Raising the Threshold: Decreasing Appraisals Required on Properties

FDIC Federal Register Citations

Notice of Proposed Rulemaking

Real Estate Appraisals

https://www.fdic.gov/regulations/laws/federal/2017/2017-real-state-appraisals-3064-ae-56c.html 

A Response to FDIC Notice of Proposed Rulemaking- Real Estate Appraisals

Consider the following:

1)  Number of “in-house appraisers” currently performing work at financial institutions with little to no appraisal experience.  Years ago, banks were smart enough to carve out exemptions for themselves with regard to oversight of their valuation practices.  One can hardly blame them when the appraisal industry decided to become so bureaucratic that it stopped focusing on the actual needs of the banks and designing products to meet those needs.  There is more pent-up supply of evaluation work available for appraisers than we could probably handle when combined with FRT’s.  The issue here is not whether or not to raise the de-minimis.  The real issue is the lack of common sense that says any regulatory body should enforce standards so far beyond what the market requires.  Some will argue that it compromises the quality of the work, but I don’t believe it’s binary.  However, trying to keep a lid on the de-minimis will neither increase the demand for existing appraisal products nor will it encourage a more risk focused environment. 

2)  A recent study of loan stratification data across the US concluded that the buckets of loans in questions pose little to no systemic risk to the overall financial market, yet require more than 80% of the workload.  In other words, why in the world are we over-regulating loans that are of such little consequence?

RAISE THE THRESHOLD!  And pray that the appraisal industry and its governing agencies will eventually get it right.  Otherwise, the banks will find alternative ways to conduct their business.  Fannie and Freddie have just demonstrated to all of us what this looks like.

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