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November 2019

Tri of fed agencies agree to change appraisal rules

November 7, 2019

Three federal regulatory agencies approved a rule change that eliminates appraisal requirements for homes priced up to $400,000. The new threshold ups the previous figure of $250,000.

The move culminates a year-long process and review of more than 560 comments, and marks the first time the threshold for residential real estate transactions has changed since 1994.

"Given price appreciation in residential real estate transactions since that time, the change will provide burden relief without posing a threat to the safety and soundness of financial institutions," the agencies said in a joint statement. The approving agencies included the Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of the Currency (OCC), and the Board of Governors of the Federal Reserve.

OCC expects the change will have a significant impact on the real estate market, since it will likely apply to approximately 40% of home sales. Under the previous rules, there were 750,000 transactions (56%) that were exempted from the appraisal requirement in 2017. With the new threshold of $400,000 it is estimated an additional 214,000 sales would have been exempted (an additional 16%).


2017 HMDA
Exempted by
current threshhold of $240,000

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 new rules do not apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency.  That means that loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac would still require an appraisal, per each agency's rules.

In announcing the rules change, the agencies said financial institutions, financial institution trade associations, and state banking regulators "generally supported" the proposal while appraisers, appraiser trade organizations, individuals, and consumer advocate groups "generally opposed" it.

The Consumer Financial Protection Bureau also supported the change, citing "likely cost savings for consumers as a whole, existing consumer protections, and current market practices of often using appraisals rather than evaluations even in cases where appraisals are not required under the Banking Agencies' appraisal regulations" as factors that influenced its concurrence.

The appraisal threshold was last increased in 1994 when regulators approved an increase from $100,000 to $250,000.

The final rule, published in the Federal Register on October 9, 2019 (also its effective date), 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.  Amendments in instructions 4, 5, 9, 10, 14, and 15 are effective on January 1, 2020.