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Federal banking agencies issue appraisal regulation FAQs
On October 16, the FDIC, Federal Reserve Board, and the OCC issued FAQs to offer additional clarification concerning appraisal and evaluation functions set out in the 2010 Interagency Appraisal and Evaluation Guidelines, the 2016 Interagency Advisory on Use of Evaluations in Real Estate-Related Financial Transactions, and other related regulations, guidance, and advisories. (See FDIC FIL-62-2018 and OCC Bulletin 2018-39.) The FAQs—which do not introduce new policy or guidance—address a range of topics including (i) regulatory and statutory requirements applicable to appraisal and evaluation programs; (ii) financial institutions’ review of appraisal and evaluation programs; (iii) appraisal exemptions; (iv) development of appraisals and evaluations, including relevant policies and procedures; and (v) appraisal independence.
FHA to require second appraisal for certain reverse mortgages
On September 28, FHA announced that it will require a second appraisal for certain reverse mortgage transactions. The purpose of this requirement, according to Mortgagee Letter 2018-06, is mitigation of the risk that valuation of the collateral poses to FHA borrowers and the Mutual Mortgage Insurance Fund. FHA will perform a collateral risk assessment of the appraisal prepared for use in all Home Equity Conversion Mortgage (HECM) originations (also known as “reverse mortgages”); whether a second appraisal is required will depend on the results of the assessment. A mortgagee may not approve or close a transaction until a second appraisal, if required, is obtained. If the second appraisal provides a lower value, the mortgagee must use the lower value in the origination of the HECM. The new requirements are effective for all HECM originations with FHA case numbers assigned on or after October 1 through September 30, 2019. FHA will evaluate these program changes at six and nine months to determine if it should extend the requirements beyond the current end date.
Fannie Mae announces updates to Selling Guide
On September 4, Fannie Mae issued SEL-2018-07, which announces updates to its Selling Guide including, among other things, the introduction of rural high-needs appraisal waivers. The rural high needs appraisal waiver is contingent on obtaining a home inspection to confirm safety, soundness, and structural integrity consistent with Fannie’s property condition guidelines. The waiver is available on a limited basis for purchase transactions containing certain characteristics, such as borrowers with income at or below 100 percent of the area median income and property located in designated rural-high needs areas, as defined by Fannie’s “Duty to Serve” obligations. Additionally, the Selling Guide includes updates to (i) the name of the property inspection and property field work waivers; (ii) liability and fidelity/crime insurance for projects; (iii) single-entity ownership of co-op projects; and (iv) the approved mortgage insurers list and mortgage insurance forms.
Fannie Mae issues Selling Guide updates, removes requirement to use Market Conditions Addendum for appraisals
On August 7, Fannie Mae issued Selling Guide update SEL-2018-06, which announces, among things, the removal of the requirement to use the Market Conditions Addendum (Form 1004MC) for appraisals and clarification of the policies regarding disbursement of HomeStyle Renovation funds. Specifically, effective immediately, the Selling Guide provides that lenders are no longer required to use Form 1004MC for appraisals as the agency’s Collateral Underwriter program provides market trend information for lenders and Fannie Mae to measure and manage market risks. However, appraisers remain responsible for analyzing market conditions and reporting them in the Neighborhood section of Fannie Mae’s appraisal forms. The update also clarifies that for HomeStyle Renovation funds disbursed using a wire transfer, the lender must obtain written consent to release the funds. Additionally, the update clarifies that all mechanics liens must be cleared or waived by the final disbursement of funds—a lien waiver is not required at each disbursement stage. The announcement also notes that the previously released information regarding Fannie Mae’s high loan-to-value refinance option (covered by InfoBytes here) is now available in the Selling Guide.
FDIC proposes information collection renewal for appraisal management companies
On May 2, the FDIC published a notice and request for comment in the Federal Register regarding the renewal of an existing information collection on the minimum requirements for appraisal management companies (AMCs). According to the notice, there is no significant change in the methodology or substance of the information collection; however, burden estimates for states and AMCs have been revised to include (i) “AMC Written Notice of Appraiser Removal from Network or Panel;” (ii) “Develop and Maintain a State Licensing Program;” (iii) “AMC Reporting Requirements (State and Federal AMCs);” and (iv) “State Reporting Requirements to the Appraisal Subcommittee.” The notice requests comment on, among other things, whether the information collection is necessary and ways to minimize the burden of the information collection on the respondents. Comments are due by July 2.
Appraisal Qualifications Board to change qualification criteria for real estate appraisers
On February 1, the Appraisal Qualifications Board (Board) announced new real property appraiser qualification criteria. The Board is a part of the Appraisal Foundation, which is authorized by Congress to set the standards and qualifications for real estate appraisers. Effective May 1, states may choose to adopt the new criteria, which aims to increase the number of available appraisers, especially in rural areas. Specifically, the new criteria (i) reduces the college-level education degree requirements for licensed residential appraisers and certified residential appraisers; (ii) creates an options for licensed residential appraisers to become certified without a college-level education requirement; and (iii) reduces the number of field hours needed to obtain either designation.
Freddie Mac Announces Guide Bulletin 2017-23 Concerning Debt Payment-to-Income Calculations and Appraisals
On October 18, Freddie Mac announced the issuance of Guide Bulletin 2017-23 (Bulletin), which changes selling requirements related to, among other things, student loan monthly debt payment-to-income (DTI) ratio calculations and appraisals. Specifically, for student loans in repayment, sellers must use the greater of the following in calculating DTI ratios, as listed on a borrower’s credit report: (i) the monthly payment amount, or (ii) 0.5 percent of the original loan balance or outstanding balance (one percent for loans in deferment or forbearance). The revisions also remove the requirement that a seller must “obtain documentation if a monthly payment amount is not reported on the credit report.” Further, the Bulletin stipulates certain DTI ratio exclusions, which include specific contingent liabilities.
Revisions to appraisal requirements include: (i) no longer requiring a “new appraisal when the settlement date is more than 120 days after the note date,” and (ii) accepting appraisal updates “performed by an unlicensed or trainee (or similar classification) appraiser if a supervisory appraiser signs the appraisal update.” While the revisions are applicable for mortgages with settlement dates on or after January 18, 2018, Freddie Mac also permits immediate implementation.Freddie Mac to Begin Accepting Automated Appraisals for Eligible Home Buyers
On August 18, Freddie Mac issued a press release announcing an automated appraisal alternative for eligible consumers purchasing homes or refinancing existing mortgages. The program, known as an “automated collateral evaluation,” will permit lenders to utilize Freddie Mac’s proprietary platforms to see if an estimate of home value can be used in lieu of obtaining a traditional appraisal. Freddie predicts the program could save home buyers several hundred dollars and reduce closing times by as many as 10 days if it determines a traditional appraisal is unnecessary. Automated appraisals will become available for qualified transactions starting September 1, 2017. The program has been available for qualified home refinances since June 19, 2017.
Federal Banking Agencies Issue Proposed Rulemaking to Amend Appraisal Requirement Threshold for Commercial Real Estate Transactions
On July 19, the Federal Reserve Board, the FDIC, and the OCC issued a joint notice of proposed rulemaking to raise the threshold for commercial real estate transactions requiring an appraisal from $250,000 to $400,000 in an effort to reduce costs and streamline transactions. The proposal was issued, in part, in response to concerns raised by financial industry representatives during the Economic Growth and Regulatory Paperwork Reduction Act review process that adjustments have not been made to the current thresholds despite increases in property values and a scarcity of appraisers in rural areas. FDIC Chairman Martin J. Gruenberg issued a statement announcing that the proposal will significantly reduce the number of transactions requiring an appraisal. Evaluations, rather than appraisals, would now be required for commercial real estate transactions at or below the proposed threshold.
Comments on the proposed rule will be accepted for 60 days from date of publication in the Federal Register.
Legislation Introduced to Reduce Mortgage Appraisal Requirements in Rural Communities
On July 13, Representative David Kustoff (R-Tenn.) introduced legislation intended to decrease costs and delays when obtaining a mortgage by reducing appraisal requirements. As set forth in a July 13 press release issued by Rep. Kustoff’s office, the Securing Access to Affordable Mortgage Act of 2017 (H.R. 3221) would (i) ease “unfair” appraisal requirements, which would benefit rural communities where there is a demonstrated lack of qualified appraisers, and (ii) assist prospective homebuyers by decreasing costs and delays. H.R. 3221 would increase access to affordable mortgages by excluding loans of $250,000 or less from property appraisal requirements through new exemptions under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and the Truth in Lending Act.
As previously discussed in InfoBytes, earlier this year several financial agencies jointly issued an Interagency Advisory to address concerns regarding the shortage of certified and licensed appraisers, particularly in rural areas.