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F e d e r a lR e s e r v eB a n k OF DALLAS W ILLIAM H. WALLACE FIRST VIC E PR ES ID EN T AND CH IE F O PER ATING O FFIC ER December 31, 1990 DALLAS. TEXAS 75222 Circular 90-98 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Federal Financial Institutions Examination Council (FFIEC) Appraisal Subcommittee Advisory 90-2 DETAILS The Appraisal Subcommittee of the Federal Financial Institutions Examination Council (FFIEC) has sent the attached advisory on state criteria for licensing of real estate appraisers. The advisory expands and clarifies the August 8, 1990, Advisory 90-1 of the Appraisal Subcommittee concerning qualifications for a state licensed real estate appraiser to be utilized in conjunction with real estate-related financial transactions conducted by regulated financial institutions. The guidance provided in Advisories 90-1 and 90-2 is intended to contribute to consistency among the states. ATTACHMENTS The F F I E C ’s press release and advisory dated November 28, 1990, are attached. MORE INFORMATION Questions concerning the Bo a r d ’s action should be directed to Jane Anne Schmoker at (214) 651-6228. For additional copies of this circular, please contact the Public Affairs Department at (214) 651-6289. Sincerely yours, For additional copies of any circular, please contact the Public Affairs Department at (214) 651-6289. Bankers and others are encouraged to use the following toll-free number in contacting the Federal Reserve Bank of Dallas: (800) 333-4460. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Federal Fina ncial In stitu tio n s Examination Council DC 1 7 7 6 G S treet, N W , S u ite 8 5 0 B • W a s h i n g t o n , 2 0 0 0 6 . (2 0 2 ) 3 5 7 - 0 1 7 7 • F A X (2 0 2 ) 3 5 7 - 0 1 9 1 Press Release For immediate release The Appraisal November 28, 1990 Subcommittee of the Federal Financial Institutions Examination Council has sent the attached advisory on state criteria for licensing of real estate appraisers to interested parties. The Subcommittee expresses its willingness to recognize on a transitional basis State licensed appraisers who meet either the experience or the education requirements established by the States if the individual appraisers satisfy the missing requirement within no more than two years after they are tested and provisionally licensed by the States. the issuance of transitional It is preferred that licenses be permitted only during the first years of a State's new appraiser licensing program. - over - B o a r d o f G o v e r n o r s o f the Federal R e s e r v e S y s t e m , Federal D e p o s i t In su ra n ce C o r p o r a t i o n , N a t i o n a l C red it U n i o n A d m i n i s t r a t o r ’ O f f i c e o f the C o m p t r o l l e r o f the C u r r e n c y , O f f i c e o f T h rift S u p e r v i s i o n - 2 - The Subcommittee recognize real also estate indicates related its experience, willingness such as real to estate lending or real estate brokering, as acceptable to qualify for a license, but only performance or if that experience professional has review included of the actual appraisals. The Subcommittee has earlier recommended to States a set of criteria reflecting meaningful standards for licensed appraisers and is reiterating its general support for the minimum criteria of the Appraiser Qualifications Board of the Appraisal Foundation as a "safe harbor" for licensing. However, the Subcommittee also acknowledges that licensing criteria are a matter for the States and that adoption of other licensing criteria is not necessarily inconsistent with responsibilities, reasonableness of Title XI. the In exercising Subcommittee a State's its will oversight consider licensing criteria the as part of its review of the State's total system. The intended guidance to contribute Subcommittee contribute insure that provided supports to in consistency action to consistency of both temporary Advisories by the among States licensing inter-state # # the that standards. practice reciprocity are conducted on a sound basis. # 90-1 and 90-2 States. will This and is The further is to permanent November 28, 1990 THE APPRAISAL SUBCOMMITTEE OF THE FEDERAL FINANCIAL INSTITUTIONS EXAMINATION OOUNCIL ADVISORY 90-2 nTTTPRT.TNFS REGARDING CRITERIA FOR STATE LICENSED APPRAISERS UTILIZED IN FEDERALLY RELATED TRANSACTIONS Introduction This advisory expands and clarifies the August 8, 1990 Advisory 90-1 of the Appraisal Subcommittee as it concerns qualifications for a State licensed real estate appraiser to be utilized in conjunction with real estate related financial transactions conducted by regulated financial institutions.* Section 1118 of Title XT of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (12 USC 3347) charges the Appraisal Subcommittee with the responsibility to monitor the licensing policies, practices or procedures of each State. Using procedures and criteria provided for in Section 1118, the Appraisal Subcommittee has the authority hot to recognize licenses in a given State. Section 1116(c) of FTRREA (12 USC 3345(c)) defines a "State licensed appraiser" as an individual who has satisfied the requirements for State licensing in a State or territory. (*) There are at this time no Federal laws or regulations All other provisions, comments and criteria contained in Advisory 90-1 remain the position of the Appraisal Subcommittee to the extent not amended or clarified by this Advisory 90-2. - 2 - which set specific licensing criteria. In contrast to the licensing provisions, Section 1116(a) of FERREA specifically defines the minimum criteria for "State certified real estate appraiser" as those issued by the Appraiser Qualifications Board (AQB) of the Appraisal Foundation. In response to several requests, the Appraisal Subcommittee issued its Advisory 90-1 which in part stated that the criteria issued by the AQB for what it terms a "residential real property appraiser" would satisfy the Appraisal Subcommittee's belief that the States should adept meaningful licensing standards. The Subcommittee continues to believe that these standards are consistent with the intent of Title XI but wishes to clarify that, in establishing this "safe harbor", it did not preclude States from adopting other licensing criteria. The criteria for the "residential real property appraiser" provide meaningful standards for the licensing of real estate appraisers but do not represent the only possible set of acceptable standards. Acceptable standards should continue to include meaningful but not overly restrictive education, experience and testing requirements. This may include permitting either the education or experience requirements to be met after passing a licensing test. The Subcommittee will review these requirements and their operation as part of its ongoing overall monitoring of a State's appraiser regulatory scheme. Also, in light of the temporary practice requirements of Section 1122 of FIKREA (12 USC 3351) and the possibility of inter-state practice or permanent reciprocity provisions, the Subcommittee supports actions by the States to develop consistent licensing requirements. - 3 - State Licensing Criteria The following commentary on the AQB "residential real property appraiser" criteria is offered for States seeking to design a system of licensing that, in the Subcommittee's view, would be consistent with Title XT. All persons should be required to pass a meaningful written test before they are licensed to perform appraisals for federally related real estate transactions. An acceptable State licensing test may be one issued or endorsed by the AQB, but in any case it should be one independently reviewed and validated by a qualified source. The Subcommittee believes the AQB's Uniform Examination Content Outline for Residential Real Property Appraiser represents a useful guide to the States in establishing examination requirements. A transitional license valid for a strictly limited period of no more than two years could be issued to an applicant who has passed a test but who lacks either the educational or the experience requirements adopted by the State but not both. While Title XI and the Subcommittee do not impose any limitation on the adoption by the States of such a provision, the Subcommittee prefers that the issuance of transitional licenses be restricted to only the early years (end of 1993) of a State's appraiser licensing program and that thereafter an individual would have to satisfy all requirements before being licensed. The Subcommittee considers it appropriate that the license for an appraiser who has not satisfied all of the experience or education requirements should be identified in some manner to indicate that it is a transitional license and that it is valid for a stated limited period of time and cannot be extended. The Subcommittee believes that the State maintained registers of licensed - 4 - appraisers should identify individuals who hold transitional licenses and the expiration date of such licenses. This provision is desirable in order to avoid the utilization of unqualified appraisers by financial institutions in federally related transactions— which could subject such institutions to supervisory action. The Subcommittee reiterates that a licensed appraiser— transitional or otherwise— is nonetheless bound by the provisions of the Uniform Standards of Professional Appraisal Practice and, in jparticular, its ccsrpetency provision. Experience Requirement The AQB experience requirement for the "residential real property appraiser" currently is two years (defined as a minimum of 2,000 hours) of appraisal experience which includes, but is not limited to: "Fee and staff appraisal, ad valorem tax appraisal, review appraisal, appraisal analysis, real estate counseling, highest and best vise analysis, feasibility analysis/study and teaching of appraisal courses." The Appraisal Subcommittee believes that 2,000 hours is a reasonable standard to insure that licensed individuals have sufficient practical experience. The Subcommittee also notes that the time to achieve the necessary hours of experience may be treated as cumulative. The Subcommittee believes that a State, consistent with Title XI, mi^it well recognize real estate related experience such as that of a real estate lending officer or a real estate broker as being acceptable for some or all of the experience requirement— but - 5 - only if such experience has included the actual performance or professional review of real estate appraisals. Each State is expected to adopt adequate procedures to document and verify the required experience for the licensing of appraisers. Educational Requirement The education requirement of the AQB for the "residential real property appraiser" is 75 classroom hours in certain specific subjects set forth in the AQB's published criteria. The AQB standards, in the Subcommittee's view, reflect meaningful education criteria for licensed appraisers. As indicated above, however, a State may establish such education requirements for licensed appraisers as it deems appropriate, so long as they are consistent with Title XI. The Appraisal Subcommittee will review the State established education requirements to ensure that they are meaningful, both as to the breadth of subject matter and the length of required study. The Subcommittee will examine course subject matter other than that listed by the AQB as a part of its overall review and monitoring of a State's system. The Subcommittee is of the view that 75 hours is a reasonable minimum educational requirement for licensed appraisers, especially in light of the potential for transitional provisions permitting it to be satisfied for a period of up to two years after obtaining a license. Consistent with the AQB criteria, the Subcommittee believes the educational requirement should be fulfilled in actual classroom time rather than through home study and correspondence courses. #
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