and section 1320.11 of the OMB's implementing regulations. 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. Several commenters voiced concerns about recent price increases, increasing delinquencies, or volatility in the commercial real estate market, which, some asserted, may be indicative of a market “bubble.” Some commenters suggested that it is the wrong time to relax valuation standards, given their view that past market bubbles have been preceded by loosening of underwriting and appraisal standards, and that poor valuation practices contributed to losses during past financial crises. This approach addresses the potential confusion from subjecting two classes of construction loans secured by a single 1-to-4 family residential property to different threshold levels. The agencies have made this safety and soundness determination and a detailed analysis is provided below. Two commenters disagreed with the agencies' use of the term “loan officer” relative to the estimated time for reviewing an appraisal or evaluation, and asserted that the usage of the term could be perceived to imply that originators are permitted to be involved in the appraisal review process, which is contrary to the agencies' appraiser independence requirements. The use of the term “loan officer” was not intended to change standards established on appraiser independence or any implementing guidance. [58] 33. The agencies requested comment on the proposed requirement that regulated institutions obtain evaluations for commercial real estate transactions at or below the proposed commercial real estate appraisal threshold. [22] As noted above, the agencies have issued guidance on the preparation of evaluations.[51]. Therefore, raising the appraisal threshold from $250,000 to $500,000 for commercial real estate transactions Start Printed Page 15033could affect an estimated 2.36 to 6.05 percent of the dollar volume of all commercial real estate transactions originated each year for small FDIC-supervised institutions. The other banking agencies’ 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.” OCC: 12 CFR 34.42(d); Fed: 12 CFR 225.62(d); and FDIC: 12 CFR 323.2(d). 12/21/2020, 144 3339. Another commenter expressed concern that the potential negative consequences of raising the threshold could be exacerbated by the loosening of appraisal standards by the GSEs for some transactions. Specifically, the final rule defines commercial real estate transaction as a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property. 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. Another commenter expressed concern that appraisers' access to sales contracts can lead to an over-abundance of appraised values at or above the amounts in the contracts. The commenter recommended that the agencies provide examples of these types of loans. For a transaction that does not require the services of a State certified or licensed appraiser under paragraph (a)(1), (a)(5), (a)(7), or (a)(13) of this section, the institution shall obtain an appropriate evaluation of real property collateral that is consistent with safe and sound banking practices. Many commenters opposing the proposal highlighted the benefits that state licensed or state certified appraisers bring to the process of valuing real estate collateral. About the Federal Register The OCC has analyzed the final rule under the factors in the Unfunded Mandates Reform Act of 1995 (2 U.S.C. [44] The agencies received several comments indicating that the proposed increase in the commercial real estate appraisal threshold and the increased use of evaluations would provide cost and time savings for consumers and institutions, because evaluations tend to cost less that appraisals and take less time to prepare. Therefore, a consolidated analysis is more likely to be used in an evaluation. An association of state bank supervisors requested that the agencies release further guidance on the Title XI process for temporary waivers of appraiser certification and licensing requirements and also requested that the education requirements for appraiser qualifications be relaxed. 17. Accordingly, the OCC certifies that the final rule will not have a significant economic impact on a substantial number of small entities. documents in the last year, 764 The agencies are increasing the threshold based on express statutory authority to do so if they determine in writing that the threshold does not represent a threat to the safety and soundness of financial institutions. regulatory information on FederalRegister.gov with the objective of As discussed in the proposal, loans that provide construction funding and are secured by a single 1-to-4 family residential property are typically reported as “for construction, land development, and other land loans.” The definition applies to corresponding categories of real estate-secured loans in the FFIEC 041 and FFIEC 051 forms of the Call Report. In addition to considering the agencies' supervisory experience since 1994, the agencies reviewed how the coverage of transactions exempted by the threshold would change, both in terms of number of transactions and aggregate value, in order to consider the potential impact on safety and soundness of increasing the commercial real estate appraisal threshold to $500,000. Some commenters supported increasing the threshold to $500,000 and suggested that this higher figure would avoid the need for additional changes to the threshold in the near-term due to expected increases in prices. Based on their supervisory experiences, the agencies disagree that increasing the commercial real estate appraisal threshold would increase risks to financial institutions, including smaller institutions. documents in the last year. USPAP is written and interpreted by the Appraisal Standards Board of the Appraisal Foundation. As previously discussed, the agencies estimate that the number of commercial real estate transactions that would be exempted by Start Printed Page 15029the threshold is expected to increase by approximately 16 percent under the rule. As described in the proposal, the current Title XI appraisal regulations require that “[a]ll federally related transactions having a transaction value of $250,000 or more, other than those involving appraisals of 1-to-4 family residential properties, shall require an appraisal prepared by a State certified appraiser.” [57] Thus, while the precise number of affected transactions and the precise cost reduction per transaction cannot be determined, the rule is expected to lead to significant cost savings for regulated institutions that engage in commercial real estate lending. • Obtain a written appraisal performed by a certified or licensed appraiser in conformity with USPAP and Title XI of FIRREA and its implementing regulations. This commenter supported subjecting all construction loans to the same treatment, and asserted that doing so would reduce regulatory burden, provide consistency, and allow for more efficient processes. See OCC: 12 CFR 34, subpart C; Board: 12 CFR 225.61(b); 12 CFR part 208, subpart E; and FDIC: 12 CFR part 323. The agencies collectively received over 560 comments regarding the proposal to increase the residential real estate appraisal threshold that addressed a variety of issues. For the hearing impaired only, Telecommunications Device for the Deaf (TDD) users may contact (202) 263-4869. The OCC and the FDIC submitted the information collection requirements to OMB in connection with the proposal under section 3507(d) of the PRA [77] Some commenters expressed concern regarding the length of time required to review an evaluation. The FDIC estimates that the average hourly compensation for a loan officer is $67.29 an hour. 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