CSBS Issue Briefings - January 2020

CSBS ISSUE BRIEFING Appraisals

CSBS Official Public Position State regulators support the increase to the appraisal threshold for transactions secured by residential real estate. In addition, CSBS believes the current regulation needs to better address the appraiser shortage in rural and underserved urban markets, as well as the difficulties for appraisers to enter those markets. Summary Financial markets have changed substantially since the appraisal thresholds were last raised in 1994, and state regulators continue to observe the burden that inflexible or outdated appraisal standards present. One of the only options available to address the shortage—a temporary waiver that would allow appraisals to temporarily be made without credentialing—is not viable because the guidance around its use is unclear, lengthy and underutilized. The Appraisal Subcommittee (ASC) has indicated that it will create clearer standards for evaluation for applicants seeking the temporary waiver. Since the option has been available, only one state has received the temporary waiver. In July 2019, the ASC (with concurrence from the FFIEC) voted to approve a request from the state of North Dakota for a temporary waiver (with option to renew) from appraiser licensing requirements, stating a scarcity of appraisers. CSBS acknowledges that changes are occurring in the appraisal industry. In April 2018, the threshold level at or below which appraisals are not required for commercial real estate transactions increased from $250,000 to $500,000. Additionally, Congress acknowledged in the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA) that relief is needed for certain rural transactions. Currently, relief from appraisal requirements is provided for some real estate transactions (those under $400,000) in rural areas, but to qualify, lenders must show that three appraisers were not available within five days beyond a reasonable time frame (determined by the bank) for an appraisal. In September 2019, the federal banking agencies agreed to increase the residential threshold for residential real estate-related transactions from $250,000 to $400,000. The final rule incorporates the rural residential appraisal exemption in Section 103 of EGRRCPA. Finally, in May 2018, the Appraiser Qualifications Board of the Appraisal Foundation, which sets minimum qualification for real property appraiser in the United States, revised and reduced the educational requirements to become a licensed/credential residential appraiser. Despite these developments, it is still uncertain what impact any of these changes will have in resolving the shortage of appraisers in rural and underserved urban markets. State regulators are committed to working with the agencies to address the appraiser shortage and urge federal counterparts to revisit and improve options for impacted banks to ensure commerce can continue in local communities. Some recommendations could be focused on raising the transaction thresholds for residential real estate to reflect inflation, improving the data provided in the National Registry and increasing awareness of the FAQs on the Appraisal Regulations and the Interagency Appraisal and Evaluation Guidelines issued on Oct. 16, 2018. Why it Matters to State Regulators Current appraisal regulations can curtail mortgage lending in markets that lack qualified appraisers or comparable sales. Many state regulators continue to observe a shortage of appraisers in regions across the country. The limited availability of appraisers, particularly in rural and underserved urban markets, has led to a significant delay in the home purchasing process.