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EGRPRA Process Concluding; Fate of Possible Appraisal Threshold Increase Awaits

Mar 24, 2016

On March 22, the final comment period related to the Economic Growth and Regulatory Paperwork Reduction act (“EGRPRA”) process for the Federal Financial Institutions Examination Council (“FFIEC”) will close. The EGRPRA process, which requires FFIEC to review its regulations at least once per decade and determine whether the regulatory burden outweighs the benefits of the regulation to overall safety and soundness, includes within it a number of rules covering appraisal requirements. However, the one area of focus during this process has been on the question of whether to increase the existing federal appraisal threshold level (that is, the dollar figure above which an appraisal is required and below which an evaluation may be used instead) from its current $250,000 level to $500,000.

During the final EGRPRA outreach meeting in December in Washington, DC, FDIC Chairman Martin Gruenberg even focused on the threshold, saying in part that FFIEC “have heard frequent comment from participants that regulators should consider whether laws and regulations based on longstanding thresholds should be changed. For example, dollar thresholds for transactions requiring an appraisal." Recognizing the direction of the conversation regarding the threshold, ASA joined with a coalition of eight other appraisal organizations to comment in writing at the meeting in opposition to any proposed increase, stating that “increasing the appraisal threshold levels could have a negative impact on safe and sound real estate lending practices, as it likely would prompt many banks to significantly reduce attention to collateral risk management.” The coalition letter also pointed to the most recent Government Accountability Office study, in which not one stakeholder supported an increase to the threshold. Additionally, ASA and NAIFA sent a second letter further outlining the reasons why an increase to the threshold would not only be bad from policy perspective, but counter to clear Congressional intent.

With the EGRPRA comment period now closing, FFIEC may decide at any point to weigh in on any decision affecting the threshold; to wit, it has already released a guidance document discussing FFIEC’s expectations when an evaluation is used instead of an appraisal. One factor affecting any increase is the Dodd-Frank authority given to the Consumer Financial Protection Bureau to review a proposed increase, and its requirement to concur in the increase before it takes effect. As we learn of any changes coming from FFIEC on the threshold, we will provide updates.

To read the original coalition letter opposing an increase in the threshold, click here. For the ASA/NAIFA letter, click here. Finally, to read the FFIEC guidance document on evaluations, click here.