FDIC Proposes New Real Estate Appraisal Guidelines

On Nov. 20, the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System released a proposed rule change that would eliminate appraisal requirements for many home sales of $400,000 or less, according to Financial Regulation News. Currently, homes valued at $250,000 or less do not require an appraisal before a mortgage can be issued, a standard that has been in place since 1994.

The new proposal would not apply, however, to conventional home loans that are eligible for sale to government-sponsored enterprises Fannie Mae and Freddie Mac, or government-backed loans through the Federal Housing Administration or the U.S. Department of Veterans Affairs.

The Appraisal Institute, a global organization for real estate appraisers, immediately denounced the latest proposal to raise the ceiling for a wider range of residential transactions. The group issued a statement Nov. 21 that called the proposal “deeply disturbing,” believing it could spark a return to the risky loans originated prior to the last financial crisis.

“By increasing the residential appraisal threshold from $250,000 to $400,000, FDIC would threaten the vital role that appraisers play in real estate transactions,” Appraisal Institute President James L. Murrett said. “This action would undermine the crucial risk-mitigation services that appraisers provide clients and users of appraisal services.”

Based on 2017 transaction volumes, federal regulators estimated that increasing the appraisal threshold from $250,000 to $400,000 would exempt an additional 214,000 home mortgages annually. That figure represented 3 percent of loans covered by the Home Mortgage Disclosure Act and 16 percent of home mortgages issued by FDIC-insured lenders.

The changes could be adopted after a 60-day public comment period, which begins once the proposal is published in the Federal Register.