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.