an appraisal review
could be considered by IDIs to be a new
requirement, despite the longstanding
practice of many financial institutions
to conduct appraisal reviews.
Accordingly, with respect to the
requirement that financial institutions
obtain evaluations for transactions
exempted by the rural residential
appraisal exemption and the
requirement for appraisal review, the
effective date will be January 1, 2020,
which is the first day of a calendar
quarter which begins on or after the date
on which the regulations are published
in final form, consistent with RCDRIA.
Otherwise, the final rule reduces
burden and does not impose any
reporting, disclosure, or other new
requirements on IDIs. For transactions
exempted from the agencies’ appraisal
requirement by the final rule (i.e.,
residential real estate transactions
between $250,000 and $400,000),
lenders are required to get an evaluation
if they chose not to get an appraisal.
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 RCDRIA.
First, the process of obtaining an
evaluation is not new since IDIs already
obtain evaluations for transactions at or
below the current $250,000-threshold.
Second, for residential real estate
transactions between $250,000 and
$400,000, IDIs could continue to obtain
appraisals instead of evaluations.
Because the final rule does not impose
new requirements on IDIs, the agencies
are not required by RCDRIA to consider
the administrative burdens and benefits
of the rule or delay its effective date
(other than the evaluation provision for
transactions exempted by the rural
residential appraisal exemption or and
the appraisal review provision, as
discussed above).
Because delaying the effective date of
the final rule’s threshold increase is not
required and would serve no purpose,
the threshold increase and all other
provisions of the final rule, other than
the evaluation requirement for the rural
residential appraisal exemption and the
requirement that appraisals be subject to
appropriate review for compliance with
USPAP, are effective on the first day
after publication of the final rule in the
Federal Register.
Additionally, although not required
by RCDRIA, the agencies did consider
the administrative costs and benefits of
the residential appraisal threshold
increase while developing the proposal.
In designing the scope of the threshold
increase, the agencies chose to align the
definition of residential 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 final rule. The agencies
also considered the cost savings that
IDIs would experience by obtaining
evaluations instead of appraisals and set
the threshold at a level designed to
provide significant burden relief
without sacrificing safety and
soundness. Similarly, in requiring
evaluations for exempted rural
transactions and adding the appraisal
review requirement, the agencies
considered the administrative burden of
these requirements on IDIs consistent
with principles of safety and soundness
and the public interest.
D. Solicitation of Comments on Use of
Plain Language
Section 722 of the Gramm-Leach-
Bliley Act
106
requires the Federal
banking agencies to use plain language
in all proposed and final rules
published after January 1, 2000. The
agencies have sought to present the final
rule in a simple and straightforward
manner and did not receive any
comments on the use of plain language.
E. OCC Unfunded Mandates Reform Act
of 1995 Determination
The OCC has analyzed the final rule
under the factors in the Unfunded
Mandates Reform Act of 1995 (UMRA)
(2 U.S.C. 1532). Under this analysis, the
OCC considered whether the final rule
includes a Federal mandate that may
result in the expenditure by state, local,
and tribal governments, in the aggregate,
or by the private sector, of $100 million
or more in any one year (adjusted
annually for inflation, currently $154
million).
107
As discussed in the OCC’s
Regulatory Flexibility Act section, the
costs associated with the final rule, if
any, would be de minimis. Therefore,
the OCC concludes that the final rule
will not result in an expenditure of $154
million or more annually by state, local,
and tribal governments, or by the
private sector.
List of Subjects
12 CFR Part 34
Appraisal, Appraiser, Banks, Banking,
Consumer protection, Credit, Mortgages,
National banks, Reporting and
recordkeeping requirements, Savings
associations, Truth in lending.
12 CFR Part 225
Administrative practice and
procedure, Banks, banking, Federal
Reserve System, Capital planning,
Holding companies, Reporting and
recordkeeping requirements, Securities,
Stress testing
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12 CFR Part 323
Banks, banking, Mortgages, Reporting
and recordkeeping requirements,
Savings associations.
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12 CFR Part 34
For the reasons set forth in the joint
preamble, the OCC amends part 34 of
chapter I of title 12 of the Code of
Federal Regulations as follows:
PART 34—REAL ESTATE LENDING
AND APPRAISALS
■1. The authority citation for part 34
continues to read as follows:
Authority: 12 U.S.C. 1, 25b, 29, 93a, 371,
1462a, 1463, 1464, 1465, 1701j—3, 1828(o),
3331 et seq., 5101 et seq., and 5412(b)(2)(B),
and 15 U.S.C. 1639h.
■2. Section 34.42 is amended by:
■a. Revising paragraph (f);
■b. Redesignating paragraphs (k)
through (n) as (l) through (o),
respectively; and
■c. Adding a new paragraph (k).
The revision and addition read as
follows:
§ 34.42 Definitions.
* * * * *
(f) Complex appraisal for a residential
real estate transaction means one in
which the property to be appraised, the
form of ownership, or market conditions
are atypical.
* * * * *
(k) Residential real estate transaction
means a real estate-related financial
transaction that is secured by a single 1-
to-4 family residential property.
* * * * *
■3. Section 34.43 is amended by:
■a. Revising paragraph (a)(1);
■b. Removing the word ‘‘or’’ at the end
of paragraph (a)(12);
■c. Removing the period at the end of
paragraph (a)(13) and adding ‘‘; or’’ in
its place;
■d. Adding paragraph (a)(14); and
■e. Revising paragraph (d)(3).
The revisions and addition read as
follows:
§ 34.43 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
(a) * * *
(1) The transaction is a residential real
estate transaction that has a transaction
value of $400,000 or less;
* * * * *
(14) The transaction is exempted from
the appraisal requirement pursuant to
the rural residential exemption under 12
U.S.C. 3356.
* * * * *
(d) * * *
(3) Complex appraisals for residential
real estate transactions of more than
$400,000. All complex appraisals for
residential real estate transactions
rendered in connection with federally
related transactions shall require a State
certified appraiser if the transaction
value is more than $400,000. A
regulated institution may presume that
appraisals for residential real estate
transactions are not complex, unless the
institution has readily available
information that a given appraisal will
be complex. The regulated institution
shall be responsible for making the final
determination of whether the appraisal
is complex. If during the course of the
appraisal a licensed appraiser identifies
factors that would result in the property,
form of ownership, or market conditions
being considered atypical, then either:
(i) The regulated institution may ask
the licensed appraiser to complete the
appraisal and have a certified appraiser
approve and co-sign the appraisal; or
(ii) The institution may engage a
certified appraiser to complete the
appraisal.
* * * * *
■4. Effective January 1, 2020, § 34.43 is
further amended by revising paragraph
(b) to read as follows:
§ 34.43 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
* * * * *
(b) Evaluations required. For a
transaction that does not require the
services of a State certified or licensed
appraiser under paragraphs (a)(1), (5),
(7), (13), or (14) of this section, the
institution shall obtain an appropriate
evaluation of real property collateral
that is consistent with safe and sound
banking practices.
* * * * *
■5. Effective January 1, 2020. § 34.44 is
amended by:
■a. Republishing the introductory text;
■b. Redesignating paragraphs (c), (d),
and (e) as (d), (e), and (f), respectively;
and
■c. Adding a new paragraph (c).
The addition reads as follows:
§ 34.44 Minimum appraisal standards.
For federally related transactions, all
appraisals shall, at a minimum:
* * * * *
(c) Be subject to appropriate review
for compliance with the Uniform
Standards of Professional Appraisal
Practice;
* * * * *
Federal Reserve Board
For the reasons set forth in the joint
preamble, the Board amends part 225 of
chapter II of title 12 of the Code of
Federal Regulations as follows:
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL (REGULATION Y)
■6. The authority citation for part 225
continues to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818,
1828(o), 1831i, 1831p–1, 1843(c)(8), 1844(b),
1972(l), 3106, 3108, 3310, 3331 et seq., 3906,
3907, and 3909; 15 U.S.C. 1681s, 1681w,
6801 and 6805.
■7. Section 225.62 is amended by:
■a. Revising paragraph (f);
■b. Redesignating paragraphs (k)
through (n) as (l) through (o),
respectively; and
■c. Adding a new paragraph (k).
The revisions and addition read as
follows:
§ 225.62 Definitions.
* * * * *
(f) Complex appraisal for a residential
real estate transaction means one in
which the property to be appraised, the
form of ownership, or market conditions
are atypical.
* * * * *
(k) Residential real estate transaction
means a real estate-related financial
transaction that is secured by a single 1-
to-4 family residential property.
* * * * *
■8. Section 225.63 is amended by:
■a. Revising paragraph (a)(1);
■b. Removing the word ‘‘or’’ at the end
of paragraph (a)(13);
■c. Removing the period at the end of
paragraph (a)(14) and adding ‘‘; or’’ in
its place;
■d. Adding paragraph (a)(15); and
■e. Revising paragraph (d)(3).
The addition and revisions read as
follows:
§ 225.63 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
(a) * * *
(1) The transaction is a residential real
estate transaction that has a transaction
value of $400,000 or less;
* * * * *
(15) The transaction is exempted from
the appraisal requirement pursuant to
the rural residential exemption under 12
U.S.C. 3356.
* * * * *
(d) * * *
(3) Complex appraisals for residential
real estate transactions of more than
$400,000. All complex appraisals for
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residential real estate transactions
rendered in connection with federally
related transactions shall require a State
certified appraiser if the transaction
value is more than $400,000. A
regulated institution may presume that
appraisals for residential real estate
transactions are not complex, unless the
institution has readily available
information that a given appraisal will
be complex. The regulated institution
shall be responsible for making the final
determination of whether the appraisal
is complex. If during the course of the
appraisal a licensed appraiser identifies
factors that would result in the property,
form of ownership, or market conditions
being considered atypical, then either:
(i) The regulated institution may ask
the licensed appraiser to complete the
appraisal and have a certified appraiser
approve and co-sign the appraisal; or
(ii) The institution may engage a
certified appraiser to complete the
appraisal.
* * * * *
■9. Effective January 1, 2010, § 225.63
is further amended by revising
paragraph (b) to read as follows:
§ 225.63 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
* * * * *
(b) Evaluations required. For a
transaction that does not require the
services of a State certified or licensed
appraiser under paragraphs (a)(1), (5),
(7), (14), or (15) of this section, the
institution shall obtain an appropriate
evaluation of real property collateral
that is consistent with safe and sound
banking practices.
* * * * *
■10. Effective January 1, 2020, § 225.64
is amended by:
■a. Republishing the introductory text;
■b. Redesignating paragraphs (c), (d),
and (e) as (d), (e), and (f), respectively;
and
■c. Adding a new paragraph (c).
The addition reads as follows:
§ 225.64 Minimum appraisal standards.
For federally related transactions, all
appraisals shall, at a minimum:
* * * * *
(c) Be subject to appropriate review
for compliance with the Uniform
Standards of Professional Appraisal
Practice;
* * * * *
Federal Deposit Insurance Corporation
For the reasons set forth in the joint
preamble, the FDIC amends part 323 of
chapter III of title 12 of the Code of
Federal Regulations as follows:
■11. The authority citation for part 323
continues to read as follows:
Authority: 12 U.S.C. 1818, 1819(a)
(‘‘Seventh’’ and ‘‘Tenth’’), 1831p–1 and 3331
et seq.
■12. Section 323.2 is amended by:
■a. Revising paragraph (f);
■b. Redesignating paragraphs (k)
through (n) as (l) through (o),
respectively; and
■c. Adding a new paragraph (k).
The revision and addition read as
follows:
§ 323.2 Definitions.
* * * * *
(f) Complex appraisal for a residential
real estate transaction means one in
which the property to be appraised, the
form of ownership, or market conditions
are atypical.
* * * * *
(k) Residential real estate transaction
means a real estate-related financial
transaction that is secured by a single 1-
to-4 family residential property.
* * * * *
■13. Section 323.3 is amended by:
■a. Revising paragraph (a)(1);
■b. Removing the word ‘‘or’’ at the end
of paragraph (a)(12);
■c. Removing the period at the end of
paragraph (a)(13) and adding ‘‘; or’’ in
its place; and
■d. Adding paragraph (a)(14); and
■e. Revising paragraph (d)(3).
The revisions and addition read as
follows:
§ 323.3 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
(a) * * *
(1) The transaction is a residential real
estate transaction that has a transaction
value of $400,000 or less;
* * * * *
(14) The transaction is exempted from
the appraisal requirement pursuant to
the rural residential exemption under 12
U.S.C. 3356.
* * * * *
(d) * * *
(3) Complex appraisals for residential
real estate transactions of more than
$400,000. All complex appraisals for
residential real estate transactions
rendered in connection with federally
related transactions shall require a State
certified appraiser if the transaction
value is more than $400,000. A
regulated institution may presume that
appraisals for residential real estate
transactions are not complex, unless the
institution has readily available
information that a given appraisal will
be complex. The regulated institution
shall be responsible for making the final
determination of whether the appraisal
is complex. If during the course of the
appraisal a licensed appraiser identifies
factors that would result in the property,
form of ownership, or market conditions
being considered atypical, then either:
(i) The regulated institution may ask
the licensed appraiser to complete the
appraisal and have a certified appraiser
approve and co-sign the appraisal; or
(ii) The institution may engage a
certified appraiser to complete the
appraisal.
* * * * *
■14. Effective January 1, 2020. § 323.3
is further amended by revising
paragraph (b) to read as follows:
§ 323.3 Appraisals required; transactions
requiring a State certified or licensed
appraiser.
* * * * *
(b) Evaluations required. For a
transaction that does not require the
services of a State certified or licensed
appraiser under paragraphs (a)(1), (5),
(7), (13), or (14) of this section, the
institution shall obtain an appropriate
evaluation of real property collateral
that is consistent with safe and sound
banking practices.
* * * * *
■15. Effective January 1, 2020, § 323.4
is amended by
■a. Republishing the introductory text;
■b. Redesignating paragraphs (c), (d),
and (e) as (d), (e), and (f), respectively;
and
■c. Adding a new paragraph (c).
The addition reads as follows:
§ 323.4 Minimum appraisal standards.
For federally related transactions, all
appraisals shall, at a minimum:
* * * * *
(c) Be subject to appropriate review
for compliance with the Uniform
Standards of Professional Appraisal
Practice;
* * * * *
Dated: August 8, 2019.
Joseph M. Otting,
Comptroller of the Currency.
By order of the Board of Governors of the
Federal Reserve System, September 23, 2019.
Ann E. Misback,
Secretary of the Board.
Federal Deposit Insurance Corporation.
By order of the Board of Directors.
Dated at Washington, DC, on August 20,
2019.
Valerie J. Best,
Assistant Executive Secretary.
[FR Doc. 2019–21376 Filed 10–7–19; 8:45 am]
BILLING CODE 4810–33–P 6210–01–P; 6714–01–P
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