Dated at Washington, DC on March 20, 2018. Learn more here. and services, go to As discussed in more detail below, the final rule is only raising the threshold for commercial real estate transactions. The Board requested comment on all aspects of the initial regulatory flexibility analysis it provided in connection with the proposal. The FDIC assumes that these costs are always paid by the borrower for this analysis. The agencies examined data reported on the Call Report and data from the CoStar Comps database to estimate the volume of commercial real estate transactions covered by the existing threshold and increased thresholds. The $500,000 threshold that the agencies are adopting will increase the percentage of transactions affected by another 5.5 percent, resulting in 31.9 percent of loans in the CoStar database being exempt from the appraisal requirement, or 15.7 percent more transactions than under the $250,000 threshold. Affected Public: Businesses or other for-profit. CoStar, Federal Reserve's Flow of Funds to Incorporate CoStar Group's Price Indices, CoStar (June 4, 2012), http://www.costar.com/​News/​Article/​Federal-Reserves-Flow-of-Funds-To-Incorporate-CoStar-Groups-Price-Indices/​138998. documents in the last year. 12/21/2020, 859 2. Several commenters rejected assertions that there was an appraiser shortage warranting regulatory relief, some asserting that any shortage is caused by appraisers' unwillingness to work for appraisal management companies (AMCs) at the reduced fees being offered to appraisers by AMCs. The agencies have exempted several categories of real estate-related financial transactions from the Title XI appraisal requirements. Thus, this analysis indicates that the increased threshold will affect a low aggregate dollar volume, but a material number of transactions. As discussed in Section V.A of the SUPPLEMENTARY INFORMATION, the 30-day delayed effective date required under the Administrative Procedure Act (APA) is waived pursuant to 5 U.S.C. The reduction in loan origination fees could marginally increase commercial real estate lending activity for loans with an origination value greater than $250,000 and not more than $500,000. 8. 16. 2163 (Riegle Act) provides that rules imposing additional reporting, disclosures, or other new requirements on IDIs generally must take effect on the first day of a calendar quarter that begins on or after the date on which the regulations are published in final form. 5. The reported hourly wage rate is grossed up by 155.0 percent to account for non-monetary compensation as reported by the 3rd Quarter 2017 Employer Costs for Employee Compensation Data. A few commenters expressed the view that all residential construction loans should be included in the definition and subject to the higher threshold. [58] (14) The transaction is a commercial real estate transaction that has a transaction value of $500,000 or less. Regarding the requests for clarification of the QBL threshold, the Title XI appraisal regulations have established a $1 million threshold that is applicable to any business loans that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. [15] by the Farm Credit Administration In this Issue, Documents Regarding consumer protection concerns, the agencies do not expect that this increase will affect a significant number of consumer transactions. The following four categories of real-estate secured loans in the Consolidated Reports of Condition and Income (Call Report) (FFIEC 031; RCFD 1410) are largely captured in the definition of commercial real estate transaction in the rule: (1) For construction, land development, and other land loans; (2) secured by farmland; (3) secured by residential properties with five or more units; or (4) secured by nonfarm nonresidential properties. Therefore, the final rule could reduce loan origination costs for borrowers doing business with small entities by $2.0 to $5.1 million on average per year.[75]. [30] In the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act),[27] documents in the last year, 787 h�b```f``�g`a`�c�[email protected] ~�rl����Ŭ xA�!��a��ƣ�el/858�w�`����8e��\ �����}Vh�E����b �[email protected]�30*�3a"L9��4,pb��#����r�5 �Ԅ������� +��� �@d` #N' Therefore, raising the appraisal threshold from $250,000 to $500,000 for commercial real estate transactions Start Printed Page 15033could affect an estimated 2.36 to 6.05 percent of the dollar volume of all commercial real estate transactions originated each year for small FDIC-supervised institutions. The OCC currently supervises approximately 956 small entities. The agencies carefully considered these comments in evaluating the rule's impact on the time to obtain and review Title XI appraisals and evaluations. Certain provisions of the final rule contain “collection of information” requirements within the meaning of the Paperwork Reduction Act (PRA) of 1995. B�QU����rY-V�_~ R��!���]:��m~����ivU���2ޟ��uu|?^�dM��yp7?�}�T܇����� Փ�~}m�m�O�!�����J���� ŵ�{��x�f3�9���?�"�$�3b8�2N\��KÑ�2��!��-�e���b�C������n�6�����˨����{��i��hKq]��\=�p+R��a%�z�� ��[�qk�z*,�d�Ɩ%�K�� B�3� ���� U.S. SBA, Table of Small Business Size Standards Matched to North American Industry Classification System Codes, available at https://www.sba.gov/​sites/​default/​files/​files/​Size_​Standards_​Table.pdf. Another commenter indicated that including all 1-to-4 family construction loans in the definition would avoid creating additional complications by distinguishing such loans into two different classes. Additionally, commenters may send a copy of their comments to the OMB desk officer for the PRA Agencies by mail to the Office of Information and Regulatory Affairs, U.S. Office of Management and Budget, New Executive Office Building, Room 10235, 725 17th Street NW, Washington, DC 20503; by fax to (202) 395-6974; or by email to [email protected] Be sure to leave feedback using the 'Feedback' button on the bottom right of each page! [67] One commenter noted that an increasing percentage of 1-to-4 family properties are rental properties and that the proposed definition would have excluded a class of rent-dependent real estate that should be classified as commercial real estate. To estimate the dollar volume of commercial real estate transactions the change could potentially affect, the FDIC used information on the dollar volume and number of loans in the Call Report for small institutions from two categories of loans included in the definition of a commercial real estate transaction. Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI) requires the Agencies to adopt regulations prescribing standards for appraisals used in connection with federally related transactions within the jurisdiction of each agency, including that they be performed by certified or licensed appraisers. The agencies specifically examined the information from smaller insured depository institutions (IDIs) from Call Reports to assess the concentration risk for institutions and concluded that these risks were similar to those presented for larger IDIs. The agencies’ Title XI appraisal regulations apply to transactions entered into by the agencies or by institutions regulated by the agencies that are depository institutions or bank holding companies or subsidiaries of depository institutions or bank holding companies. OCC: G. Kevin Lawton, Appraiser (Real Estate Specialist), (202) 649-7152, Mitchell E. Plave, Special Counsel, Legislative and Regulatory Activities Division, (202) 649-5490, or Joanne Phillips, Attorney, Bank Activities and Structure Division, (202) 649-5500, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. These tools are designed to help you understand the official document Therefore, we cannot estimate how many small entities may be affected by the increase threshold. “The Appraisal Subcommittee (ASC), the entity created and charged under Title XI to monitor the appraisal related actions of the Federal financial institutions regulatory agencies (Agencies), estimated in its 2018 report to Congress that ‘at least 90 percent of residential mortgage loan originations are not subject to the Title XI appraisal regulations,’” the lawmakers wrote. and (3) subject to appropriate review for compliance with USPAP. 28. 12 U.S.C. (1989)). [80] Because the final rule imposes no new requirements on IDIs, the agencies are not required by the Riegle Act to consider the administrative burdens and benefits of the rule or delay its effective date. 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. or 0.68 to 1.74 loans on average for small FDIC-supervised institutions. 19. Another commenter asserted that the proposed threshold increase is contrary to Congressional intent and also asserted that most commenters during the EGRPRA process were against a threshold increase. The agencies requested comment on whether the proposed effective date was appropriate. rendition of the daily Federal Register on FederalRegister.gov does not If lenders opt to not utilize an evaluation and require an appraisal on commercial real estate transaction greater than $250,000 but not more than $500,000 any reduction in costs would be smaller. Requiring regulated institutions to procure the services of a state licensed or state certified appraiser to prepare evaluations for commercial real estate transactions at or below the threshold could impose significant additional costs on lenders and borrowers without materially increasing the safety and soundness of the transactions. [ 15 ] 63. For its RFA analysis, the Board considered all Board-regulated creditors to which the proposed rule would apply. [76] The FDIC estimates that the average hourly compensation for a loan officer is $67.29 an hour. The agencies have provided guidance to regulated institutions on evaluations. Therefore, a consolidated analysis is more likely to be used in an evaluation. Section 722 of the Gramm-Leach-Bliley Act [82] headings within the legal text of Federal Register documents. However, the agencies do not view the option to obtain an evaluation instead of an appraisal as a new or additional requirement for purposes of the Riegle Act. This change addresses potential confusion about whether a loan for the construction of multiple residential properties would meet the definition of “commercial real estate transaction;” a loan that is secured by multiple 1-to-4 family residential properties (for example, a loan to construct multiple properties in a residential neighborhood) would meet the definition of commercial real estate transaction and thus be subject to the higher threshold. In the proposal, the agencies also invited comment on how having three threshold levels ($250,000 for all transactions, $400,000 for commercial real estate transactions, and $1 million for QBLs) rather than the two threshold levels applicable to Title XI appraisals ($1 million for QBLs and $250,000 for all other transactions) would affect burden on regulated institutions. of $250,000 or less, as well as certain real estate-secured business loans (qualifying business loans or QBLs) with a transaction value of $1 million or less, do not require Title XI appraisals. Section 323.2 is amended by redesignating paragraphs (e) through (m) as paragraphs (f) through (n), respectively, and by adding a new paragraph (e) to read as follows: (12) The FDIC determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution; or. 1503 & 1507. A separate commenter suggested that the agencies should provide a de minimis exemption from appraisal requirements for residential mortgage loans that are retained in portfolio by regulated institutions. One commenter opposed having three thresholds, asserting that it will increase complexity, particularly for small community banks with less rigorous compliance operations. See OCC: 12 CFR part 34 subpart D, Appendix A; Board: 12 CFR 208, Appendix C; and FDIC: 12 CFR part 365, subpart A, Appendix A. 41 C.F.R. As discussed above, some commenters provided anecdotal evidence to show that the agencies' estimate of time savings was incorrect. In this regard, one commenter asserted that banks have a better understanding of property values in their communities than appraisers from other areas, while another expressed concern for the reliability of appraisals and whether appraisers' valuations are keeping up with property growth trends. The agencies recognize that certain evaluations may take longer to review than others; however, this variation was taken into account in the agencies' estimate of the average time savings that are expected to occur. Board: Constance Horsley, Deputy Associate Director, (202) 452-5239, or Carmen Holly, Senior Supervisory Financial Analyst, (202) 973-6122, Division of Supervision and Regulation; or Gillian Burgess, Senior Counsel, (202) 736-5564, Matthew Suntag, Counsel, (202) 452-3694, or Kirin Walsh, Attorney, (202) 452-3058, Legal Division, Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551. The proposal was intended to reduce regulatory burden consistent with federal financial and public policy interests in real estate-related financial transactions. The agencies made this change in the final rule after consideration of the comments, which suggested that including 1-to-4 family constructions loans that do not include permanent financing in the definition, but excluding those that do not, would not significantly reduce burden. As a result of this change, the final rule will not affect a material number of consumer transactions. FDIC: You may submit comments, which should refer to “Real Estate Appraisals, 3064-0103” by any of the following methods: Public Inspection: All comments received will be posted without change to http://www.fdic.gov/​regulations/​laws/​federal/​ including any personal information provided. Another commenter asserted that increasing the threshold for residential transactions could discourage entrance into the appraisal profession and cause further appraiser shortages. Many of these requirements are incorporated within these guidelines. One of these commenters asserted that as the GSEs expand their appraisal waiver programs, regulated institutions that hold residential mortgage loans in portfolio will be at a competitive disadvantage if the current threshold in the appraisal regulations is not increased. 100-1001, pt. As required by Title XI, these agencies adopted substantially similar appraisal regulations for the financial institutions they supervise. The Riegle Act requires that each of the agencies, in determining the effective date and administrative compliance requirements for new regulations that impose additional reporting, disclosure, or other requirements on IDIs, consider, consistent with principles of safety and soundness and the public interest, any administrative burdens that such regulations would place on depository institutions, including small depository institutions, and customers of depository institutions, as well as the benefits of such regulations. include documents scheduled for later issues, at the request In this regard, they asserted that increasing the threshold in the appraisal regulations would provide burden relief. All comments received, including attachments and other supporting materials, are part of the public record and subject to public disclosure. The President of the United States communicates information on holidays, commemorations, special observances, trade, and policy through Proclamations. Start Printed Page 15024The CRE Index is comprised of data from the CoStar Commercial Repeat Sale Index,[35] The President of the United States issues other types of documents, including but not limited to; memoranda, notices, determinations, letters, messages, and orders. Open for Comment, Economic Sanctions & Foreign Assets Control, Withdrawal of Certain Federal Water Quality Criteria Applicable to Maine, National Industrial Security Program Operating Manual, Draft Versatile Test Reactor Environmental Impact Statement, Use of Derivatives by Registered Investment Companies and Business Development Companies, Increasing Economic and Geographic Mobility, Providing for the Closing of Executive Departments and Agencies of the Federal Government on December 24, 2020, Office of the Comptroller of the Currency, I. Also, in addition to various valuation approaches, the Guidelines discuss the possible use of several analytical methods and technological tools in the development of evaluations, such as automated valuation models and tax assessment values. 12/21/2020, 386 553(d)(1), which provides for waiver when a substantive rule grants or recognizes an exemption or relieves a restriction. 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. Thus, the agencies believe that the final rule will alleviate approximately 30 minutes of employee time per affected transaction for which the lender obtains an evaluation instead of an appraisal. 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. By lowering valuation costs on commercial real estate transactions greater than $250,000 but less than or equal to $500,000 for small FDIC-supervised institutions, the final rule could marginally increase lending activity. The NCUA has promulgated similar rules with similar thresholds. The agencies received a limited number of comments in response to the request for comment on the data sources used for the agencies' safety and soundness analysis from financial institutions, financial institution trade associations and appraiser trade associations. Define which entities are small businesses for purposes of the proposal, 2,950 small entities be... 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