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Bank regulators propose expanding exemption for residential appraisals

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WASHINGTON — Three federal bank regulators are proposing to raise the threshold for residential real estate transactions that require an appraisal from $250,000 to $400,000 in order to ease regulatory burdens and keep pace with home prices.

The Federal Deposit Insurance Corp. and the Office of Comptroller of the Currency announced the proposal Tuesday. The third agency, the Federal Reserve Board, is expected to finish its consideration of the notice soon.

In separate press releases, the FDIC and OCC said increasing the threshold by $150,000 would make appraisal requirements less burdensome without threatening the safety and soundness of financial institutions.

If adopted, the proposal would require lenders involved in residential real estate sales under $400,000 to obtain an evaluation “consistent with safe and sound banking practices” instead of an appraisal. Evaluations, which are less costly than appraisals, have been mandatory for real estate sales exempted from the appraisal requirement since the 1990s.

“Evaluations provide an estimate of the market value of real estate but could be less burdensome than appraisals because the FDIC’s appraisal regulations do not require evaluations to be prepared by state licensed or certified appraisers,” the agency said in a release.

The proposal would also incorporate the rural residential appraisal exemption outlined in the regulatory relief bill President Trump signed in May.

The proposal was developed in response to comments submitted to the agencies under the Economic Growth and Regulatory Paperwork Reduction Act. The 1996 law requires the agencies to undertake a review every 10 years to identify outdated or unnecessary rules. Commenters said the current appraisal exemption level for residential transactions — which was last increased in 1994 — has been outpaced by price appreciation in the real estate market.

After the proposal is officially published in the Federal Register, the public will have 60 days to comment on the changes.

In April, the three federal banking regulators raised the appraisal threshold for commercial real estate sales from $250,000 to $500,000. Appraisers fought back on the increase, claiming that the higher threshold would embolden banks to take more risks, while community bankers welcomed the change and said it would help them better compete with nonbank lenders.

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Appraisals Real estate Home prices Regulatory relief Mortgages Community banking FDIC OCC