Fed Waives Appraisal Requirement

September 30, 2019
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Photo by K. Mitch Hodge on Unsplash

Certain home sales of $400,000 or less soon will not require an appraisal. The Federal Reserve Board signed off on the rule change, following approval by the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency. The appraisal threshold was last changed in 1994.

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.
It’s also important to note that the rule does not entirely exempt the relevant home sales from any type of appraisal-type action. According to the agencies, the final rule “requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral.”

The agencies state that the evaluation must be “consistent with safe and sound banking practices.” To that point, the rule establishes that an evaluation “should contain sufficient information and analysis to support the regulated institution’s decision to engage in the transaction.”

According to the agencies, many of the comments they received suggested that evaluations are “appropriate substitutes for appraisals and institutions as having appropriate risk management controls in place to manage the proposed threshold change responsibly.”

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