[Federal Register Volume 83, Number 235 (Friday, December 7, 2018)]
[Proposed Rules]
[Pages 63110-63127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-26507]


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 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 83, No. 235 / Friday, December 7, 2018 / 
Proposed Rules  

[[Page 63110]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 34

[Docket No. OCC-2018-0038]
RIN 1557-AE57
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FEDERAL RESERVE SYSTEM

12 CFR Part 225

[Docket No. R-1639]
RIN 7100-AF30
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FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 323

RIN 3064-AE87


Real Estate Appraisals

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC); 
Board of Governors of the Federal Reserve System (Board); and Federal 
Deposit Insurance Corporation (FDIC).

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: The OCC, Board, and FDIC (collectively, the agencies) are 
inviting comment on a proposed rule to amend the agencies' regulations 
requiring appraisals for certain real estate-related transactions. The 
proposed rule would increase the threshold level at or below which 
appraisals would not be required for residential real estate-related 
transactions from $250,000 to $400,000. Consistent with the requirement 
for other transactions that fall below applicable thresholds, regulated 
institutions would be required to obtain an evaluation of the real 
property collateral that is consistent with safe and sound banking 
practices. The proposed rule would make conforming changes to add 
transactions secured by residential property in rural areas that have 
been exempted from the agencies' appraisal requirement pursuant to the 
Economic Growth, Regulatory Relief and Consumer Protection Act to the 
list of exempt transactions. The proposed rule would require 
evaluations for these exempt transactions. Pursuant to the Dodd-Frank 
Wall Street Reform and Consumer Protection Act, the proposed rule would 
amend the agencies' appraisal regulations to require regulated 
institutions to subject appraisals for federally related transactions 
to appropriate review for compliance with the Uniform Standards of 
Professional Appraisal Practice.

DATES: Comments must be received by February 5, 2019.

ADDRESSES: Interested parties are encouraged to submit written comments 
jointly to all of the agencies. Commenters should use the title ``Real 
Estate Appraisals'' to facilitate the organization and distribution of 
comments among the agencies. Interested parties are invited to submit 
written comments to:
    Office of the Comptroller of the Currency: You may submit comments 
to the OCC by any of the methods set forth below. Commenters are 
encouraged to submit comments through the Federal eRulemaking Portal or 
email, if possible. Please use the title ``Real Estate Appraisals'' to 
facilitate the organization and distribution of the comments. You may 
submit comments by any of the following methods:
     Federal eRulemaking Portal--``Regulations.gov'': Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0038'' in the Search 
Box and click ``Search.'' Click on ``Comment Now'' to submit public 
comments.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov, including instructions for 
submitting public comments.
     Email: [email protected].
     Mail: Legislative and Regulatory Activities Division, 
Office of the Comptroller of the Currency, 400 7th Street SW, Suite 3E-
218, Washington, DC 20219.
     Hand Delivery/Courier: 400 7th Street SW, Suite 3E-218, 
Washington, DC 20219.
     Fax: (571) 465-4326.
    Instructions: You must include ``OCC'' as the agency name and 
``Docket ID OCC-2018-0038'' in your comment. In general, the OCC will 
enter all comments received into the docket and publish the comments on 
the Regulations.gov website without change, including any business or 
personal information that you provide such as name and address 
information, email addresses, or phone numbers. Comments received, 
including attachments and other supporting materials, are part of the 
public record and subject to public disclosure. Do not include any 
information in your comment or supporting materials that you consider 
confidential or inappropriate for public disclosure.
    You may review comments and other related materials that pertain to 
this rulemaking action by any of the following methods:
     Viewing Comments Electronically: Go to 
www.regulations.gov. Enter ``Docket ID OCC-2018-0038'' in the Search 
box and click ``Search.'' Click on ``Open Docket Folder'' on the right 
side of the screen. Comments and supporting materials can be viewed and 
filtered by clicking on ``View all documents and comments in this 
docket'' and then using the filtering tools on the left side of the 
screen.
     Click on the ``Help'' tab on the Regulations.gov home page 
to get information on using Regulations.gov. The docket may be viewed 
after the close of the comment period in the same manner as during the 
comment period.
     Viewing Comments Personally: You may personally inspect 
comments at the OCC, 400 7th Street SW, Washington, DC 20219. For 
security reasons, the OCC requires that visitors make an appointment to 
inspect comments. You may do so by calling (202) 649-6700 or, for 
persons who are deaf or hearing impaired, TTY, (202) 649-5597. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and submit to security screening in order to 
inspect comments.
    Board of Governors of the Federal Reserve System: You may submit 
comments, identified by Docket No. R-1639 and RIN 7100-AF30, by any of 
the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.

[[Page 63111]]

     Email: [email protected]. Include the 
docket number and RIN number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Address to Ann E. Misback, Secretary, Board of 
Governors of the Federal Reserve System, 20th Street and Constitution 
Avenue NW, Washington, DC 20551.
    All public comments will be made available on the Board's website 
at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper in Room 3515, 1801 K Street NW (between 18th and 19th 
Streets NW), between 9:00 a.m. and 5:00 p.m. on weekdays.
    Federal Deposit Insurance Corporation: You may submit comments, 
identified by RIN 3064-AE87, by any of the following methods:
     Agency Website: https://www.FDIC.gov/regulations/laws/federal.
     Mail: Robert E. Feldman, Executive Secretary, Attention: 
Comments/Legal ESS, Federal Deposit Insurance Corporation, 550 17th 
Street NW, Washington, DC 20429.
     Hand Delivery/Courier: The guard station at the rear of 
the 550 17th Street NW, building (located on F Street) on business days 
between 7:00 a.m. and 5:00 p.m.
     Email: [email protected]. Comments submitted must include 
``FDIC'' and ``RIN 3064-AE87--Real Estate Appraisals.'' Comments 
received will be posted without change to https://www.FDIC.gov/regulations/laws/federal, including any personal information provided.

FOR FURTHER INFORMATION CONTACT: 
    OCC: G. Kevin Lawton, Appraiser and Real Estate Specialist, (202) 
649-6670, or Mitchell E. Plave, Special Counsel, (202) 649-5490, for 
persons who are deaf or hearing impaired, TTY, (202) 649-5597, or 
Joanne Phillips, Counsel, (202) 649-5500, Office of the Comptroller of 
the Currency, 400 7th Street SW, Washington, DC 20219.
    Board: Anna Lee Hewko, Associate Director, (202) 530-6260, or Peter 
Clifford, Manager Risk Policy Section, (202) 785-6057, or Carmen Holly, 
Senior Supervisory Financial Analyst, (202) 973-6122, Division of 
Supervision and Regulation; or Laurie Schaffer, Associate General 
Counsel, (202) 452-2272, 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. 
For the hearing impaired only, Telecommunications Device for the Deaf 
(TDD) users may contact (202) 263-4869.
    FDIC: Beverlea S. Gardner, Senior Examination Specialist, Division 
of Risk Management and Supervision, (202) 898-3640, [email protected]; 
Benjamin K. Gibbs, Counsel, (202) 898-6726; Lauren Whitaker, Senior 
Attorney, (202) 898-3872; or Ryan M. Goodstein, Senior Financial 
Economist, (202) 898-6863, Federal Deposit Insurance Corporation, 550 
17th Street NW, Washington, DC 20429. For the hearing impaired only, 
TDD users may contact (202) 925-4618.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The agencies are inviting comment on a proposal to increase the 
threshold level at or below which appraisals would not be required for 
residential real estate-related transactions from $250,000 to $400,000. 
The proposal would continue to require evaluations that are consistent 
with safe and sound business practices for transactions exempted by the 
increased threshold. Additionally, the proposal would require regulated 
institutions to obtain evaluations for transactions secured by 
residential property in rural areas that have been exempted from the 
agencies' appraisal requirement pursuant to the Economic Growth, 
Regulatory Relief and Consumer Protection Act \1\ (rural residential 
appraisal exemption), and would fulfill the requirement to add 
appraisal review to the minimum standards for an appraisal, pursuant to 
the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-
Frank Act).\2\
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    \1\ Public Law 115-174, Title I, section 103, codified at 12 
U.S.C. 3356. Effective May 24, 2018, section 103 provides that a 
Title XI appraisal is not required if the real property or interest 
in real property is located in a rural area, as described in 12 CFR 
1026.35(b)(2)(iv)(A), and if the transaction value is $400,000 or 
less. In addition, the mortgage originator or its agent, directly or 
indirectly must have contacted not fewer than three state certified 
or state licensed appraisers, as applicable, on the mortgage 
originator's approved appraiser list in the market area, in 
accordance with 12 CFR part 226, not later than three days after the 
date on which the Closing Disclosure was provided to the consumer 
and documented that no state certified or state licensed appraiser, 
as applicable, was available within five business days beyond 
customary and reasonable fee and timeliness standards for comparable 
appraisal assignments.
    \2\ See Dodd-Frank Act, Sec.  1473(e), Public Law 111-203, 124 
Stat. 1376, 2191.
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    The proposal to raise the residential threshold is based on 
consideration of available information on real estate transactions 
secured by a single 1-to-4 family residential property (residential 
real estate transactions), supervisory experience, and comments 
received from the public in connection with the Economic Growth and 
Regulatory Paperwork Reduction Act (EGRPRA) \3\ process, and the 
rulemaking to increase the appraisal threshold for commercial real 
estate appraisals (CRE Final Rule). The agencies believe that the 
proposed increase to the appraisal threshold for residential real 
estate transactions would reduce burden in a manner that is consistent 
with federal public policy interests in real estate-related 
transactions and the safety and soundness of regulated institutions.
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    \3\ Public Law 104-208, Div. A, Title II, section 2222, 110 
Stat. 3009-414, (1996) (codified at 12 U.S.C. 3311). EGRPRA requires 
that, not less than once every 10 years, the Federal Financial 
Institutions Examination Council (FFIEC), Board, OCC, and FDIC 
conduct a review of their regulations to identify outdated or 
otherwise unnecessary regulatory requirements imposed on insured 
depository institutions.
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    The agencies have long recognized that the valuation information 
provided by appraisals and evaluations assists financial institutions 
in making informed lending decisions and mitigating risk. The agencies 
also recognize and support the role that appraisers play in helping to 
ensure a safe and sound real estate lending process. The agencies 
acknowledge as well that appraisals can provide protection to consumers 
by facilitating the informed use of credit and helping to ensure that 
the estimated value of the property supports the mortgage amount. 
However, the agencies also are aware that the cost and time of 
obtaining an appraisal can, in some cases, result in delays and higher 
expenses for both regulated institutions and consumers.
    In addition, the agencies are proposing several conforming and 
technical amendments to their appraisal regulations. The agencies are 
also proposing to define a residential real estate transaction as a 
real estate transaction secured by a single 1-to-4 family residential 
property, which is consistent with current references to appraisals for 
residential real estate in the agencies' appraisal regulations and in 
Title XI of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (Title XI).\4\ Adding this

[[Page 63112]]

definition would not change any substantive requirement, but would 
provide clarity to the regulation. The agencies are also proposing to 
add the rural residential appraisal exemption \5\ to the list of 
transactions that do not require appraisals. The proposed rule would 
require evaluations for transactions exempted from the agencies' 
appraisal requirement by this exemption, which is consistent with the 
requirement for regulated institutions to obtain an evaluation for 
certain other exempt residential real estate transactions (which in 
practice are generally retained in their portfolios). This proposed 
requirement reflects the agencies' judgment that valuation information 
concerning the real estate collateral for these transactions assists 
financial institutions in making informed lending decisions and is 
consistent with safe and sound banking practices.\6\
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    \4\ 12 U.S.C. 3331 et seq.
    \5\ See supra note 1.
    \6\ See 59 FR 29482 (June 7, 1994) (adopting the $250,000 
threshold and the requirement for evaluations for certain exempt 
transactions).
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    Further, the agencies are proposing to implement the appraisal 
review provision in Section 1473(e) of the Dodd-Frank Act,\7\ which 
amended Title XI to require that the agencies' appraisal regulations 
include a requirement for institutions to subject appraisals for 
federally related transactions to appropriate review for compliance 
with the Uniform Standards of Professional Appraisal Practice 
(USPAP).\8\ The proposed rule would implement this statutory 
requirement, which is consistent with the agencies' long-standing 
recognition of the importance of appropriate appraisal reviews for 
safety and soundness.\9\
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    \7\ Dodd-Frank Act, Sec.  1473(e).
    \8\ USPAP is written and interpreted by the Appraisal Standards 
Board of the Appraisal Foundation. USPAP contains generally 
recognized ethical and performance standards for the appraisal 
profession in the United States, including real estate, personal 
property, and business appraisals. See http://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/Uniform_Standards_of_Professional_Appraisal_Practice/TAF/USPAP.aspx?hkey=a6420a67-dbfa-41b3-9878-fac35923d2af.
    \9\ See Interagency Appraisal and Evaluation Guidelines 
(Guidelines), at Section XV, 75 FR 77450 (December 10, 2010) 
(addressing appraisal review).
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    Under Title XI, the agencies must receive BCFP concurrence that the 
proposed threshold level provides reasonable protection for consumers 
who purchase 1-to-4 unit single-family residences.\10\ Accordingly, the 
agencies are consulting with the BCFP regarding the proposed threshold 
increase and will continue this consultation in developing the final 
rule.
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    \10\ Dodd-Frank Act, Sec.  1473(a), Public Law 111-203, 124 
Stat. 2190 (amending 12 U.S.C. 3341(b)).
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A. Background

    Title XI directs each Federal financial institutions regulatory 
agency \11\ to require regulated institutions to obtain appraisals 
meeting minimum standards (Title XI appraisals) for certain real 
estate-related transactions. The purpose of Title XI is to protect 
federal financial and public policy interests \12\ in real estate-
related transactions \13\ by requiring that Title XI appraisals be 
performed in accordance with uniform standards by individuals whose 
competency has been demonstrated and whose professional conduct will be 
subject to effective supervision.\14\
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    \11\ The term ``Federal financial institutions regulatory 
agencies'' means the Board, the FDIC, the OCC, the National Credit 
Union Administration (NCUA), and, formerly, the Office of Thrift 
Supervision. 12 U.S.C. 3350(6).
    \12\ 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. These federal financial 
and public policy interests have been described in predecessor 
legislation and accompanying Congressional reports. See Real Estate 
Appraisal Reform Act of 1988, H.R. Rep. No. 100-1001, pt. 1, at 19 
(1988); 133 Cong. Rec. 33047-33048 (1987).
    \13\ A real estate-related financial transaction is defined as 
any transaction that involves: (i) The sale, lease, purchase, 
investment in or exchange of real property, including interests in 
property, or financing thereof; (ii) the refinancing of real 
property or interests in real property; and (iii) the use of real 
property or interests in real property as security for a loan or 
investment, including mortgage-backed securities. 12 U.S.C. 3350(5).
    \14\ 12 U.S.C. 3331.
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    Title XI directs the agencies to prescribe appropriate standards 
for Title XI appraisals under the agencies' respective 
jurisdictions.\15\ At a minimum, Title XI appraisals must be: (1) 
Performed in accordance with USPAP; (2) written appraisals, as defined 
by the statute; and (3) subject to appropriate review for compliance 
with USPAP.
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    \15\ 12 U.S.C. 3339. 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: 12 CFR 34, subpart C; 
Board: 12 CFR 225.61(b); 12 CFR part 208, subpart E; FDIC: 12 CFR 
part 323.
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    A federally related transaction \16\ is a real estate-related 
financial transaction that the agencies or a financial institution 
regulated by the agencies engages in or contracts for, for which the 
agencies require a Title XI appraisal. The agencies have authority to 
determine those real estate-related financial transactions that do not 
require Title XI appraisals. Real estate-related financial transactions 
that are exempt from the agencies' appraisal requirement are not 
federally related transactions under the agencies' appraisal 
regulations. The agencies have exercised this authority by exempting 
several categories of real estate-related financial transactions from 
the agencies' appraisal requirement, including transactions at or below 
certain designated thresholds.\17\ Other significant exemptions include 
exemptions for loans that are wholly or partially insured or guaranteed 
by, or eligible for sale to, a U.S. government agency or U.S. 
government-sponsored agency.\18\
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    \16\ 12 U.S.C. 3350(4).
    \17\ See OCC: 12 CFR 34.43(a); Board: 12 CFR 225.63(a); FDIC: 12 
CFR 323.3(a). The agencies have determined that these categories of 
transactions do not require appraisals by state certified or state 
licensed appraisers in order to protect federal financial and public 
policy interests or to satisfy principles of safe and sound banking.
    \18\ See OCC: 12 CFR 34.43(a)(9) and (10); Board: 12 CFR 
225.63(a)(9) and (10); and FDIC: 12 CFR 323.3(a)(9) and (10). The 
NCUA also exempts these loans from its appraisal requirements. See 
12 CFR 722.3(a)(7) and (8).
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    Title XI expressly authorizes the agencies to establish thresholds 
at or below which Title XI appraisals are not required if: (1) The 
agencies determine in writing that the threshold does not represent a 
threat to the safety and soundness of financial institutions; and (2) 
the agencies receive concurrence from the BCFP that such threshold 
level provides reasonable protection for consumers who purchase 1-to-4 
unit single-family residences.\19\ Under the current thresholds, 
residential real estate transactions \20\ with a transaction value \21\ 
of $250,000 or less, certain real estate-secured business loans 
(qualifying business loans) \22\ with a

[[Page 63113]]

transaction value of $1 million or less, and commercial real estate 
(CRE) transactions with a transaction value of $500,000 or less do not 
require Title XI appraisals.\23\ The appraisal threshold applicable to 
residential real estate transactions has not been changed since 
1994.\24\
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    \19\ 12 U.S.C. 3341(b).
    \20\ While the $250,000 threshold explicitly applies to all real 
estate-related financial transactions with transaction values of 
$250,000 or less, it effectively only applies to residential real 
estate transactions because all other real estate-related financial 
transactions are subject to higher thresholds.
    \21\ For loans and extensions of credit, the transaction value 
is the amount of the loan or extension of credit. For sales, leases, 
purchases, investments in or exchanges of real property, the 
transaction value is the market value of the real property. For the 
pooling of loans or interests in real property for resale or 
purchase, the transaction value is the amount of each loan or the 
market value of each real property, respectively. See OCC: 12 CFR 
34.42(m); Board: 12 CFR 225.62(m); and FDIC: 12 CFR 323.2(m).
    \22\ Qualifying business loans are business loans 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. The Title XI appraisal regulations 
define ``business loan'' to mean a loan or extension of credit to 
any corporation, general or limited partnership, business trust, 
joint venture, pool, syndicate, sole proprietorship, or other 
business entity. See OCC: 12 CFR 34.42(d); Board: 12 CFR 225.62(d); 
and FDIC: 12 CFR 323.2(d).
    \23\ See OCC: 12 CFR 34.43(a)(1), (5), and (13); Board: 12 CFR 
225.63(a)(1), (5), and (14); and FDIC: 12 CFR 323.3(a)(1), (5), and 
(13).
    \24\ See 59 FR 29482 (June 7, 1994). The NCUA promulgated a 
similar rule with similar thresholds in 1995. 60 FR 51889 (October 
4, 1995). The OCC, Board, and FDIC had previously raised the 
appraisal threshold to $100,000. OCC: 57 FR 12190-02 (April 9, 
1992); Board: 55 FR 27762 (July 5, 1990); FDIC: 57 FR 9043-02 (March 
16, 1992).
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    For real estate-related financial transactions at or below the 
applicable thresholds and for certain existing extensions of credit 
exempt from the agencies' appraisal requirement,\25\ the Title XI 
appraisal regulations require regulated institutions to obtain an 
appropriate evaluation of the real property collateral that is 
consistent with safe and sound banking practices.\26\ An evaluation 
should contain sufficient information and analysis to support the 
financial institution's decision to engage in the transaction.\27\
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    \25\ Transactions that involve an existing extension of credit 
at the lending institution are exempt from the agencies' appraisal 
requirement, but are required to have evaluations, provided that 
there has been no obvious and material change in market conditions 
or physical aspects of the property that threatens the adequacy of 
the institution's real estate collateral protection after the 
transaction, even with the advancement of new monies; or there is no 
advancement of new monies, other than funds necessary to cover 
reasonable closing costs. See OCC: 12 CFR 34.43(a)(7) and (b); 
Board: 12 CFR 225.63(a)(7) and (b); and FDIC: 12 CFR 323.3(a)(7) and 
(b).
    \26\ See OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); and 
FDIC: 12 CFR 323.3(b). An evaluation is not required when real 
estate-related financial transactions meet the threshold criteria 
and also qualify for another exemption from the agencies' appraisal 
requirement where no evaluation is required by the regulation.
    \27\ Evaluations are not required to be performed in accordance 
with USPAP or by state certified or state licensed appraisers by 
federal law. The agencies have provided supervisory guidance for 
conducting evaluations in a safe and sound manner in the Guidelines 
and the Interagency Advisory on the Use of Evaluations in Real 
Estate-Related Financial Transactions (Evaluations Advisory). See 75 
FR 77450 (December 10, 2010); OCC Bulletin 2016-8 (March 4, 2016); 
Board SR Letter 16-5 (March 4, 2016); and Supervisory Expectations 
for Evaluations, FDIC FIL-16-2016 (March 4, 2016).
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    In preparing the proposed rule, the agencies conducted analyses 
using 2017 data reported under the Home Mortgage Disclosure Act 
(HMDA),\28\ which requires a variety of financial institutions to 
maintain, report, and publicly disclose loan-level information about 
residential mortgage originations.\29\ Information reported under HMDA 
includes various data points relevant to the agencies' analyses, 
including loan size, loan type, property type, property location, and 
secondary market purchaser. While the HMDA data has limitations, 
including that certain low-volume originators and originators located 
in rural areas are not required to report,\30\ the agencies believe it 
provides a reasonably representative sample of the universe of mortgage 
originations, including transactions subject to the agencies' appraisal 
requirement. In addition, the agencies are not aware of any other data 
source that would better inform these analyses.
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    \28\ 12 U.S.C. 2801 et seq.
    \29\ See FFIEC, Home Mortgage Disclosure Act, www.ffiec.gov/hmda/.
    \30\ Although originators located in rural areas are not 
required to report HMDA information, originators not located in 
rural areas that make loans in rural areas are required to report.
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    As described in further detail below, the agencies used the 2017 
HMDA data \31\ to estimate the coverage of the proposed threshold 
increase in terms of number of transactions and dollar volume of 
transactions that would be affected relative to: (1) Total HMDA 
originations \32\ and (2) only those transactions originated by FDIC-
insured institutions and affiliated institutions \33\ that were not 
sold to the government-sponsored enterprises (GSEs) or otherwise 
insured or guaranteed by a U.S. government agency \34\ (regulated 
transactions).\35\ The agencies compared these coverage estimates with 
the coverage of the current threshold both now and when the current 
threshold was adopted in 1994. The agencies used these analyses to 
estimate the number and dollar volume of loans that could be affected 
by the threshold increase, including the expected number and dollar 
volume of loans in rural areas, and to assess the potential impact of 
the threshold increase on burden reduction and on the safety and 
soundness of financial institutions.
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    \31\ The HMDA analyses described in this document are limited to 
first-lien originations secured by single-family residential 
mortgage properties. Originations with loan amounts greater than $20 
million are excluded.
    \32\ The total number of first-lien, single-family originations 
reported under HMDA in 2017 is approximately 6.9 million.
    \33\ FDIC-insured institutions and affiliated institutions 
include those that report under HMDA to the OCC, the Board, the 
FDIC, or the BCFP (excluding institutions that are not supervised by 
the OCC, Board, or FDIC).
    \34\ Some loans sold to the GSEs may not be observable in HMDA, 
for example if the sale occurred after calendar year 2017, or if the 
loan was sold to another entity that in turn sold the loan to a GSE.
    \35\ Regulated transactions are the only residential real estate 
transactions subject to the appraisal threshold, because 
transactions originated by regulated institutions but sold to the 
GSEs or otherwise insured or guaranteed by a U.S. government agency 
are separately exempted from the agencies' appraisal requirement and 
transactions originated by non-regulated institutions are not 
subject to the agencies' appraisal regulations.
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B. Reducing Burden Associated With Appraisals

    The agencies are proposing to increase the appraisal threshold for 
residential real estate transactions in an effort to reduce regulatory 
burden, while maintaining federal public policy interests in real 
estate-related transactions and the safety and soundness of regulated 
institutions. The agencies' appraisal regulations were identified as an 
opportunity to reduce regulatory burden by commenters to the EGRPRA 
process that concluded in early 2017. The agencies concluded in the 
joint EGRPRA report to Congress (EGRPRA Report) \36\ that a change to 
the current $250,000 appraisal threshold for residential real estate 
transactions would not be appropriate at that time, citing three 
reasons: A limited impact on burden reduction due to appraisals still 
being required for the vast majority of these transactions pursuant to 
the rules of other federal government agencies and the GSEs; safety and 
soundness concerns; and consumer protection concerns.\37\ However, the 
EGRPRA Report stated that the agencies would continue to consider 
possibilities for relieving burden related to appraisals for 
residential mortgage loans.\38\
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    \36\ See EGRPRA Report, available at https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf. The NCUA is also 
named on the EGRPRA Report, though it was not required to 
participate in the review process. NCUA elected to participate in 
the EGRPRA review, conducted its own parallel review of its 
regulations, and included its own report in a separate part of the 
EGRPRA Report. The NCUA is not a participant in this rulemaking.
    \37\ Id.
    \38\ Id.
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    In response to comments received during the EGRPRA process, the 
agencies published a Notice of Proposed Rulemaking to increase the CRE 
appraisal threshold (CRE NPR).\39\ In connection with the CRE NPR, the 
agencies restated the reasons set forth in the EGRPRA Report for 
declining to propose an increase to the residential threshold, and 
invited comment on other factors that should be considered in 
evaluating the appraisal threshold for residential real estate 
transactions and on whether the threshold can and should be raised, 
consistent with consumer protection, safety and

[[Page 63114]]

soundness, and reduction of unnecessary regulatory burden.\40\
---------------------------------------------------------------------------

    \39\ 82 FR 35478 (July 31, 2017).
    \40\ 82 FR 35478, 35481-82, 35487 (July 31, 2017).
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    The comments received in the EGRPRA process and in response to the 
CRE NPR reflect different perspectives on the appraisal threshold for 
residential real estate transactions.\41\ Some of the commenters 
supported the agencies' decision not to propose an increase in the 
appraisal threshold for residential real estate transactions. Other 
commenters supported increasing the appraisal threshold for residential 
real estate transactions to reduce regulatory burden.
---------------------------------------------------------------------------

    \41\ See, e.g., 83 FR 15019, 15029-30 (April 9, 2018).
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    To consider the probable effect on burden reduction, the agencies 
assessed the potential impact of the proposed threshold increase on the 
entire mortgage market and on regulated transactions.\42\ The agencies 
estimate that increasing the appraisal threshold from $250,000 to 
$400,000 would have exempted an additional 214,000 residential real 
estate originations \43\ at regulated institutions from the agencies' 
appraisal requirement, which represent only three percent of total HMDA 
originations (first-lien, single-family) in 2017. However, they 
represent 16 percent of regulated transactions. This increase in the 
number of loans that would no longer require appraisals would provide 
meaningful burden reduction for regulated institutions.
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    \42\ As noted earlier, for this SUPPLEMENTARY INFORMATION 
section, regulated transactions are residential mortgage 
originations by FDIC-insured institutions and affiliated 
institutions that were not sold to the GSEs or otherwise insured or 
guaranteed by a U.S. government agency.
    \43\ The 214,000 originations represent transactions originated 
by FDIC-insured institutions or affiliated institutions, excluding 
transactions that were sold to the GSEs or otherwise insured or 
guaranteed by a U.S. government agency; transactions for which the 
value was equal to or below the current $250,000 appraisal 
threshold; and transactions that exceeded the proposed $400,000 
threshold.
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    After considering all of the comments and further analysis by the 
agencies, the agencies are proposing an increase to the appraisal 
threshold for residential real estate transactions in order to reduce 
regulatory burden, particularly in rural areas, in a manner that is 
safe and sound and consistent with consumer protection.
    Cost and Time Savings. Commenters to the EGRPRA process and in 
response to the CRE NPR that supported a residential threshold increase 
noted that obtaining an appraisal for a residential real estate 
transaction adds to the cost of the transaction, which is often passed 
on to the consumer, and can delay the closing of a transaction when an 
appraiser cannot complete the appraisal on the preferred schedule and 
increase the consumer's costs. Thus, reducing regulatory burden by 
increasing the appraisal threshold for residential real estate 
transactions may provide both transaction cost and time savings for 
both regulated institutions and consumers.
    As described in the CRE NPR, available information suggests that 
evaluations for CRE properties typically cost significantly less than 
Title XI appraisals for the same properties.\44\ Further, some of the 
comments to the CRE NPR indicated that evaluations in general cost 
substantially less than appraisals.\45\
---------------------------------------------------------------------------

    \44\ 82 FR at 35487 (July 31, 2017).
    \45\ 82 FR at 15028 (April 9, 2018).
---------------------------------------------------------------------------

    The United States Department of Veterans Affairs' appraisal fee 
schedule \46\ for a single-family residence reflects that the typical 
cost of an appraisal generally ranges from $375 to $900, depending on 
the location of the property. The limited information available on the 
cost of evaluations and appraisals suggests that there could be 
material cost savings in connection with the valuation of the property 
for regulated institutions and consumers where an evaluation, as 
opposed to an appraisal, is obtained.
---------------------------------------------------------------------------

    \46\ See VA Appraisal Fee Schedules and Timeliness Requirements, 
available at https://www.benefits.va.gov/HOMELOANS/appraiser_fee_schedule.asp.
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    Question 1. The agencies invite comment on the cost data for 
evaluations and appraisals detailed above. Should the agencies consider 
other data and data sources in assessing the costs of appraisals and 
evaluations to regulated institutions and consumers?
    The agencies also considered the amount of time associated with 
performing and reviewing appraisals and evaluations. There may be less 
delay in finding appropriate personnel to perform an evaluation than to 
perform a Title XI appraisal, particularly in rural areas. As described 
in the Guidelines, financial institutions should also review the 
property valuation prior to entering into the transaction.\47\ The 
agencies estimate that, on average, the review process for an 
evaluation would take substantially less time than the review process 
for an appraisal.\48\ Thus, for affected transactions, the proposed 
rule could reduce the time required for employees to review 
transactions, potentially reducing delay and increasing cost savings of 
obtaining an evaluation instead of an appraisal.
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    \47\ Guidelines, 75 FR at 77461.
    \48\ The agencies have heard from commenters that evaluations 
can, in some cases, require more time to review than appraisals due 
to the limited information contained in some evaluations.
---------------------------------------------------------------------------

    Question 2. The agencies invite comment on the time associated with 
performing and reviewing appraisals versus evaluations. Should the 
agencies consider other data and data sources in assessing the time 
associated with performing and reviewing appraisals and evaluations?
    In considering the aggregate effect of this proposed rule, the 
agencies considered the number of affected transactions. As discussed 
in the Coverage of the Threshold section below, the agencies estimate 
that under the proposed rule, the share of the number of regulated 
transactions exempted from the agencies' appraisal requirement would 
increase from 56 percent to 72 percent. Thus, while the precise number 
of affected transactions and the precise cost reduction per transaction 
is difficult to determine, the proposed rule is expected to lead to 
cost and time savings for regulated institutions and could benefit 
consumers.
    Consumer Protection. Through the EGRPRA process and in response to 
the CRE NPR, the agencies received comments stating that appraisals 
provide some measure of consumer protection, and that increasing the 
appraisal threshold for residential real estate transactions could 
raise consumer protection issues. Indeed, the Dodd-Frank Act's 
amendment to Title XI adding the BCFP to the group of agencies assigned 
a role in the appraisal threshold-setting process indicates 
Congressional views that appraisals can play a role in providing 
protection to consumers who purchase 1-to-4 unit single-family 
residences.\49\ The agencies recognize that appraisals can provide 
protection to consumers by helping to ensure that the estimated value 
of the property supports the purchase price and the mortgage amount. 
Consumer protection considerations contributed to the agencies' 
reluctance to propose increasing the appraisal threshold for 
residential real estate transactions

[[Page 63115]]

immediately after the EGRPRA process.\50\
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    \49\ 12 U.S.C. 3341(b). The Dodd-Frank Act also required the 
BCFP to engage in rulemakings under amendments to Title XI, 
including standards for appraisal management companies (12 U.S.C. 
3353) and automated valuation models (12 U.S.C. 3354). In addition, 
as discussed further in this Supplementary Information, the Dodd-
Frank Act amended two consumer protection laws,--the Truth in 
Lending Act (TILA), 15 U.S.C. 1601 et seq., and Equal Credit 
Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.--to establish new 
requirements for appraisals and other valuation types. See 15 U.S.C. 
1639e and 1639h (TILA) and 15 U.S.C. 1691e (ECOA).
    \50\ See EGRPRA Report, available at https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf.
---------------------------------------------------------------------------

    One consideration in assessing consumer protection issues related 
to this rulemaking is that the agencies have long required evaluations 
in lieu of appraisals for many transactions, including those 
transactions exempted by an appraisal threshold. An evaluation must be 
consistent with safe and sound banking practices \51\ and should 
contain sufficient information and analysis to support the decision to 
engage in the transaction,\52\ although it may be less structured than 
an appraisal. The agencies noted in the Guidelines \53\ and the 
Evaluations Advisory that individuals preparing evaluations should be 
qualified, competent, and independent of the transaction and the loan 
production function of the institution. The agencies believe that 
evaluations prepared accordingly could provide a level of consumer 
protection for transactions at or below the proposed appraisal 
threshold.
---------------------------------------------------------------------------

    \51\ OCC: 12 CFR 34.43(b); Board: 12 CFR 225.63(b); and FDIC: 12 
CFR 323.3(b).
    \52\ Guidelines, 75 FR at 77461.
    \53\ Guidelines, 75 FR at 77457-58.
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    Another consideration is the availability of property valuation 
information to consumers in residential real estate transactions. In 
this regard, the Dodd-Frank Act amended the Equal Credit Opportunity 
Act \54\ (ECOA) to require creditors to provide applicants free copies 
of appraisals and other types of valuations prepared in connection with 
first-lien transactions secured by a dwelling, which include 
evaluations.\55\ When obtained, evaluations must be provided to 
consumers and, thus, provide some consumer protection.\56\
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    \54\ 15 U.S.C. 1691 et seq.
    \55\ See 15 U.S.C. 1691(e), implemented by the BCFP at 12 CFR 
1002.14. The Dodd-Frank Act also amended TILA to require creditors 
to provide applicants free copies of appraisals prepared in 
connection with certain higher-priced mortgage loans (HPMLs). See 15 
U.S.C. 1639h(c), implemented jointly by the OCC, Board, FDIC, NCUA, 
Federal Housing Finance Agency (FHFA), and BCFP at OCC: 12 CFR 
34.203(f); Board: 12 CFR 226.43(f); BCFP: 12 CFR 1026.35(c)(6); 
NCUA: 12 CFR 722.3(f); FHFA: 12 CFR 1222, subpart A (HPML Appraisal 
Rule). The FDIC adopted the HPML Appraisal Rule as published in the 
BCFP's regulation. See 78 FR 78520, 10370, 10415 (December 26, 
2013).
    \56\ 12 CFR 1002.14.
---------------------------------------------------------------------------

    The agencies also note that consumers have significantly more 
access to information relevant to residential real estate values than 
when the appraisal threshold was last increased in 1994. For example, 
property records are often available to the public through the 
internet. These records may include not only a particular property's 
tax assessed value, but also the property's historical sale 
activity.\57\ Consumers also may voluntarily obtain an appraisal before 
engaging in the transaction. Consumers can use this valuation 
information to become better informed before entering into an agreement 
to purchase a specific property.
---------------------------------------------------------------------------

    \57\ Some states (or counties within states) do not publish sale 
amounts, but do provide estimates based on loan amounts or mortgage 
transfer taxes, which could be substantially different from the 
actual sale amount.
---------------------------------------------------------------------------

    At the same time, the agencies recognize that these options might 
not be readily available to or used by some consumers, and that 
appraisals provide more property information to a consumer than an 
evaluation. Given that evaluations are not required to be in a standard 
form and specific content is not mandated, it is also possible that 
some evaluations might be more difficult for consumers to understand or 
lack information about the property typically included in an appraisal 
that could be useful to a consumer.
    Question 3. What valuation information, if any, would consumers 
lose in practice if more evaluations are performed rather than 
appraisals? What additional comments, if any, are there relative to the 
presentation or content of evaluations for residential real estate 
transactions in practice? Please provide data or other evidence to 
support any comments.
    Question 4. To what extent do appraisals or evaluations provide 
benefits or protections for consumers that are purchasing 1-to-4 unit 
single-family residences? What are the nature and magnitude of the 
differences, if any, in consumer protection, including any differences 
in credibility, arising from the use of evaluations rather than 
appraisals, especially with respect to residential real estate 
transactions of $400,000 or less? For example, are there any 
differences with respect to negotiating the price of a home or 
canceling a transaction when an evaluation rather than an appraisal is 
obtained? Please provide data or other evidence to support any 
comments.
    Question 5. To what extent is useful property valuation information 
readily available to consumers through public sources?
    Another consideration is that under federal law, individuals 
performing evaluations are not required to have professional 
credentials for valuing real estate. The agencies acknowledge that 
expanding the appraisal exemption for more residential transactions 
might therefore raise concerns about the accountability of individuals 
performing evaluations and could limit the options for recourse 
available to consumers. For example, the Dodd-Frank Act required 
establishment of a national hotline for complaints against state-
certified and state-licensed appraisers,\58\ and state appraisal 
regulatory agencies have authority to discipline appraisers that 
violate USPAP.\59\
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    \58\ The Dodd-Frank Act instituted a number of reforms to ensure 
the legitimacy, independence, and oversight of appraisals. See Dodd-
Frank Act, Title XIV, Subtitle F--Appraisal Activities, Public Law 
111-203, 124 Stat. 1376, 2185.
    \59\ USPAP is written and interpreted by the Appraisal Standards 
Board of the Appraisal Foundation. USPAP contains generally 
recognized ethical and performance standards for the appraisal 
profession in the United States, including real estate, personal 
property, and business appraisals. See http://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/Uniform_Standards_of_Professional_Appraisal_Practice/TAF/USPAP.aspx?hkey=a6420a67-dbfa-41b3-9878-fac35923d2af.
---------------------------------------------------------------------------

    A further consideration is that appraisal and valuation rules put 
into place to protect consumers would remain unchanged. As noted, under 
ECOA, creditors must provide to consumers in first-lien, dwelling-
secured transactions free copies of valuations, including evaluations, 
in connection with their applications for credit.\60\ In addition, 
appraisals would still be required, regardless of transaction amount, 
for certain HPMLs, pursuant to the HPML Appraisal Rule.\61\
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    \60\ See 15 U.S.C. 1691(e), implemented by the BCFP at 12 CFR 
1002.14.
    \61\ See supra note 55. Transactions covered by the HPML 
Appraisal Rule are limited due to significant exemptions from the 
requirements, including an exemption for qualified mortgages. See, 
e.g., 78 FR 10368, 10418-20 (February 13, 2013).
---------------------------------------------------------------------------

    Further, the interim final rule on valuation independence (IFR on 
Valuation Independence), also implementing TILA, applies to all types 
of valuations (other than valuations produced solely using an automated 
model or system) used in connection with a consumer-purpose transaction 
secured by a consumer's principal dwelling.\62\ Creditors using 
evaluations for transactions covered by this rule must meet standards 
for independence that carry civil liability, regardless of transaction 
size. On this point, the agencies note that one of the benefits of

[[Page 63116]]

evaluations over appraisals that institutions have cited is that they 
can more readily be performed in-house. There are concerns, however, 
that ensuring the independence of financial institution staff 
performing evaluations from the loan production function might be 
difficult to achieve in practice, particularly in smaller institutions.
---------------------------------------------------------------------------

    \62\ The Board issued the IFR on Valuation Independence in 2010 
(effective April 2011) establishing independence rules for consumer 
purpose residential mortgage loans secured by a consumer's primary 
dwelling. See 75 FR 66554 (October 28, 2010) and 75 FR 80675 
(December 23, 2010) (implementing Dodd-Frank Act amendments to TILA 
at 15 U.S.C. 1639e); Board: 12 CFR 226.42; and BCFP: 12 CFR 1026.42. 
Under the Dodd-Frank Act, the IFR on Valuation Independence is 
deemed to have been prescribed jointly by the OCC, Board, FDIC, 
NCUA, BCFP and FHFA. See 15 U.S.C. 1639e(g)(2).
---------------------------------------------------------------------------

    In the Evaluations Advisory, the agencies also observed that 
evaluations may be completed by a bank employee or by a third 
party.\63\ The agencies further observed that, in smaller communities, 
bankers and third-party real estate professionals have access to local 
market information and may be qualified to prepare evaluations for an 
institution.\64\ The evaluation preparer should be knowledgeable, 
competent, and independent of the transaction.
---------------------------------------------------------------------------

    \63\ Evaluations Advisory at 2.
    \64\ See id.
---------------------------------------------------------------------------

    Question 6. How often do institutions use their own internal staff 
to prepare evaluations? What challenges, if any, to meeting 
requirements and standards for independence, particularly in smaller 
institutions, do internally-prepared evaluations present? Similarly, 
what challenges, if any, to meeting requirements and standards for 
independence are presented by evaluations prepared by third parties?
    Finally, if the proportion of residential mortgage transactions 
subject to the Title XI appraisal requirements increases in the future, 
the proposed threshold increase could exempt a larger percentage of the 
overall market of residential mortgage originations, which may have an 
effect on consumer protection. As noted above, loans that are wholly or 
partially insured or guaranteed by, or eligible for sale to, a U.S. 
government agency or U.S. government-sponsored agency, are not subject 
to the agencies' appraisal requirement.\65\ Other federal agencies, 
such as the U.S. Department of Housing and Urban Development, the U.S. 
Department of Veterans Affairs, and the Rural Housing Service of the 
U.S. Department of Agriculture, and the GSEs, which are regulated by 
the Federal Housing Finance Agency (FHFA), have their own authority to 
establish appraisal rules and standards, and generally require 
appraisals by a certified or licensed appraiser for residential real 
estate transactions that they originate, acquire, insure, or guarantee, 
regardless of the value of the loan. The percentage of the market 
comprising loans subject to the requirements of these other entities 
has fluctuated historically. Currently, these loans account for more 
than 6 in 10 of all first-lien, single-family mortgage originations in 
the United States, a level considerably higher than the share in the 
years prior to the most recent financial recession.\66\
---------------------------------------------------------------------------

    \65\ See supra note 18.
    \66\ This figure is based on an analysis the agencies conducted 
using 2017 HMDA data. See supra note 29. See also Housing Finance at 
a Glance, Monthly Chartbook, The Urban Institute, October 2018, p.8. 
According to this source, between 2001 and 2017, the share of first-
lien originations sold to the GSEs or guaranteed or insured by the 
FHA or VA ranged from about 35 percent in 2005 to nearly 90 percent 
in 2009. See id.
---------------------------------------------------------------------------

    Question 7. Are there any other consumer protection concerns raised 
by the proposal that the agencies should consider?
    Burden Relief in Rural Areas. Many commenters in the EGRPRA process 
and to the CRE NPR noted that the requirement to obtain appraisals has 
increased costs and resulted in delays, particularly in rural areas. 
With the rural residential appraisal exemption, Congress added an 
exemption to the agencies' appraisal requirement for certain mortgage 
loans under $400,000 secured by property in rural areas, but the 
exemption is only available where regulated institutions can document 
that they are unable to obtain an appraisal at a reasonable cost and 
within a reasonable timeframe, among other requirements.\67\ The 
proposed rule is broader in scope and would eliminate the agencies' 
appraisal requirement for all residential real estate transactions at 
or below $400,000. The proposed threshold would include all such 
transactions in rural areas without requiring regulated institutions to 
meet the other criteria of the rural residential appraisal exemption.
---------------------------------------------------------------------------

    \67\ See supra note 1.
---------------------------------------------------------------------------

    The 2017 HMDA data show that the proposed rule would provide 
significant burden relief in rural areas. The agencies estimate that 
increasing the appraisal threshold to $400,000 would potentially 
increase the share of exempt transactions from 82 percent to 91 percent 
of the number and from 43 percent to 58 percent of the dollar volume of 
regulated transactions that were secured by residential property 
located in a rural area.\68\
---------------------------------------------------------------------------

    \68\ Estimates based on 2017 HMDA. For the purposes of the HMDA 
analysis, a property is considered to be located in a ``rural'' area 
if it is in a county that is neither in a metropolitan statistical 
area nor in a micropolitan statistical area that is adjacent to a 
metropolitan statistical area, based on 2013 Urban Influence Codes 
(UIC) published by the United States Department of Agriculture. Any 
loans from Census tracts that are missing geographical identifiers 
or undefined in the 2013 UIC have been excluded from the analysis of 
burden relief in rural areas.
---------------------------------------------------------------------------

II. Revisions to the Title XI Appraisal Regulations

A. Threshold Increase for Residential Real Estate Transactions Level of 
Appraisal Threshold Increase

    The agencies propose to increase the appraisal threshold from 
$250,000 to $400,000 for residential real estate transactions. In 
determining the level of the proposed increase, the agencies considered 
the comments received through the EGRPRA process and in response to the 
CRE NPR, as well as a variety of house price and inflation indices. In 
particular, the agencies analyzed the Standard & Poor's Case-Shiller 
Home Price Index (Case-Shiller Index) \69\ and the FHFA Index,\70\ as 
well as the Consumer Price Index (CPI).\71\
---------------------------------------------------------------------------

    \69\ The Case-Shiller Index reflects changes in home prices from 
a base of $250,000 in June 1994, based on the Standard & Poor's 
Case-Shiller Home Price Index. See Standard & Poor's CoreLogic Case-
Shiller Home Price Indices, available at https://us.spindices.com/index-family/real-estate/sp-corelogic-case-shiller.
    \70\ The FHFA Index reflects changes in home prices from a base 
of $250,000 in June 1994, based on the FHFA House Price Index. See 
FHFA House Price Index, available at https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx.
    \71\ The CPI, which is published by the Bureau of Labor 
Statistics, is a measure of the average change over time in the 
prices paid by urban consumers for a market basket of goods and 
services. See https://www.bls.gov/cpi/.
---------------------------------------------------------------------------

    These house price indices reflect that prices for residential real 
estate have increased since 1994. Table 1 shows the expected sales 
price at about its highest amount in 2006, at about its lowest amount 
in 2011, and about its current amount in 2018 relative to a residential 
property that sold for $250,000 in 1994 for each index.

 Table 1--Inflation Adjustments of $250,000 at June 30, 1994, for the Case-Shiller Index and the FHFA Index, and
                                         July 1, 1994 for the CPI Index
----------------------------------------------------------------------------------------------------------------
                          Table 1 year                             Case-Shiller        FHFA             CPI
----------------------------------------------------------------------------------------------------------------
1994............................................................         250,000         250,000         250,000
2006............................................................         578,813         511,636         341,109

[[Page 63117]]

 
2011............................................................         445,152         414,629         379,997
2018............................................................         641,191         611,700         424,031
----------------------------------------------------------------------------------------------------------------

    In proposing to raise the appraisal threshold for residential real 
estate transactions to $400,000, the agencies are approximating housing 
prices on an indexed basis at the low point of the most recent cycle, 
which generally occurred in 2011. For example, the Case-Shiller Index 
reflects that home prices fell from about $578,000 in December 2006 to 
their lowest point of about $445,000 in December 2011. The FHFA Index 
also reflects a similar decline in housing prices, which fell from 
about $512,000 to $415,000 during this same time period. This more 
conservative approach takes into consideration the potential risk 
exposure to institutions that engage in residential real estate 
lending. In addition, the increased appraisal threshold in the proposed 
rule is consistent with general measures of inflation across the 
economy reflected in the CPI since 1994, when the current appraisal 
threshold of $250,000 was set.
    Question 8. Is the proposed level of $400,000 for the threshold at 
or below which regulated institutions would not be required to obtain 
appraisals for residential real estate transactions appropriate?
Safety and Soundness Considerations for Increasing the Appraisal 
Threshold for Residential Real Estate Transactions
    Under Title XI, in setting a threshold at or below which an 
appraisal performed by a state certified or state licensed appraiser is 
not required, the agencies must determine in writing that such a 
threshold level does not pose a threat to the safety and soundness of 
financial institutions.\72\ As noted in the Coverage of the Threshold 
section below, the agencies estimate that approximately 72 percent of 
regulated transactions in 2017 would have been exempt from the 
appraisal requirement under the proposal. However, analysis of 
supervisory experience and available data, taking into account the 
continuing evaluation requirement for transactions that would be 
exempted by the threshold, indicates that the proposed threshold level 
of $400,000 for residential real estate transactions is unlikely to 
pose a threat to the safety and soundness of financial institutions. 
Specifically, the agencies examined data reported on the Consolidated 
Reports of Condition and Income (Call Report) \73\ to determine net 
charge-off rates \74\ for residential real estate transactions. The 
agencies also examined the number and dollar volume of residential real 
estate transactions covered by the existing threshold and the increased 
threshold.
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    \72\ 12 U.S.C. 3341(b).
    \73\ The agencies used data reported on Schedule RC-C of the 
Call Report, which includes the dollar volume of all loans secured 
by real estate, including loans secured by residential properties 
with fewer than five dwelling units (RCFD 1797, 5367, and 5368). See 
FFIEC, Consolidated Reports of Condition and Income for a Bank with 
Domestic and Foreign Offices--FFIEC 031, available at https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_201703_f.pdf.
    \74\ Net charge-offs are charge-offs minus recoveries. Net 
charge-offs represent losses to financial institutions, which, in 
the aggregate, can pose a threat to safety and soundness.
---------------------------------------------------------------------------

Supervisory Experience
    Based on supervisory experience and analysis of material loss 
reviews,\75\ the agencies observe that the substantial increase in 
losses on residential real estate transactions during the recent 
recession has been attributed to a number of factors, such as a 
weakening economy, declining home values, overstating the market value 
of homes in appraisal reports, increasing demand for residential 
mortgage backed securities, relaxing underwriting practices, and the 
expanded use of higher risk loan products. For example, prior to the 
onset of the most recent recession, the financial industry expanded its 
use of non-traditional mortgage products that did not consider 
borrowers' ability to repay on a fully indexed and fully amortizing 
basis. An FDIC study notes, ``Many of the banks that failed did so 
because management relaxed underwriting standards and did not implement 
adequate oversight and controls. For their part, many borrowers who 
engaged in commercial or residential lending arrangements did not 
always have the capacity to repay loans.'' \76\
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    \75\ Section 38(k) of the Federal Deposit Insurance Act, as 
amended, provides that if the Deposit Insurance Fund incurs a 
``material loss'' with respect to an insured depository institution 
(IDI), the Inspector General of the appropriate regulator (which for 
the OCC is the Inspector General of the Department of the Treasury) 
shall prepare a report to that agency, identifying the cause of 
failure and reviewing the agency's supervision of the institution. 
12 U.S.C. 1831o(k).
    \76\ See FDIC, Office of the Inspector General (OIG), EVAL-13-
002, Comprehensive Study on the Impact of the Failure of Insured 
Depository Institutions 50, Table 6 (January 2013), available at 
https://www.fdicoig.gov/sites/default/files/publications/13-002EV.pdf.
---------------------------------------------------------------------------

    Similar concerns are detailed in the material loss review for 
Downey Savings and Loan,\77\ which partly attributed its failure to 
management engaging in higher risk underwriting practices, such as 
offering option adjustable rate mortgages (which give borrowers the 
option of making monthly payments that do not cover the interest 
charges accrued), reducing or not requiring any documentation of 
borrowers' income or assets, accepting lower borrower credit scores, 
and layering two or more of these features in the same loan product. 
Likewise, the material loss review of IndyMac Bank, FSB \78\ listed 
poor loan underwriting, such as offering nontraditional mortgage 
products, failing to verify borrowers' income or assets, and lending to 
borrowers with poor credit histories, among the core weaknesses that 
ultimately caused the thrift to fail. Both material loss reviews also 
noted some concerns with appraisals.
---------------------------------------------------------------------------

    \77\ See Audit Report OIG-09-039, Material Loss Review of Downey 
Savings and Loan, FA (June 15, 2009), available at https://www.treasury.gov/about/organizational-structure/ig/Documents/OIG09039.pdf .
    \78\ See Audit Report OIG-09-032, Material Loss Review of 
IndyMac Bank, FSB (Feb. 26, 2009), available at https://www.treasury.gov/about/organizational-structure/ig/Documents/oig09032.pdf.
---------------------------------------------------------------------------

    In its final report, the National Commission on the Causes of the 
Financial and Economic Crisis in the United States documents the 
pressure appraisers were under from mortgage lenders, brokers, and 
others with an interest in generating loan volume, to meet target 
values in order to complete loan transactions.\79\ As noted earlier, 
among Congressional measures taken in response to the crisis, the Dodd-
Frank Act instituted a number of reforms to ensure the legitimacy, 
independence,

[[Page 63118]]

and oversight of appraisals.\80\ The federal financial institution 
regulatory agencies also issued the Interagency Guidance on 
Nontraditional Mortgage Product Risks \81\ in response to concerns with 
the higher risk attributes of nontraditional mortgage products.
---------------------------------------------------------------------------

    \79\ Financial Crisis Inquiry Commission, The Financial Crisis 
Inquiry Report: Final Report of the National Commission on the 
Causes of the Financial and Economic Crisis in the United States, 
available at https://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.
    \80\ Dodd-Frank Act, Title XIV, Subtitle F--Appraisal 
Activities, Public Law 111-203, 124 Stat. 1376, 2185.
    \81\ See 71 FR 58609 (October 4, 2006).
---------------------------------------------------------------------------

    The agencies do not have data that show that raising the appraisal 
threshold would result in increased loss rates. The agencies note that 
loss rates did not increase in the 13 years after the threshold was 
raised from $100,000 to $250,000 in 1994 and returned to more 
historical levels in 2014 after the implementation of more prudent 
underwriting practices in 2009. The agencies also note that a majority 
of residential real estate transactions are sold to the GSEs or 
otherwise insured or guaranteed by a U.S. government agency, which 
reduces the impact of the agencies' appraisal requirement to an 
estimated three percent of all first-lien, single-family mortgage 
transactions in the United States, based on 2017 HMDA data.\82\ 
Accordingly, the agencies' supervisory experience suggests that an 
increase in the threshold is unlikely to pose a safety and soundness 
risk to financial institutions.
---------------------------------------------------------------------------

    \82\ Estimates based on first-lien, single-family mortgage 
transactions reported in 2017 HMDA data.
---------------------------------------------------------------------------

Analysis of Charge-Off Rates
    The agencies assessed trends in the loss rate experience of 
residential real estate transactions. While the agencies do not 
regularly collect data on rates of loss for residential real estate by 
the size of loans, they do collect net charge-off data for residential 
real estate loans on the Call Report. The agencies considered aggregate 
net charge-off rates for residential real estate loans in determining 
whether the threshold would pose a threat to the safety and soundness 
of financial institutions.
    To evaluate the impact of residential real estate transactions on 
the safety and soundness of the banking system, the agencies compared 
the peak net charge-off rates from 1991 to 2018, which includes two 
recessionary periods. The net charge-off rate for residential real 
estate transactions did not increase after the increase in the 
appraisal threshold from $100,000 to $250,000 in June 1994, which 
indicates that the 1994 threshold increase did not have a negative 
impact on the safety and soundness of regulated institutions. As 
discussed above, housing prices have increased substantially since the 
last increase of this threshold, and the agencies are proposing an 
increase close to the lower bound of the estimate of current value of a 
residential property that sold for $250,000 in 1994.
    The historical loss information in the Call Reports also reflects 
that the net charge-off rate for residential real estate transactions 
did not increase during and after the recession in 2001 through year-
end 2007. During this timeframe, the net charge-off rate ranged from 8 
basis points to 30 basis points. However, the net charge-off rate for 
residential real estate transactions increased significantly from 2008 
through 2013, which was during and immediately after the recent 
recession, ranging from 63 basis points to 204 basis points. This data 
suggests that the loss experience associated with residential real 
estate loans generally stayed at a relatively consistent low rate 
except during the most recent crisis.
    To evaluate whether the loss experience on residential real estate 
loans had an impact on the safety and soundness of regulated 
institutions of varying sizes, the agencies examined peak charge-off 
rates on such loans for all regulated institutions, as well as those 
with total assets under one billion dollars, total assets between one 
billion dollars and ten billion dollars, and total assets of more than 
ten billion dollars. The analysis showed that aggregate peak net 
charge-off rates for residential real estate loans over the most recent 
cycle were generally much worse than those recorded before the prior 
cycle, with larger regulated institutions experiencing a higher loan 
loss rate than regulated institutions with less than $1 billion in 
total assets. However, the loss rates declined to historical levels for 
all regulated institutions in 2014, indicating that the increase in the 
appraisal threshold in 1994 was not a significant contributing factor 
to the safety and soundness of regulated institutions, regardless of 
their size, during the recent recession.
Coverage of the Threshold
    The agencies examined the 2017 HMDA data, as explained above, to 
estimate the number and dollar volume of residential real estate 
transactions covered by the existing and proposed residential appraisal 
thresholds. An analysis using the 2017 HMDA data shows that 
transactions subject to the agencies' current appraisal requirement 
continue to comprise only a small portion of all reported mortgage 
originations. The agencies estimate that approximately 91 percent of 
all mortgages originated in the United States are not subject to the 
agencies' appraisal requirement due to their not being originated by 
regulated institutions, being sold to the GSEs or otherwise insured or 
guaranteed by a U.S. government agency, or having transaction amounts 
at or below the current $250,000 threshold.
    Table 2 shows the aggregate number and dollar volume of regulated 
transactions in 2017 for loans that would have been exempted under the 
current threshold, that would be newly exempted under the proposed 
threshold increase, the totals exempted under the proposed threshold 
increase, and the totals not exempted by the proposed threshold 
increase.

                           Table 2 \83\--Regulated Transactions by Transaction Amount
----------------------------------------------------------------------------------------------------------------
                                                                                                   Total not
                                         Exempted by     Newly exempted by  Total exempted by     exempted by
                                      current threshold  proposed increase       proposed           proposed
                                         of $250,000        to $400,000        increase to        increase to
                                                                                 $400,000           $400,000
----------------------------------------------------------------------------------------------------------------
                                             Number of Transactions
----------------------------------------------------------------------------------------------------------------
Number of Transactions..............            750,000            214,000            965,000            379,000
% of Total..........................                56%                16%                72%                28%
----------------------------------------------------------------------------------------------------------------
                                                  Dollar Volume
----------------------------------------------------------------------------------------------------------------
Dollar Volume ($billions)...........                 96                 68                164                305

[[Page 63119]]

 
% of Total..........................                20%                14%                35%                65%
----------------------------------------------------------------------------------------------------------------

    As  shown, the agencies estimate that increasing the residential 
appraisal threshold to $400,000 would raise the share of the number of 
regulated transactions that would be exempt from 56 percent to 72 
percent and the share of the dollar volume of regulated transactions 
from 20 percent to 35 percent. Thus, the aggregate dollar volume of 
exempted transactions would remain a modest percentage of regulated 
transactions.
---------------------------------------------------------------------------

    \83\ Numbers and dollar volumes are based 2017 HMDA data, and 
include first lien, conventional originations on single-family 
residential properties by FDIC-insured institutions and affiliated 
institutions that are not sold to the GSEs or otherwise insured or 
guaranteed by a U.S. government agency. Originations with loan 
amounts greater than $20 million are excluded. Subtotals may not add 
to totals due to rounding.
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    When the threshold was raised in 1994, the agencies estimated that 
the aggregate dollar volume of exempted transactions due to the 
threshold increase was 85 percent of all new home sales, and 82 percent 
of all existing home sales.\84\ Thus, the agencies expect the proposed 
threshold level to have a much smaller impact on the dollar volume of 
transactions and, therefore would be less likely to pose a safety and 
soundness risk than the current threshold level did when it was 
introduced in 1994.
---------------------------------------------------------------------------

    \84\ 59 FR at 29486 (June 7, 1994).
---------------------------------------------------------------------------

    Question 9. Is the data used in this analysis appropriate? Are 
there alternative sources of data that would be appropriate for this 
analysis?
Evaluation Requirement
    The agencies note that evaluations consistent with safe and sound 
banking practices would continue to be required for residential real 
estate transactions exempted by the increased threshold. Evaluations 
prepared by qualified, competent, and independent individuals who 
provide appropriate supporting information can provide an estimate of 
market value that regulated institutions and consumers can consider. 
The agencies have issued guidance to assist regulated institutions in 
obtaining evaluations.\85\ Regulated institutions and consumers also 
may voluntarily obtain appraisals for exempt transactions when deemed 
appropriate such as higher risk transactions that may pose a threat to 
safety and soundness. The agencies also retain the ability to require 
an appraisal whenever ``necessary to address safety-and-soundness 
concerns.'' \86\ The agencies expect regulated institutions to follow 
general guidelines for safety and soundness found in the Interagency 
Guidelines for Real Estate Lending Policies \87\ and the Interagency 
Guidelines Establishing Standards for Safety and Soundness.\88\
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    \85\ E.g., Guidelines, Evaluations Advisory and Frequently Asked 
Questions on the Appraisal Regulations and the Interagency Appraisal 
and Evaluation Guidelines (October 16, 2018), OCC Bulletin 2018-39; 
Board SR Letter 18-9; FDIC FIL-62-2018.
    \86\ See, OCC: 12 CFR 34.43(c); Board: 12 CFR 225.63(c); and 
FDIC: 12 CFR 323.3(c).
    \87\ OCC: 12 CFR part 34, subpart D; Board: 12 CFR part 208.51 
and part 208, Appendix C; and FDIC: 12 CFR part 365, subpart A, 
Appendix A.
    \88\ OCC: 12 CFR part 30, Appendix A; Board: 12 CFR 208 subpart 
E and Appendix C and D-1; FDIC: 12 CFR part 364, Appendix A.
---------------------------------------------------------------------------

B. Use of Evaluations

    As discussed above, the Title XI appraisal regulations require 
regulated institutions to obtain evaluations for four categories of 
real estate-related financial transactions that the agencies have 
determined do not require a Title XI appraisal, including residential 
real estate transactions at or below the current $250,000 threshold. 
Under the proposal, residential real estate transactions exempted by 
the proposed increase to a $400,000 threshold would be required to 
obtain appropriate evaluations that are consistent with safe and sound 
banking practices.
    The Guidelines describe the transactions for which financial 
institutions are required to obtain an evaluation and advise that 
institutions should develop policies and procedures for identifying 
when to obtain appraisals for such transactions.\89\ An evaluation 
provides an estimate of the market value of real estate, but is not 
subject to the same requirements as a Title XI appraisal. An evaluation 
should provide appropriate information to enable the institution to 
make a prudent decision regarding the transaction. Through the 
Guidelines, the agencies have provided guidance to regulated 
institutions on their expectations regarding when and how evaluations 
should be used.
---------------------------------------------------------------------------

    \89\ Guidelines, 75 FR at 77460.
---------------------------------------------------------------------------

    The Guidelines provide guidance on obtaining appropriate 
evaluations that are consistent with safe and sound banking 
practices.\90\ As described in the Guidelines, evaluations should be 
performed by persons who are competent and have the relevant experience 
and knowledge of the market, location, and type of real property being 
valued.\91\ Evaluations may be completed by an independent bank 
employee or by a third party, as explained by the Guidelines \92\ and 
the Evaluations Advisory.\93\ Guidance on achieving independence in the 
collateral valuation program can be found in the Guidelines, among 
other sources.\94\ The Guidelines state that an evaluation should 
provide an estimate of the property's market value and have sufficient 
information and analysis to support the credit decision.\95\ The 
Guidelines also describe the content that an evaluation should 
contain.\96\
---------------------------------------------------------------------------

    \90\ Id., at 77461.
    \91\ Id., at 77458.
    \92\ Id.
    \93\ Evaluations Advisory at 2.
    \94\ Guidelines, 75 FR at 77457-58. See also Valuation 
Independence rules in Regulation Z, which apply to all creditors and 
cover extensions of consumer credit that are or will be secured by a 
consumer's principal dwelling: Board: 12 CFR 226.42; BCFP: 12 CFR 
1026.42.
    \95\ Guidelines, 75 FR at 77457.
    \96\ Id., at 77461.
---------------------------------------------------------------------------

    Question 10. Will institutions expand their use of evaluations if 
the proposal to raise the residential threshold is finalized or 
continue to use appraisals for the additional residential real estate 
transactions of $400,000 or less that are eligible for this exemption? 
How frequently do lenders obtain evaluations for eligible residential 
real estate transactions in practice? For what types of eligible 
residential real estate transactions are lenders likely to obtain 
evaluations? Please provide data or other evidence to support any 
comments.

[[Page 63120]]

C. Conforming and Technical Amendments

    Definition of Residential Real Estate Transaction. In the CRE Final 
Rule, the agencies defined a CRE transaction as a real estate-related 
financial transaction that is not secured by a single 1-to-4 family 
residential property. The agencies are proposing to extend this 
definitional framework by defining ``residential real estate 
transaction'' as a real estate-related financial transaction that is 
secured by a single 1-to-4 family residential property. The agencies 
are also proposing to clarify in the regulatory text that the proposed 
$400,000 threshold applies to residential real estate transactions. The 
agencies are proposing this approach to provide regulatory clarity and 
believe that this change would not affect any substantive requirement.
    Question 11. Is the proposed definition of a residential real 
estate transaction appropriate?
    Increase in the threshold for the use of state certified appraisers 
for complex residential real estate transactions and other conforming 
changes. The agencies' appraisal regulations require that all complex 
1-to-4 family residential property appraisals rendered in connection 
with federally related transactions shall have a state certified 
appraiser if the transaction value is $250,000 or more.\97\ In order to 
make this paragraph consistent with the other proposed changes to the 
agencies' appraisal regulations, the agencies are proposing changes to 
its wording to incorporate the proposed definition of ``residential 
real estate transaction,'' to introduce the $400,000 threshold, and to 
make other technical and conforming changes. The agencies are also 
proposing to amend the definitional term ``complex 1-to-4 family 
residential property appraisal'' to ``complex appraisal for a 
residential real estate transaction'' to conform to the definition of 
residential real estate transaction. The amendments to these provisions 
would be conforming changes that would not alter any substantive 
requirements.
---------------------------------------------------------------------------

    \97\ OCC: 12 CFR 34.43(d)(3); Board: 12 CFR 225.63(d)(3); FDIC: 
12 CFR 323.3(d)(3).
---------------------------------------------------------------------------

    Evaluations for transactions exempted by the rural residential 
appraisal exemption. Congress recently amended Title XI to exclude 
loans made by a financial institution from the requirement to obtain a 
Title XI appraisal if certain conditions are met.\98\ The property must 
be located in a rural area; the transaction value must be less than 
$400,000; the financial institution must retain the loan in portfolio, 
subject to exceptions; and not later than three days after the Closing 
Disclosure is given to the consumer, the financial institution or its 
agent must have contacted not fewer than three state certified or state 
licensed appraisers, as applicable, and documented that no such 
appraiser was available within five business days beyond customary and 
reasonable fee and timeliness standards for comparable appraisal 
assignments.\99\
---------------------------------------------------------------------------

    \98\ See supra note 1.
    \99\ 12 U.S.C. 3356. The mortgage originator must be subject to 
oversight by a Federal financial institutions regulatory agency. 
Further, the exemption does not apply to loans that are high-cost 
mortgages, as defined in section 103 of TILA, or if a Federal 
financial institutions regulatory agency requires an appraisal 
because it believes it is necessary to address safety and soundness 
concerns. Id.
---------------------------------------------------------------------------

    The proposed rule would amend the agencies' appraisal regulations 
to reflect the rural residential appraisal exemption in the list of 
transactions that are exempt from the agencies' appraisal requirement. 
The amendment to this provision would be a technical change that would 
not alter any substantive requirement, because the statutory provision 
is self-effectuating. In addition, the proposed rule would require 
evaluations for transactions that are exempt from the agencies' 
appraisal requirement under the rural residential appraisal exemption. 
The agencies are proposing that financial institutions obtain 
evaluations for these transactions that will be retained in their 
portfolios, because evaluations protect the safety and soundness of 
financial institutions. Since the early 1990's, the agencies' appraisal 
regulations have required that regulated institutions obtain 
evaluations for certain other exempt residential real estate 
transactions (which in practice are generally retained in their 
portfolios). Requiring evaluations for transactions exempted by the 
rural residential appraisal exemption reflects the agencies' long-
standing view that safety and soundness principles require institutions 
to obtain an understanding of the value of real estate collateral 
underlying most real estate-related transactions they originate. As 
discussed earlier, evaluations should contain sufficient information 
and analysis to support the financial institution's decision to engage 
in the transaction and are important to safety and soundness.
    Question 12. What challenges, if any, are posed by using 
evaluations for transactions that are exempt from the agencies' 
appraisal requirement due to the rural residential appraisal exemption?
    Appraisal review. Section 1473(e) of the Dodd-Frank Act amended 
Title XI to add that appraisals be subject to appropriate review for 
compliance with USPAP to the minimum standards that the agencies must 
require for appraisal for federally related transactions.\100\ The 
proposed rule would make a conforming amendment to the minimum 
requirements in the agencies' appraisal regulations to add appraisal 
review. The agencies propose to mirror the statutory language for this 
standard. As outlined in the Guidelines, which provide guidance on the 
review process, the agencies have long recognized that appraisal review 
is consistent with safe and sound banking practices.\101\
---------------------------------------------------------------------------

    \100\ Dodd-Frank Act, section 1473, Public Law 111-203, 124 
Stat. 1376.
    \101\ Guidelines, 75 FR at 77461.
---------------------------------------------------------------------------

    Question 13. What, if any, concerns are posed by adding a 
requirement to review appraisals that is consistent with the statutory 
language for this standard to the minimum requirements for an 
appraisal?

III. Request for Comments

    The agencies invite comment on all aspects of the proposed 
rulemaking.

IV. Regulatory Analysis

A. Proposed Waiver of Delayed Effective Date

    The agencies propose to make all provisions of the rule, other than 
the evaluation requirement for transactions exempted by the rural 
residential appraisal exemption \102\ and the appraisal review 
provision (as discussed below), effective the first day after 
publication of the final rule in the Federal Register. The agencies 
propose to waive the 30-day delayed effective date required under the 
Administrative Procedure Act (APA) for these provisions, pursuant to 5 
U.S.C. 553(d)(1), which provides for waiver when a substantive rule 
grants or recognizes an exemption or relieves a restriction. The 
amendments proposed to increase the residential threshold would exempt 
additional transactions from the agencies' appraisal requirement, which 
would have the effect of relieving restrictions. Consequently, the 
agencies propose that all provisions of this rule, except the 
evaluation requirement for transactions exempted by the rural 
residential appraisal exemption and the appraisal review provision, 
meet the requirements for waiver set forth in the APA.
---------------------------------------------------------------------------

    \102\ See supra note 1.
---------------------------------------------------------------------------

B. Regulatory Flexibility Act

    OCC: The Regulatory Flexibility Act (RFA), 5 U.S.C. 601 et seq., 
generally requires that, in connection with a

[[Page 63121]]

rulemaking, an agency prepare and make available for public comment a 
regulatory flexibility analysis that describes the impact of the rule 
on small entities. However, the regulatory flexibility analysis 
otherwise required under the RFA is not required if an agency certifies 
that the rule will not have a significant economic impact on a 
substantial number of small entities (defined in regulations 
promulgated by the Small Business Administration (SBA) to include 
commercial banks and savings institutions, and trust companies, with 
assets of $550 million or less and $38.5 million or less, respectively) 
and publishes its certification and a brief explanatory statement in 
the Federal Register together with the rule.
    The OCC currently supervises 1,260 institutions (commercial banks, 
trust companies, federal savings associations, and branches or agencies 
of foreign banks) of which approximately 886 are small entities.\103\ 
The OCC estimates that the proposed rule may impact approximately 797 
of these small entities.
---------------------------------------------------------------------------

    \103\ The OCC bases this estimate of the number of small 
entities on the SBA's size thresholds for commercial banks and 
savings institutions, and trust companies, which are $550 million 
and $38.5 million, respectively. Consistent with the General 
Principles of Affiliation, 13 CFR 121.103(a), the OCC includes the 
assets of affiliated financial institutions when determining whether 
to classify an OCC-supervised institution as a small entity. The OCC 
used December 31, 2017, to determine size because a ``financial 
institution's assets are determined by averaging the assets reported 
in its four quarterly financial statements for the preceding year.'' 
See footnote 8 of the U.S. Small Business Administration's Table of 
Size Standards.
---------------------------------------------------------------------------

    The proposal to increase the residential threshold may result in 
cost savings for impacted institutions. For transactions at or below 
the proposed threshold, regulated institutions would be given the 
option to obtain an evaluation of the property instead of an appraisal. 
While the cost of obtaining appraisals and evaluations can vary and may 
be passed on to borrowers, evaluations generally cost less to perform 
than appraisals, given that evaluations are not required to comply with 
USPAP. In addition to costing less than an appraisal, evaluations may 
require less time to review than appraisals because evaluations 
typically contain less detailed information than appraisals.
    In addition to savings relating to the relative costs associated 
with appraisals and evaluations, the proposed rule may also reduce 
burden for institutions in areas with appraiser shortages. In the 
course of the agencies' most recent Economic Growth and Regulatory 
Paperwork Reduction Act review, commenters contended that it can be 
difficult to find state certified and licensed appraisers, particularly 
in rural areas, which results in delays in completing transactions and 
sometimes increased costs for appraisals.\104\ For this reason, 
substituting evaluations for appraisals may reduce burden for 
institutions in areas with appraiser shortages.\105\
---------------------------------------------------------------------------

    \104\ See EGRPRA Report, available at https://www.ffiec.gov/pdf/2017_FFIEC_EGRPRA_Joint-Report_to_Congress.pdf.
    \105\ While the proposed threshold may decrease costs for 
institutions, the extent to which institutions will employ 
evaluations instead of appraisals is uncertain, given that 
institutions retain the option of using appraisals for below-
threshold transactions.
---------------------------------------------------------------------------

    The proposal to require institutions to obtain an evaluation for 
transactions that qualify for the rural residential appraisal exemption 
could be viewed as a new mandate. However, because the proposed rule 
would increase the residential threshold to $400,000 for all 
residential transactions, institutions would not need to comply with 
the detailed requirements of the rural residential appraisal exemption 
in order for such transactions to be exempt from the agencies' 
appraisal requirement. Therefore, complying with the evaluation 
requirement for below-threshold transactions would be significantly 
less burdensome than complying with the requirements of the rural 
residential appraisal exemption.
    Because the proposal does not contain any new recordkeeping, 
reporting, or significant compliance requirements, the OCC anticipates 
that costs associated with the proposal, if any, will be de minimis. 
Therefore, the OCC certifies that the proposal, if adopted, would not 
have a significant economic impact on a substantial number of small 
entities.
    Board: The Regulatory Flexibility Act (RFA),\106\ requires an 
agency either to provide an initial regulatory flexibility analysis 
with a proposed rule or certify that the proposed rule will not have a 
significant economic impact on a substantial number of small entities. 
The proposed threshold increase applies to certain IDIs and non-bank 
entities that make loans secured by residential real estate.\107\ The 
SBA establishes size standards that define which entities are small 
businesses for purposes of the RFA.\108\ The size standard to be 
considered a small business is: $550 million or less in assets for 
banks and other depository institutions; and $38.5 million or less in 
annual revenues for the majority of non-bank entities that are likely 
to be subject to the proposed regulation.\109\ Based on the Board's 
analysis, and for the reasons stated below, the proposed rule may have 
a significant positive economic impact on a substantial number of small 
entities. Accordingly, the Board is publishing an initial regulatory 
flexibility analysis. The Board will consider whether to conduct a 
final regulatory flexibility analysis after consideration of comments 
received during the public comment period.
---------------------------------------------------------------------------

    \106\ 5 U.S.C. 601 et seq.
    \107\ For its RFA analysis, the Board considered all Board-
regulated creditors to which the proposed rule would apply.
    \108\ 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.
    \109\ Asset size and annual revenues are calculated according to 
SBA regulations. See 13 CFR 121 et seq.
---------------------------------------------------------------------------

    The Board requests public comment on all aspects of this analysis.

A. Reasons for the Proposed Rule

    As discussed in sections I and II of the Supplementary Information, 
the agencies are proposing to increase the threshold from $250,000 to 
$400,000 at or below which a Title XI appraisal is not required for 
residential real estate transactions in order to reduce regulatory 
burden in a manner that is consistent with the safety and soundness of 
financial institutions. To ensure that the safety and soundness of 
regulated institutions is protected, the agencies are proposing to 
require evaluations for transactions that qualify for the residential 
appraisal threshold exemption and rural residential appraisal 
exemption. In order to fulfill the agencies' statutory responsibility 
under the Dodd-Frank Act, the agencies are proposing to add the 
requirement that appraisals be subject to appropriate review for 
compliance with USPAP.

B. Legal Basis

    As discussed above, Title XI explicitly authorizes the agencies to 
establish a threshold level at or below which a Title XI appraisal is 
not required if the agencies determine in writing that the threshold 
does not represent a threat to the safety and soundness of financial 
institutions and receive concurrence from the BCFP that such threshold 
level provides reasonable protection for consumers who purchase 1-to-4 
unit single-family residences.\110\ For transactions exempted by the 
proposed residential appraisal threshold increase and the rural 
residential appraisal exemption, the agencies are proposing to require 
evaluations pursuant to their authority to prescribe standards for safe

[[Page 63122]]

and sound banking practices, including for credit underwriting and real 
estate lending,\111\ under the Federal Deposit Insurance Act. For 
transactions that remain subject to the agencies' appraisal 
requirement, the agencies are proposing to add the requirement that 
such appraisals be subject to appropriate review for USPAP, as required 
by Title XI.\112\
---------------------------------------------------------------------------

    \110\ 12 U.S.C. 3341(b).
    \111\ 12 U.S.C. 1831p-1; 12 U.S.C. 1844(b).
    \112\ 12 U.S.C. 3339(1).
---------------------------------------------------------------------------

C. Projected Reporting, Recordkeeping and Other Compliance Requirements

    The Board's proposed rule would apply to state chartered banks that 
are members of the Federal Reserve System (state member banks), as well 
as bank holding companies and nonbank subsidiaries of bank holding 
companies that engage in lending. There are approximately 607 state 
member banks and 77 nonbank lenders regulated by the Board that meet 
the SBA definition of small entities and would be subject to the 
proposed rule. Data currently available to the Board do not allow for a 
precise estimate of the number of small entities that would be affected 
by the proposed threshold increase and by the rural residential 
appraisal exemption, because the number of small entities that would 
engage in residential real estate transactions qualifying for these 
exemptions is unknown. The requirement that Title XI appraisals be 
subject to appropriate review would apply to all small entities 
regulated by the Board that engage in real estate lending; however, the 
Board does not believe this requirement would impose a significant 
additional burden on such institutions.
    For the small entities that are affected by the threshold increase, 
the proposed rule would reduce reporting, recordkeeping, and other 
compliance requirements. For transactions at or below the proposed 
threshold, regulated institutions would be required to obtain an 
evaluation of the property instead of an appraisal. Unlike appraisals, 
evaluations may be performed by a lender's own employees and are not 
required to comply with USPAP. As previously discussed, the cost of 
obtaining appraisals and evaluations can vary and may be passed on to 
borrowers. Because of this variation in cost and practice, it is not 
possible to precisely determine the cost savings that regulated 
institutions will experience due to the decreased cost of obtaining an 
evaluation rather than an appraisal. However, based on information 
available to the Board, small entities and borrowers engaging in 
residential real estate transactions could experience significant cost 
reductions.
    In addition to costing less to obtain than appraisals, evaluations 
also require less time to review than appraisals because they contain 
less detailed information. As previously discussed, the agencies 
estimate that, on average, the review process for an evaluation would 
take substantially less time than the review process for an appraisal. 
Thus, for affected transactions, the proposed rule could reduce the 
time required for employees to review transactions, potentially 
reducing delay and increasing cost savings of obtaining an evaluation 
instead of an appraisal.
    The Board estimates that the number of residential real estate 
transactions exempted by the threshold would increase by approximately 
29 percent under the proposed rule.\113\ The Board expects this 
percentage to be higher for small entities, because a higher percentage 
of their loan portfolios are likely to be made up of small, below-
threshold loans than those of larger entities. Thus, while the precise 
number of transactions that will be affected and the precise cost 
reduction per transaction cannot be determined, the proposed rule may 
have a significant positive economic impact on small entities that 
engage in residential real estate lending.
---------------------------------------------------------------------------

    \113\ As shown in Table 2, approximately 750,000 transactions 
are exempted under the current $250,000 threshold, and an additional 
214,000 transactions would be exempted under the proposed $400,000 
threshold, representing an increase of approximately 29 percent over 
the number of transactions exempted by the current threshold.
---------------------------------------------------------------------------

    With respect to transactions that qualify for the rural residential 
appraisal exemption, the proposal to require that institutions obtain 
an evaluation could be viewed as an additional burden. However, because 
the agencies also proposed to increase the residential threshold to 
$400,000 for all residential transactions, regulated institutions, 
including small entities, would not need to comply with the detailed 
requirements of the rural exemption in order for such transactions to 
be exempt from the appraisal requirements. The Board believes that 
complying with the requirements of the threshold exemption would be 
significantly less burdensome than complying with the requirements of 
the rural residential threshold exemption, even if no evaluation was 
required for the latter.
    Because the agencies' appraisal requirements already require that 
Title XI appraisals be performed in compliance with USPAP, the proposed 
requirement that such appraisals be subject to appropriate review for 
compliance with USPAP is not expected to impose a significant 
additional burden on regulated institutions, including small entities. 
Additionally, due to the proposed threshold increase, fewer 
transactions would be subject to the agencies' appraisal requirement 
and, thus, the review requirement.
    Overall, the Board expects that the proposed rule may provide a 
significant burden reduction for small entities and borrowers that 
engage in real estate transactions.

D. Identification of Duplicative, Overlapping, or Conflicting Federal 
Regulations

    The Board has not identified any federal statutes or regulations 
that would duplicate, overlap, or conflict with the proposed revisions.

E. Discussion of Significant Alternatives

    The agencies considered additional burden-reducing measures, such 
as increasing the residential threshold to a higher dollar amount, but 
have not proposed such a measure at this time for the reasons 
previously discussed. For transactions exempted from the Title XI 
appraisal requirements, the proposed rule would require regulated 
institutions to obtain an evaluation. The agencies are proposing this 
provision to protect the safety and soundness of financial institutions 
and to protect consumers, which is a legal prerequisite to the 
establishment of any threshold. The Board is not aware of any other 
significant alternatives that would reduce burden on small entities 
without sacrificing the safety and soundness of financial institutions 
or consumer protections.
    FDIC: The Regulatory Flexibility Act (RFA) generally requires that, 
in connection with a proposed rule, an agency prepare and make 
available for public comment an initial regulatory flexibility analysis 
describing the impact of the rulemaking on small entities.\114\ A 
regulatory flexibility analysis is not required, however, if the agency 
certifies that the rule will not have a significant economic impact on 
a substantial number of small entities. The Small Business 
Administration (SBA) has defined ``small entities'' to include banking 
organizations with total assets less than or equal to $550 
million.\115\ The FDIC supervises 3,643

[[Page 63123]]

depository institutions,\116\ of which 2,840 are defined as small 
banking entities by the terms of the RFA.\117\ In 2017, 1,216 small, 
FDIC-supervised institutions reported originating residential real 
estate loans. However, beginning in 2017, FDIC-supervised institutions 
ceased reporting residential loan origination data in compliance with 
HMDA if they originated less than 25 loans per year. Therefore, in 
order to more accurately assess the number of institutions that could 
be affected by the proposed rule we counted the number of existing 
institutions who reported any residential loan origination in 2015, 
2016, or 2017. Thus, of the 2,840 small, FDIC-supervised entities, 
1,524 (53.6 percent) are estimated to be affected by the proposed 
rule.\118\
---------------------------------------------------------------------------

    \114\ 5 U.S.C. 601 et seq.
    \115\ The SBA defines a small banking organization as having 
$550 million or less in assets, where ``a financial institution's 
assets are determined by averaging the assets reported on its four 
quarterly financial statements for the preceding year.'' 13 CFR 
121.201 n.8 (2018). ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates. . . .'' 13 CFR 121.103(a)(6) 
(2018). Following these regulations, the FDIC uses a covered 
entity's affiliated and acquired assets, averaged over the preceding 
four quarters, to determine whether the covered entity is ``small'' 
for the purposes of RFA.
    \116\ FDIC-supervised institutions are set forth in 12 U.S.C. 
1813(q)(2).
    \117\ Call Report, December 31, 2017.
    \118\ HMDA data, December 2015-2017.
---------------------------------------------------------------------------

    The proposed rule is likely to reduce loan valuation-related costs 
for small, covered institutions. By increasing the residential real 
estate appraisal threshold, the proposed rule is expected to increase 
the number of residential real estate loans eligible for an evaluation, 
instead of an appraisal. The FDIC estimates that, on average, the 
review process for an appraisal would take approximately forty minutes, 
but only ten minutes, on average, for an evaluation. Therefore, the 
FDIC estimates that the proposed rule would reduce loan valuation-
related costs for small, FDIC-supervised institutions by 30 minutes per 
transaction. According to the 2017 HMDA data, approximately eight 
percent of residential real estate loans originated by FDIC-insured 
institutions and affiliated institutions are subject to the Title XI 
appraisal requirements and have loan amounts between $250,000 and 
$400,000. Additionally, of the small, FDIC-supervised institutions that 
reported residential loan originations, the average number of 
originations per year was approximately 116. Using the average number 
of originations and the percent exempt from the rule, approximately an 
additional nine originations per year per small, FDIC-supervised 
institution may have an evaluation in lieu of an appraisal. Thus, by 
using evaluations instead of appraisals, a small, FDIC-supervised 
institution may reduce its total annual residential real estate 
transaction valuation-related labor hours by 4.5 hours. The FDIC 
estimates this will result in a potential cost savings for small, FDIC-
supervised institutions of $321.75 per year, per institution.\119\ The 
estimated reduction in costs would be smaller if lenders opt to not 
utilize an evaluation and require an appraisal on residential real 
estate transaction greater than $250,000 but not more than $400,000. 
The cost savings per institution represents less than 0.01 percent of 
non-interest expense per small, FDIC-supervised institution.\120\ Thus, 
the FDIC believes the proposed rule will not have a significant 
economic impact on small, FDIC-supervised institutions.
---------------------------------------------------------------------------

    \119\ 4.5 hours * $71.50 per hour = $321.75. 4.5 hours * $71.50 
per hour = $321.75. The FDIC estimates that the average hourly 
compensation for a loan officer is $71.50 an hour. The hourly 
compensation estimate is based on published compensation rates for 
Credit Counselors and Loan Officers ($44.70). The estimate includes 
the May 2017 75th percentile hourly wage rate reported by the Bureau 
of Labor Statistics, National Industry-Specific Occupational 
Employment and Wage Estimates for the Depository Credit 
Intermediation sector. The reported hourly wage rate is grossed up 
by 159.9 percent to account for non-monetary compensation as 
reported by the June 2018 Employer Costs for Employee Compensation 
Data. 4.5 hours * $71.50 per hour = $321.75. 4.5 hours * $71.50 per 
hour = $321.75.
    \120\ Call Report, December 31, 2017.
---------------------------------------------------------------------------

    The proposed rule is likely to reduce residential real estate 
transaction valuation-related costs for the parties involved. By 
increasing the residential real estate appraisal threshold, the 
proposed rule is expected to increase the number of residential real 
estate loans eligible for an evaluation, instead of an appraisal. As 
discussed previously, the United States Department of Veterans Affairs' 
appraisal fee schedule \121\ for a single-family residence reflects 
that the cost of an appraisal generally ranges from $375 to $900, 
depending on the location of the property. While the FDIC does not have 
definitive information on the cost of evaluations, some of the comments 
from financial institutions and their trade associations to the CRE NPR 
indicated that evaluations cost substantially less than appraisals. For 
example, one commenter noted that third-party evaluations cost 
approximately 25 percent of the cost of an appraisal. Therefore, making 
more residential real estate transactions eligible for evaluations 
instead of appraisals is likely to reduce transaction valuation-related 
costs. However, the FDIC assumes that most, if not all, of these costs 
reductions are passed on to residential real estate buyers. Therefore, 
this effect of the proposed rule is likely to have little or no effect 
on small, FDIC-supervised entities.
---------------------------------------------------------------------------

    \121\ See https://www.benefits.va.gov/HOMELOANS/appraiser_fee_schedule.asp.
---------------------------------------------------------------------------

    The proposed rule is not likely to have any substantive effects on 
the safety and soundness of small, FDIC-supervised institutions. As 
discussed previously, historical loss information in the Call Reports 
reflect that the net charge-off rate for residential transactions did 
not increase after the increase in the appraisal threshold from 
$100,000 to $250,000 in June 1994, or during and after the recession in 
2001 through year-end 2007. During this timeframe, the net charge-off 
rate ranged from 8 basis points to 30 basis points. However, the net 
charge-off rate for residential transactions increased significantly 
from 2008-2013, which was during and immediately after the recent 
recession, ranging from 63 basis points to 204 basis points. The 
increase in the net charge-off rate for loans secured by single 1-to-4 
family residential real estate during the recent recession has been 
attributed to a number of factors, such as a weakening economy, 
declining home values, overstating the market value of homes in 
appraisal reports, increasing demand for residential mortgage backed 
securities, relaxing underwriting practices, and expanding the use of 
higher risk loan products. Therefore, data related to net charge-offs 
of loans secured by 1-to-4 family residential real estate at financial 
institutions suggests that an increase in the threshold would not pose 
a safety and soundness risk. The FDIC believes the proposed rule is 
unlikely to pose significant safety and soundness risks for small, 
FDIC-supervised entities.
    The proposed rule is likely to pose relatively larger residential 
real estate valuation-related transaction cost reductions for rural 
buyers and small, FDIC-supervised institutions lending in rural areas, 
however these effects are difficult to accurately estimate. Home prices 
in rural areas are generally lower than those in suburban and urban 
areas. Therefore, residential real estate transactions in rural areas 
are likely to utilize evaluations more than appraisals, under the 
proposed rule. Additionally, there may be less delay in finding 
qualified personnel to perform an evaluation than to perform a Title XI 
appraisal, particularly in rural areas.
    As described in the Guidelines, financial institutions should 
review the property valuation prior to entering into the transaction. 
As described previously, the FDIC estimates that financial institutions 
require less time to review evaluations than to review appraisals, 
because evaluations contain less detailed information. However, the

[[Page 63124]]

relative distributional effects of the proposed rule for small, FDIC-
supervised institutions engaging in residential real estate 
transactions in rural areas is difficult to accurately estimate because 
it depends on the current and future characteristics of rural 
residential real estate markets, future characteristics of residential 
collateral involved in transactions, the propensity of lenders to 
require an appraisal for transactions between $250,000 but not more 
than $400,000, among other things.
    Finally, by potentially reducing valuation-related costs associated 
with residential real estate transactions for properties greater than 
$250,000 but not more than $400,000, the proposed rule could result in 
a marginal increase in lending activity of small, FDIC-supervised 
institutions for properties of this type. However, the FDIC assumes 
that this effect is likely to be negligible given that the potential 
cost savings of using an evaluation rather than an appraisal, 
represents between 0.05-0.15 percent of the median home price.\122\
---------------------------------------------------------------------------

    \122\ $325/$597,147 = 0.0544 percent; $900/$597,147 = 0.1507 
percent.
---------------------------------------------------------------------------

    For the reasons described above and under section 605(b) of the 
RFA, the FDIC certifies that the proposed rule will not have a 
significant economic impact on a substantial number of small entities.
    The FDIC invites comments on all aspects of the supporting 
information provided in this RFA section. In particular, would this 
rule have any significant effects on small entities that the FDIC has 
not identified?

C. Paperwork Reduction Act

    In accordance with the requirements of the Paperwork Reduction Act 
of 1995 (PRA), \123\ the agencies may not conduct or sponsor, and a 
respondent is not required to respond to, an information collection 
unless it displays a currently-valid Office of Management and Budget 
(OMB) control number. The agencies have reviewed this proposed rule and 
determined that it would not introduce any new or revise any collection 
of information pursuant to the PRA. Therefore, no submissions will be 
made to OMB for review.
---------------------------------------------------------------------------

    \123\ 44 U.S.C. 3501-3521.
---------------------------------------------------------------------------

D. Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act (RCDRIA),\124\ in determining the effective 
date and administrative compliance requirements for new regulations 
that impose additional reporting, disclosure, or other requirements on 
IDIs, each Federal banking agency must 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. 
In addition, section 302(b) of RCDRIA requires new regulations and 
amendments to regulations that impose additional reporting, 
disclosures, or other new requirements on IDIs generally to 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.\125\
---------------------------------------------------------------------------

    \124\ 12 U.S.C. 4802(a).
    \125\ Id. at 4802(b).
---------------------------------------------------------------------------

    The agencies recognize that the requirement to obtain an evaluation 
for transactions exempted by the rural residential appraisal exemption 
\126\ could be considered a new requirement for IDIs, despite the 
longstanding requirements for IDIs to obtain evaluations for 
transactions exempt from agencies' appraisal requirement under a 
threshold exemption. The agencies also recognize that the requirement 
for an appraisal review could be considered a new requirement for IDIs. 
Accordingly, with respect to the requirement that financial 
institutions obtain evaluations for transactions exempted by the rural 
residential appraisal exemption and the requirement for appraisal 
review, the agencies are proposing an effective date of the first day 
of a calendar quarter which begins on or after the date on which the 
regulations are published in final form, consistent with RCDRIA.
---------------------------------------------------------------------------

    \126\ See supra note 1.
---------------------------------------------------------------------------

    Otherwise, the proposed rule would reduce burden and would not 
impose any reporting, disclosure, or other new requirements on IDIs. 
For transactions exempted from the agencies' appraisal requirement by 
the proposed rule (i.e., residential real estate transactions between 
$250,000 and $400,000), lenders would be required to get an evaluation 
if they chose not to get an appraisal. 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 RCDRIA. First, the 
process of obtaining an evaluation is not new since IDIs already obtain 
evaluations for transactions at or below the current $250,000-
threshold. Second, for residential real estate transactions between 
$250,000 and $400,000, IDIs could continue to obtain appraisals instead 
of evaluations. Because the proposed rule would impose no new 
requirements on IDIs, the agencies are not required by RCDRIA to 
consider the administrative burdens and benefits of the rule or delay 
its effective date (other than the evaluation provision for 
transactions exempted by the rural residential appraisal exemption or 
and the appraisal review provision, as discussed above).
    Because delaying the effective date of the proposed rule's 
threshold increase is not required and would serve no purpose, the 
agencies propose to make the threshold increase and all other 
provisions of the proposed rule, other than the evaluation requirement 
for transactions exempt under 103 and the appraisal review provision, 
effective on the first day after publication of the final rule in the 
Federal Register. Additionally, although not required by RCDRIA, the 
agencies did consider the administrative costs and benefits of the rule 
while developing the proposal. In designing the scope of the threshold 
increase, the agencies chose to align the definition of residential 
real estate transaction with industry practice, regulatory guidance, 
and the categories used in the Call Report in order to reduce the 
administrative burden of determining which transactions were exempted 
by the rule. The agencies also considered the cost savings that IDIs 
would experience by obtaining evaluations instead of appraisals and set 
the proposed threshold at a level designed to provide significant 
burden relief without sacrificing safety and soundness.
    The agencies note that comment on these matters has been solicited 
in the Supplementary Information, and that the requirements of RCDRIA 
will be considered as part of the overall rulemaking process. In 
addition, the agencies invite any other comments that further will 
inform the agencies' consideration of RCDRIA.

E. Solicitation of Comments on Use of Plain Language

    Section 722 of the Gramm-Leach-Bliley Act \127\ requires the 
Federal banking agencies to use plain language in all proposed and 
final rules published after January 1, 2000. The agencies have sought 
to present the proposed rule in a simple and straightforward manner and 
invite

[[Page 63125]]

comment on the use of plain language. For example:
---------------------------------------------------------------------------

    \127\ Public Law 106-102, section 722, 113 Stat. 1338, 1471 
(1999).
---------------------------------------------------------------------------

     Have the agencies organized the material to suit your 
needs? If not, how could they present the proposed rule more clearly?
     Are the requirements in the proposed rule clearly stated? 
If not, how could the proposed rules be more clearly stated?
     Do the regulations contain technical language or jargon 
that is not clear? If so, which language requires clarification?
     Would a different format (grouping and order of sections, 
use of headings, paragraphing) make the regulation easier to 
understand? If so, what changes would achieve that?
     Would more, but shorter, sections be better? If so, which 
sections should be changed?
     What other changes can the agencies incorporate to make 
the regulation easier to understand?

F. Unfunded Mandates Act

OCC Unfunded Mandates Reform Act of 1995 Determination
    The OCC has analyzed the proposed rule under the factors in the 
Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1532). Under this 
analysis, the OCC considered whether the proposed rule includes a 
Federal mandate that may result in the expenditure by state, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation). As 
discussed in the OCC's Regulatory Flexibility Act section, the costs 
associated with the proposed rule, if any, would be de minimis. 
Therefore, the OCC concludes that the proposed rule, if adopted as 
final, would not result in an expenditure of $100 million or more 
annually by state, local, and tribal governments, or by the private 
sector.

List of Subjects

12 CFR Part 34

    Appraisal, Appraiser, Banks, Banking, Consumer protection, Credit, 
Mortgages, National banks, Reporting and recordkeeping requirements, 
Savings associations, Truth in lending.

12 CFR Part 225

    Administrative practice and procedure, Banks, banking, Federal 
Reserve System, Capital planning, Holding companies, Reporting and 
recordkeeping requirements, Securities, Stress testing

12 CFR Part 323

    Banks, banking, Mortgages, Reporting and recordkeeping 
requirements, Savings associations.

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 34

    For the reasons set forth in the joint preamble, the OCC proposes 
to amend part 34 of chapter I of title 12 of the Code of Federal 
Regulations as follows:

PART 34--REAL ESTATE LENDING AND APPRAISALS

0
1. The authority citation for part 34 continues to read as follows:

    Authority:  12 U.S.C. 1, 25b, 29, 93a, 371, 1462a, 1463, 1464, 
1465, 1701j-3, 1828(o), 3331 et seq., 5101 et seq., and 
5412(b)(2)(B), and 15 U.S.C. 1639h.
0
2. Section 34.42 is amended by:
0
a. Revising paragraph (f);
0
b. Redesignating paragraphs (k) through (n) as (l) through (o), 
respectively; and
0
c. Adding a new paragraph (k).
    The revisions and addition read as set forth below.


Sec.  34.42  Definitions.

* * * * *
    (f) Complex appraisal for a residential real estate transaction 
means one in which the property to be appraised, the form of ownership, 
or market conditions are atypical.
* * * * *
    (k) Residential real estate transaction means a real estate-related 
financial transaction that is secured by a single 1-to-4 family 
residential property.
* * * * *
0
3. Section 34.43 is amended by:
0
a. Revising paragraphs (a)(1), (b), and (d)(3);
0
b. Removing the word ``or'' at the end of paragraph (a)(12);
0
c. Removing the period at the end of paragraph (a)(13) and adding ``; 
or'' in its place; and
0
d. Adding paragraph (a)(14).
    The addition and revisions read as set forth below.


Sec.  34.43  Appraisals required; transactions requiring a State 
certified or licensed appraiser.

    (a) * * *
    (1) The transaction is a residential real estate transaction that 
has a transaction value of $400,000 or less;
* * * * *
    (14) The transaction is exempted from the appraisal requirement 
pursuant to the rural residential exemption under 12 U.S.C. 3356.
    (b) Evaluations required. For a transaction that does not require 
the services of a State certified or licensed appraiser under paragraph 
(a)(1), (a)(5), (a)(7), (a)(13), or (a)(14) of this section, the 
institution shall obtain an appropriate evaluation of real property 
collateral that is consistent with safe and sound banking practices.
* * * * *
    (d) * * *
    (3) Complex appraisals for residential real estate transactions of 
more than $400,000. All complex appraisals for residential real estate 
transactions rendered in connection with federally related transactions 
shall require a State certified appraiser if the transaction value is 
more than $400,000. A regulated institution may presume that appraisals 
for residential real estate transactions are not complex, unless the 
institution has readily available information that a given appraisal 
will be complex. The regulated institution shall be responsible for 
making the final determination of whether the appraisal is complex. If 
during the course of the appraisal a licensed appraiser identifies 
factors that would result in the property, form of ownership, or market 
conditions being considered atypical, then either:
    (i) The regulated institution may ask the licensed appraiser to 
complete the appraisal and have a certified appraiser approve and co-
sign the appraisal; or
    (ii) The institution may engage a certified appraiser to complete 
the appraisal.
* * * * *
0
4. Section 34.44 is amended by:
0
a. Republishing the introductory text
0
b. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f), 
respectively; and
0
c. Adding a new paragraph (c).
    The addition reads as set forth below.


Sec.  34.44  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
    * * *
    (c) Be subject to appropriate review for compliance with the 
Uniform Standards of Professional Appraisal Practice;
* * * * *

Federal Reserve Board

    For the reasons set forth in the joint preamble, the Board amends 
part 225 of chapter II of title 12 of the Code of Federal Regulations 
as follows:

PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL 
(REGULATION Y)

0
5. The authority citation for part 225 continues to read as follows:


[[Page 63126]]


    Authority:  12 U.S.C. 1817(j)(13), 1818, 1828(o), 1831i, 1831p-
1, 1843(c)(8), 1844(b), 1972(l), 3106, 3108, 3310, 3331 et seq., 
3906, 3907, and 3909; 15 U.S.C. 1681s, 1681w, 6801 and 6805.

0
6. Section 225.62 is amended by:
0
a. Revising paragraph (f);
0
b. Redesignating paragraphs (k) through (n) as (l) through (o), 
respectively; and
0
c. Adding a new paragraph (k).
    The revisions and addition read as set forth below.


Sec.  225.62  Definitions.

* * * * *
    (f) Complex appraisal for a residential real estate transaction 
means one in which the property to be appraised, the form of ownership, 
or market conditions are atypical.
* * * * *
    (k) Residential real estate transaction means a real estate-related 
financial transaction that is secured by a single 1-to-4 family 
residential property.
* * * * *
0
7. Section 225.63 is amended by:
0
a. Revising paragraphs (a)(1), (b), and (d)(3);
0
b. Removing the word ``or'' at the end of paragraph (a)(13);
0
c. Removing the period at the end of paragraph (a)(14) and adding ``; 
or'' in its place; and
0
d. Adding paragraph (a)(15).
    The addition and revisions read as set forth below.


Sec.  225.63  Appraisals required; transactions requiring a State 
certified or licensed appraiser.

    (a) * * *
    (1) The transaction is a residential real estate transaction that 
has a transaction value of $400,000 or less;
* * * * *
    (15) The transaction is exempted from the appraisal requirement 
pursuant to the rural residential exemption under 12 U.S.C. 3356.
    (b) Evaluations required. For a transaction that does not require 
the services of a State certified or licensed appraiser under paragraph 
(a)(1), (a)(5), (a)(7), (a)(14), or (a)(15) of this section, the 
institution shall obtain an appropriate evaluation of real property 
collateral that is consistent with safe and sound banking practices.
* * * * *
    (d) * * *
    (3) Complex appraisals for residential real estate transactions of 
more than $400,000. All complex appraisals for residential real estate 
transactions rendered in connection with federally related transactions 
shall require a State certified appraiser if the transaction value is 
more than $400,000. A regulated institution may presume that appraisals 
for residential real estate transactions are not complex, unless the 
institution has readily available information that a given appraisal 
will be complex. The regulated institution shall be responsible for 
making the final determination of whether the appraisal is complex. If 
during the course of the appraisal a licensed appraiser identifies 
factors that would result in the property, form of ownership, or market 
conditions being considered atypical, then either:
    (i) The regulated institution may ask the licensed appraiser to 
complete the appraisal and have a certified appraiser approve and co-
sign the appraisal; or
    (ii) The institution may engage a certified appraiser to complete 
the appraisal.
* * * * *
0
8. Section 225.64 is amended by:
0
a. Republishing the introductory text;
0
b. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f), 
respectively; and
0
c. Adding a paragraph (c).
    The revisions and addition read as set forth below.


Sec.  225.64  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
    * * *
    (c) Be subject to appropriate review for compliance with the 
Uniform Standards of Professional Appraisal Practice;
* * * * *

Federal Deposit Insurance Corporation

    For the reasons set forth in the joint preamble, the FDIC amends 
part 323 of chapter III of title 12 of the Code of Federal Regulations 
as follows:

PART 323--APPRAISALS

0
9. The authority citation for part 323 continues to read as follows:

    Authority:  12 U.S.C. 1818, 1819(a) (``Seventh'' and ``Tenth''), 
1831p-1 and 3331 et seq.

0
10. Section 323.2 is amended by:
0
a. Revising paragraph (f);
0
b. Redesignating paragraphs (k) through (n) as (l) through (o), 
respectively; and
0
c. Adding a new paragraph (k).
    The revisions and addition read as set forth below.


Sec.  323.2  Definitions.

* * * * *
    (f) Complex appraisal for a residential real estate transaction 
means one in which the property to be appraised, the form of ownership, 
or market conditions are atypical.
* * * * *
    (k) Residential real estate transaction means a real estate-related 
financial transaction that is secured by a single 1-to-4 family 
residential property.
* * * * *
0
11. In Subpart A, section 323.3 is amended by:
0
a. Revising paragraphs (a)(1), (b), and (d)(3);
0
b. Removing the word ``or'' at the end of paragraph (a)(12);
0
c. Removing the period at the end of paragraph (a)(13) and adding ``; 
or'' in its place; and
0
d. Adding paragraph (a)(14).
    The addition and revisions read as set forth below.


Sec.  323.3  Appraisals required; transactions requiring a State 
certified or licensed appraiser.

    (a) * * *
    (1) The transaction is a residential real estate transaction that 
has a transaction value of $400,000 or less;
* * * * *
    (14) The transaction is exempted from the appraisal requirement 
pursuant to the rural residential exemption under 12 U.S.C. 3356.
    (b) Evaluations required. For a transaction that does not require 
the services of a State certified or licensed appraiser under paragraph 
(a)(1), (a)(5), (a)(7), (a)(13), or (a)(14) of this section, the 
institution shall obtain an appropriate evaluation of real property 
collateral that is consistent with safe and sound banking practices.
* * * * *
    (d) * * *
    (3) Complex appraisals for residential real estate transactions of 
more than $400,000. All complex appraisals for residential real estate 
transactions rendered in connection with federally related transactions 
shall require a State certified appraiser if the transaction value is 
more than $400,000. A regulated institution may presume that appraisals 
for residential real estate transactions are not complex, unless the 
institution has readily available information that a given appraisal 
will be complex. The regulated institution shall be responsible for 
making the final determination of whether the appraisal is complex. If 
during the course of the appraisal a licensed appraiser identifies 
factors that would result in the property, form of ownership, or market 
conditions being considered atypical, then either:
    (i) The regulated institution may ask the licensed appraiser to 
complete the appraisal and have a certified appraiser approve and co-
sign the appraisal; or

[[Page 63127]]

    (ii) The institution may engage a certified appraiser to complete 
the appraisal.
* * * * *
0
12. Section 323.4 is amended by
0
a. Republishing the introductory text;
0
b. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f), 
respectively; and
0
c. Adding a paragraph (c).
    The addition reads as set forth below.


Sec.  323.4  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
    * * *
    (c) Be subject to appropriate review for compliance with the 
Uniform Standards of Professional Appraisal Practice;
* * * * *

    Dated: November 15, 2018
Joseph M. Otting
Comptroller of the Currency

    By order of the Board of Governors of the Federal Reserve 
System.
Margaret McCloskey Shanks,
Deputy Secretary of the Board.

    Dated at Washington, DC, on November 20, 2018.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-26507 Filed 12-6-18; 8:45 am]
 BILLING CODE 4810-33-6210-01;6714-14-P