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Federal Reserve Bank OF DALLAS ROBERT D. M c T E E R , J R . P R E S ID E N T AND C H IE F E X E C U T IV E O F F IC E R June 21, 1993 DALLAS, TEXAS 75222 Notice 93-67 TO: The Chief Executive Officer of each member bank and others concerned in the Eleventh Federal Reserve District SUBJECT Request for Public Comment on a Proposed Interagency Rule to Amend the Real Estate Appraisal Standards in Regulations H and Y DETAILS The Federal Reserve Board is requesting public comment on an interagency proposed rule to amend real estate appraisal standards that are contained in the Board’s Regulations H (Membership of State Banking Institu tions in the Federal Reserve System) and Y (Bank Holding Companies and Change in Bank Control). The proposed amendments would increase to $250,000 the threshold level at or below which appraisals are not required, would expand and clarify existing exemptions to appraisal requirements, and would identify additional circumstances when appraisals are not required. The proposal would also amend existing requirements governing appraisal content and appraiser independence. The Board must receive comments by July 19, 1993. Comments should be addressed to William W. Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W., Washington, D.C. 20551. All comments should refer to Docket No. R-0803. ATTACHMENT 58, A copy of the Board’s notice as it appears on pages 31878-92, Vol. No. 106, of the Federal Register dated June 4, 1993, is attached. MORE INFORMATION For more information, please contact Daniel Kirkland at (214) 922-6256. For additional copies of this Bank’s notice, please contact the Public Affairs Department at (214) 922-5254. Sincerely yours, For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) 31878 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules DEPARTMENT OF THE TREASURY Office of the Comptroller of the Currency 12 CFR Part 34 [Docket No. 83-10] FEDERAL RESERVE SYSTEM 12 CFR Part 225 [Regulation Y; Docket No. R-0803] FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 323 RIN 3064-AB05 DEPARTMENT OF THE TREASURY Office of Thrift Supervision 12 CFR Parts 545, 563, 564 [Docket No. 93-78] RIN 155Q-AAS4 Real Estate Appraisals AGENCIES: Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; and Office of Thrift Supervision, Treasury, ACTION: Notice of proposed rulemaking. SUMMARY: The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision (collectively the agencies) solicit comments on proposed amendments to the agencies' regulations regarding appraisals of real estate, adopted pursuant to Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The proposed amendments would increase to $250,000 the threshold level at or below which appraisals are not required pursuant to Title XI, expand and clarify existing exemptions to the Title XI appraisal requirement, and identify additional circumstances when appraisals are not required under Title XI. In addition, the proposal would amend existing requirements governing appraisal content and appraiser independence. The agencies are proposing these amendments as a result of experience gained from implementing their appraisal regulations. The amendments are an effort to serve federal financial and public policy interests by reducing regulatory burden while requiring Title XI appraisals when such appraisals enhance the safety and soundness of financial institutions or otherwise further public policy. If adopted, this proposal would reduce the number of real estate-related financial transactions that require the services of an appraiser and simplify the preparation of appraisals for federally related transactions. DATES: Comments must be received by July 19,1993. ADDRESSES: Comments should be directed to: Office of the Comptroller of the Currency Communications Division, Comptroller of the Currency, 9th Floor, 250 E Street, SW, Washington, DC 20219, Attention: Docket No. 93-10. Comments will be available for public inspection and photocopying at the same location. Board of Governors of the Federal Reserve System Comments, which should refer to Docket No. R-0803, may be mailed to Mr. William Wiles, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW., Washington, DC 20551. Comments addressed to Mr. Wiles may also be delivered to the Board’s mail room between 8:45 a.m. and 5:15 p.m., and to the security control room outside of these hours. Both the mail room and control room are accessible from the courtyard entrance on 20th Street between Constitution Avenue and C Street, NW. Comments may be inspected in room B-1122 between 9:00 a.m. and 5:00 p.m., except as provided in § 261.8 of the Board’s Rules Regarding Availability of Information, 12 CFR 261.8. Federal Deposit Insurance Corporation Send comments to Hoyle L. Robinson, Executive Secretary, Federal Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC 20429. Comments may be hand delivered to room F—402, 1776 F Street, NW., Washington, DC on business days between 8:30 a.m. and 5 p.m. [FAX number (202) 898-3838]. Comments will be available for inspection and photocopying in room 7118, 550 17th Street, NW.. Washington DC between 9 a.m. and 4:30 p.m. on business days. Office of Thrift Supervision Send comments to Director, Information Services Division, Office of Communications, Office of Thrift Supervision, 1700 G Street, NW, Washington, DC 20552, Attention Docket No. 93-78. These submissions may be hand delivered to 1700 G Street, NYV, from 9:00 a.m. to 5:00 p.m. on business days; they may be sent by facsimile transmission to FAX number (202) 906-7755. Submissions must be received by 5:00 p.m. on the day they are due in order to be considered by the OTS. Late-filed, misaddressed or misidentified submissions will not be considered by the OTS in this rulemaking. Comments will be available for inspection at 1776 G Street, NW, Level 1C. FOR FURTHER INFORMATION CONTACT: Office of the Comptroller of the Currency (OCC) Thomas E. Watson, National Bank Examiner, Office of the Chief National Bank Examiner, (202) 874-5170; or Horace G. Sneed, Senior Attorney, or F. John Podvin, Jr., Attorney, (202) 8744460, Bank Operations and Assets Division. Board of Governors of the Federal Reserve System (Board) Roger Cole, Deputy Associate Director, (202) 452-2618, Rhoger H. Pugh, Assistant Director, (202) 7285883, Stanley B. Rediger, Supervisory Financial Analyst (202) 452-2629, or Virginia M. Gibbs, Supervisory Financial Analyst, (202) 452-2521, Division of Banking Supervision and Regulation; or Gregory A, Baer, Senior Attorney (202) 452-3236 or Christopher Bellini, Attorney (202) 452-3269, Legal Division. Federal Deposit Insurance Corporation (FDIC) Robert F. Miailovich, Associate Director, (202) 898-6918, James D. Leitner, Examination Specialist, (202) 898-6790, Division of Supervision; or Walter P. Doyle, Counsel, (202) 8983682, Legal Division. Office of Thrift Supervision (OTS) Robert Fishman, Program Manager, Credit Risk, Supervision Policy, (202) 906-5672; Deirdre G. Kvartunas, Policy Analyst, Supervision Policy, (202) 9067933; Ellen J. Sazzman, Attorney, Regulations and Legislation Division, Chief Counsel's Office, (202) 906-7133. SUPPLEMENTARY INFORMATION: I. Background Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), 12 U.S.C. 3331 et seq., directs the agencies to publish appraisal rules for federally related transactions within the jurisdiction of each agency. The purpose of the Federal Register / VoL 58, No. 106 / Friday, June 4, 1993 /' Proposed Rules legislation is to provide that federal The amendments also identified financial and public policy interests in additional real estate-related financial real estate related transactions will be transactions that do not require the protected by requiring that real estate services of an appraiser. See 57 FR appraisals utilized in connection with 12190 (OCC) (April 9,1992); 57 FR 9043 federally related transactions are (FDIC) (March 16,1992); 57 FR 12698 performed in writing, in accordance (OTS) (April 13,1992). with uniform standards, by individuals In December 1992, Congress provided whose competency has been that the agencies may set a threshold demonstrated and whose professional level below which the services of state conduct will be subject to effective certified or licensed appraisers are not supervision. See 12 U.S.C. 3331. required in connection with federally Section 1121(4) of FIRREA, 12 U.S.C. related transactions if they determine in 3350(4), defines a federally related writing that the threshold does not transaction as a real estate-related represent a threat to the safety and financial transaction that is regulated or soundness of financial institutions. See engaged in by a federal financial Housing and Community Development institutions regulatory agency and Act of 1992, Public Law 102-550, sec. requires the services of an appraiser. A 954,106 Stat. 3672, 3894 (1992) real estate-related financial transaction (amending 12 U.S.C. 3341). is defined as any transaction that As part of the burden reduction study involves: (i) The sale, lease, purchase, mandated by section 221 of the Federal investment in or exchange of real Deposit Insurance Corporation property, including interests in Improvement Act of 1991, Public Law property, or the financing thereof; (ii) 102-242,105 Stat. 2236, 2305, the the refinancing of real property or agencies reviewed their appraisal interests in real property; and (iii) the regulations to determine if additional use of real property or interests in real changes could be made to reduce property as security for a loan or regulatory burden consistent with investment, including mortgage-backed federal financial and public policy securities. See 12 U.S.C. 3350(5) interests and the safety and soundness (FIRREA section 1121(5)). of regulated institutions. As part of this In July and August of 1990, the process, the agencies requested agencies published regulations to meet comments from the public on ways to the requirements of Title XI of FIRREA. reduce burden. See 55 FR 34684 (August 24,1990) II. Proposed Amendments (OCC); 55 FR 27762 (July 5,1990) (Board); 55 FR 33879 (August 20,1990) As a result of the comments and their (FDIC); 55 FR 34532 (August 23,1990) own experience, the agencies believe (OTS). that the requirement of a Title XI In their appraisal regulations, the appraisal can impose additional direct agencies identify categories of real and indirect costs on both the lender estate-related financial transactions that and the borrower. One result of this do not require the services of an increased cost may be a restriction on appraiser in order to protect federal the availability of credit. In some cases, financial and public policy interests or appraisals may prove so expensive that to satisfy principles of safe and sound they may make a sound small- or banking. These real estate-related medium-sized business loan financial transactions are not federally uneconomical. related transactions under the statutory While in many cases an appraisal is and regulatory definitions. Accordingly, a necessary part of a sound loanthey are subject to neither Title XI of underwriting decision process, the FIRREA nor those provisions of the agencies believe that the statutory agencies’ regulations governing flexibility should be used and that the appraisals. In March and April of 1992, the OCC, agencies should not require Title XI appraisals where they impose FDIC and OTS amended their appraisal significant costs without promoting to a regulations. Those amendments significant extent the safety and increased from $50,000 to $100,000 the threshold at or below which the services soundness of regulated institutions or of an appraiser would not be required.1 furthering the purposes of Title XI of FIRREA. Accordingly, the agencies are proposing to amend their regulations to 1Whon the other agencies initially adopted a clarify and expand the circumstances in threshold level of $50,000, the Board, w hich had already adopted a $1004)00 threshold, sought which a Title XI appraisal is not comment on (1) whether it should conform its level required. to those of the other agencies, and (2) the appropriate minim um standards lor State-licensed appraisers. Because the other agencies then raised their levels to $100,000 and the States have adopted appropriate licensing standards, the Board took no further action on Its proposed rulemaking. 31879 It is also the agencies’ experience that the current minimum standards applicable to federally related transactions and requirements concerning the independence of appraisers can be simplified without significantly affecting the reliability of Title XI appraisals. Therefore, the agencies are proposing to amend their regulations to eliminate regulatory appraisal standards that parallel standards in the Uniform Standards of Professional Appraisal Practice promulgated by the Appraisal Standards Board of the Appraisal Foundation. In addition, the agencies are proposing to amend their regulations concerning appraiser independence to permit regulated institutions to use appraisals prepared for other financial services institutions. The agencies believe that federal financial and public policy interests can be served by making several changes to provisions of their appraisal regulations that identify: (i) When Title XI appraisals are not required; (ii) when an evaluation is needed for real estaterelated financial transactions that do not require Title XI appraisals; and (iii) when an agency may require a Title XI appraisal to address safety and soundness concerns. These changes should reduce regulatory burden, improve credit availability and serve federal financial and public policy interests without threatening the safety and soundness of financial institutions. The agencies also propose to simplify compliance with regulatory requirements for both appraisers and users of the appraisals by changing provisions of their regulations that govern: (i) Publication of the Uniform Standards of Professional Appraisal Practice; (ii) minimum appraisal standards; (iii) unavailable information; (iv) institution developed additional appraisal standards; and (v) appraiser independence. The proposed changes should reduce costs without affecting the reliability of appraisals used in connection with federally related transactions. A. Transactions That Do Not Require Appraisals The proposed amendments identify new categories of transactions for which Title XI appraisals will not be required and expand and clarify existing categories of transactions that do not require Title XI appraisals. 1. Increase the Threshold from $100,000 to $250,000 The agencies propose to increase to $250,000 the threshold level at or below which the services of an appraiser 31880 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules would not be required in connection with real estate-related financial transactions. The current threshold level is set at $100,000. See 12 CFR 34.43(a)(1) (OCC); 12 CFR 225.63(a)(1) (Board); 12 CFR 323.3(a)(1) (FDIC); and 12 CFR 564.3(a)(1) (OTS). The agencies do not regularly collect data on rates of loss by the size of loans because of the excessive burden to the industry associated with the collection of such data. The agencies note, however, that loss information for commercial real estate loans based on a small sample of lending institutions was considered by the Office of Management and Budget (OMB) in a 1992 report2 to Congress prepared pursuant to section 472 of Federal Deposit Insurance Corporation Improvement Act of 1991. That report, which the agencies will include in the rulemaking record, suggests it may be appropriate to approach an increase in the threshold above $100,000 with some caution due to higher loss rates associated with larger commercial loans. Since the establishment of a $100,000 threshold level, the agencies have not found any evidence to indicate that there has been a significant increase in the defaults on reel estate-related loans of $100,000 or less. Furthermore, the agencies believe that faulty estimates of value of real estate collateral are not a major cause of losses in connection with transactions below $100,000. The agencies believe that the low loss experience with the $100,000 threshold stems from the fact that loans secured by l-to-4 family residential real estate comprise the majority of transactions falling below the $100,000 threshold. These loans have not been the cause of major credit losses in the banking system. Data for all commercial banks as of December 1992 show that the net loan charge-off rate3 for l-to-4 family residential real estate loans was 0.20 percent compared to 1.26 percent for all loans. The net loan charge-off rate for savings associations was 0.22 percent for l-to-4 family residential real estate loans compared to 0.51 percent for all loans. The agencies believe that an increase in the threshold level from $100,000 to $250,000 for banks and thrifts would not represent a threat to the safety and soundness of financial institutions. Moreover, the agencies believe that 1 De M inim is Levels fo r Commercial Real Estate Appraisals, Report to Congress, Office of Management and Budget (August 1992). 3The net loan charge-off rate is determ ined by talcing the dollar am ount of gross losses, subtracting the am ount recovered, and dividing the result by the average of outstanding loans. federal financial and public policy interests would continue to be protected if the proposed increase were adopted. The agencies believe that the majority of loans below a $250,000 threshold level would continue to be loans secured by l-to-4 family residential real estate. Thus, the agencies do not believe that loans of $100,001 to $250,000 would pose significantly greater risks to financial institutions than similar loans below the existing threshold. The agencies believe that in the event such losses do occur, the $250,000 threshold would protect the deposit insurance funds and the safety and soundness of financial institutions. Separately, the agencies are proposing an amendment stating that each agency reserves the right to require a regulated institution to obtain a Title XI appraisal whenever the agency believes it is necessary to address safety and soundness concerns. As a matter of policy, the OTS intends to require problem institutions or institutions in a troubled condition to obtain appraisals for transactions of more than $100,000. 2. The "Abundance of Caution” Provision The agencies propose to amend their regulations to clarify and expand the scope of the exemption for real estate liens taken in an "abundance of caution.” The agencies’ appraisal regulations currently provide that an appraisal is not required when a lien on real estate has been taken as collateral solely through an abundance of caution and where the terms of the transaction as a consequence have not been made more favorable than they would have been in the absence of a lien. See 12 CFR 34.43(a)(2)(i) (OCC); 12 CFR 225.63(a)(2) (Board); 12 CFR 323.3(a)(2) (FDIC); and 12 CFR 564.3(a)(2)(i) (OTS). The agencies’ experience with implementing the appraisal regulations indicates that the existing abundance of caution exemption has been interpreted too narrowly. The additional requirement that the transaction would have been made on the same terms absent the lien on real estate collateral has significantly reduced the number of cases in which the exemption applies. To emphasize the broader scope of the abundance of caution exemption, the agencies propose to delete the word "solely" from the current exemption. The agencies also propose to delete the language requiring that the terms of the transaction not be more favorable to the borrower than they would have been in the absence of the real estate lien. To qualify for this exemption, other sources of repayment or collateral must support the decision to extend credit. The application of the proposed amendment is illustrated by the following examples. Example 1: A business with an established cash flow seeks a loan from a regulated institution to purchase an adjacent property for expansion. As a common business practice, the institution takes a lien against real estate whenever available for greater comfort. However, the institution’s analysis determines that the current Income from the business and personal property available as collateral support the decision to extend credit without knowing the real estate’s market value. During loan negotiations, the institution offers to make the loan on slightly better terms for the borrower if it receives a lien on real estate. The borrower accepts the offer and provides the additional real estate collateral. The regulated institution may reasonably conclude that the lien on the real estate was taken in an abundance of caution because the current income from the business and personal property taken as collateral support the decision to extend credit. Therefore, no appraisal would be required. Example 2: The owner of a shop seeks a term loan from a regulated institution for modernization of its facilities. The institution determines that other sources of repayment and collateral do not sufficiently support the decision to extend credit without taking a lien on the real estate and knowing the real estate’s market value. Therefore, in order to prudently extend credit to the borrower, the institution needs an appraisal. The regulated institution should conclude that the real estate lien has not been taken in an abundance of caution because the other sources of repayment and collateral do not support the decision to extend credit without knowing the real estate’s market value. Assuming no other exemption is applicable to this transaction, a Title XI appraisal would be required. 3. Loans Not Secured by Real Estate The agencies propose to adopt a uniform exemption for transactions that are not secured by real estate. Currently, the appraisal regulations of the OCC, FDIC and OTS exempt these transactions. See 12 CFR 34.43(a)(2)(ii) (OCC); 12 CFR 323.3(a)(7) (FDIC); and 12 CFR 564.3(a)(2)(ii) (OTS). However, there are minor differences between the provisions adopted by the OCC and OTS and the provision in the FDIC’s rule. Currently, the Board’s appraisal Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules regulation does not specifically exempt 5. Real Estate-Secured Business Loans these transactions. Less Than $1 Million The proposed amendment would The agencies are proposing a new clarify that a regulated institution does exemption for business loans with a not need a Title XI appraisal when it value of less than $1 million where the makes a loan that is not secured by real sale of, or rental income derived from, the real estate taken as collateral is not estate even though the borrower uses the loan proceeds to purchase or invest the primary source of repayment In connection with this proposed in real estate. For example, this exemption, the agencies also are exemption would be applicable to proposing to amend their regulations to transactions in which the borrower define "business loan.” provides collateral for the loan other The agencies believe that the cost and than real estate or qualifies for delay associated with obtaining an unsecured credit appraisal has had an adverse impact on For transactions that would be the types of small- and medium-sited covered by this proposed exemption, business lending that would be the real estate has no direct effect on the exempted by this provision. In the regulated institution’s decision to experience of the agencies, the appraisal extend credit because the institution has requirement has adversely affected the no legal interest in the real estate as ability of small- and medium-sized collateral. Therefore, the agencies businesses to obtain credit In effect the believe that federal financial and public cost of an appraisal may have impeded policy interests would not be served by small- and medium-sized businesses requiring lenders and borrowers to incur from receiving working capital, the cost of obtaining Title XI appraisals operating loans and other businessin connection with these transactions. related credits that otherwise would be consistent with prudent banking 4. Liens for Purposes Other Than the practice. The agencies do not believe Real Estate's Value that this was the intent of Title XI of The agencies are proposing a new FIRREA, and do not believe that federal exemption for transactions in which a public policy interests are served by regulated institution takes a lien on real requiring a Title XI appraisal in these estate for a purpose other than the value cases. of the real estate. The agencies are proposing an Regulated institutions frequently take exemption designed to serve the public real estate liens to protect legal rights to policy interest in small- and medium sized business lending while ensuring other collateral and not because of the that the safety and soundness of value of the real estate as an individual financial institutions would be asset. For instance, in lending protected. The proposed exemption associated with logging operations, would apply only to transactions regulated institutions typically take a involving business lows with a value lien against the real estate upon which less than $1 million. This would help the timber stands to ensure their access ensure that the transactions would to the timber. Similarly, where the generally involve small- and medium collateral for a loan is a business or sized businesses and that any losses manufacturing facility, a regulated associated with exempting these institution may take a lien against the transactions from the Title XI appraisal land and improvements in order to be able to sell the entire business or facility requirement would not generally pose a threat to the safety and soundness of as a going concern if the borrower financial institutions. defaults. In addition, the exemption would As defined in the agencies’ only apply to transactions where the regulations, an appraisal is a written sale of, or rental income derived from, statement independently and the real estate is not the primary source impartially prepared by a qualified of repayment for the loan. For exempt appraiser setting forth an opinion as to transactions, lenders would need to the market value of real estate. See 12 document the ability of the business to CFR 34.42(a) IOCCI; 12 CFR 225.62(a) repay the loan from business operations. (Board); 12 CFR 323.2(a) (FDIC); and 12 Where the value of the real estate is CFR 564.2(a) (OTS). When the market closely linked to the ability of the value of the real estate as an individual borrower to repay the business loan, an asset is not part of the regulated appraisal would be required unless institution's decision to take a lien another exemption is applicable to the against real estate, no purpose is served transaction. by requiring the institution to obtain an In connection with this exemption, appraisal. the agencies also propose to amend their 31881 regulations to define “business loan” as a loan or extension of credit to any corporation, general or limited partnership, business trust, joint venture, pool, syndicate, sole proprietorship (including an individual engaged in farming), or other business entity. This definition excludes individuals, individual trusts, associations, and unincorporated organizations. The application of the proposed amendment is illustrated by the following examples. Example 1: The owner of a shop seeks a term loan for less than $1 million from a regulated institution. The loan will be repaid with income derived from operations. The regulated institution would not extend credit to the borrower without a lien against the real estate. However, because the loan is less than $1 million and the sale of, or rental income derived from, the real estate is not the primary source of repayment, a Title XI appraisal would not be required for this transaction under this exemption. Example 2: A company acquires an adjacent parcel of land to construct an office building. The company seeks a loan of less than $1 million from a regulated institution to provide construction financing and a permanent mortgage for the office building. The company intends to lease part of the building and will use the rental income to help repay the loan. The lender estimates that operations of the business would contribute approximately 45 percent of the funds necessary to repay the loan and rental income approximately 55 percent. The regulated institution should conclude that rental income derived from the real estate serves as the irimary source of repayment for the oan. Therefore, assuming no other exemption is applicable to the transaction, a Title XI appraisal would be required. t 6. Leases The agencies are not proposing any substantive change to the exemption for operating leases. However, as a result of including new exemptions in the regulations, this exemption is being renumbered. 7. Requirements for Renewals, Refinancings, and Other Subsequent Transactions The agencies propose to amend and clarify the exemption for renewals, refinancings, and other transactions resulting from an existing extension of credit to simplify the conditions under which the exemption applies. 31882 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules The agencies' appraisal regulations currently allow regulated institutions to purchase loans or interests in pools of loans secured by real estate provided that each loan has an appraisal that conforms to the appraisal regulation if it was applicable at the time the loan was originated. See 12 CFR 34.43(a)(5) (OCC); 12 CFR 225.63(a)(5) (Board); 12 CFR 323.3(a)(5) (FDIC); and 12 CFR 564.3(a)(5) (OTS). The proposed amendment would clarify that a regulated institution may engage in certain transactions involving real estate-secured notes without obtaining a new appraisal if the underlying real estate loan was originated prior to the effective date of the appropriate agency’s regulation, or proposed amendment, the use of this the underlying real estate loan was exemption no longer would be originated after the effective date of the conditioned on meeting all of these appropriate agency’s appraisal requirements. regulation and is supported by an i he proposed amendment would permit regulated institutions to renew or appraisal that met the requirements of the appropriate agency’s appraisal refinance any existing extension of regulation either at the time of credit and extend additional funds without obtaining a new Title XI origination or subsequent sale. Tne agencies do not believe that new appraisal if the institution’s collateral protection would not be threatened as a appraisals are required for these result of the transaction. The borrower’s transactions in order to protect federal financial and public policy interests or past performance and ability for future performance are significant factors to be the safety and soundness of financial institutions. In addition, requiring new considered as a matter of prudent appraisals may restrict the market for banking practice when determining purchases, sales, and investments in whether to renew or refinance an existing extension of credit. However, in real estate-secured loans by increasing the absence of a material change in costs for those transactions. market conditions or the condition of 9. Transactions Insured or Guaranteed the property that threaten the by a United States Government Agency institution’s collateral protection, no or United States Government Sponsored purpose is served by obtaining a new Agency Title XI appraisal. For example, a loan The agencies are proposing to amend originally extended with a low loan-totheir appraisal regulations to adopt an value ratio could be renewed without a exemption for transactions that are Title XI appraisal, even though market insured or guaranteed by a United States conditions have deteriorated, if the government agency or government regulated institution concludes that the sponsored agency. new loan-to-value ratio would remain The appraisal regulations of the OCC, low and, therefore, its collateral FDIC, and OTS currently provide that protection would not be threatened. The proposed amendment also would loans insured or guaranteed by an agency of the United States government permit a regulated institution to do not require appraisals. Sea 12 CFR advance additional funds to the 34.43(a)(6) (OCC); 12 CFR 323.3(a)(6) borrower up to a level that would not (FDIC); and 12 CFR 545.32(b) and threaten the institution’s collateral 563.170(c)(l)(iv) (OTS). protection. However, if the advance of The OCC and the FDIC are proposing additional funds alone, or in to amend this provision in their combination with a deterioration in regulations by deleting the requirement market conditions, results in the that the transaction be supported by an regulated institution’s collateral protection being threatened, a new Title appraisal that conforms to the requirements of the insuring or XI appraisal would then be required. guaranteeing agency. In order to receive 8. Transactions Involving Real Estate the insurance or guarantee, the Notes transaction must meet all underwriting The agencies are proposing to amend requirements of the insurer or guarantor, and clarify the current text of the including real estate appraisal or regulation that exempts purchases of evaluation requirements. Therefore, it is real estate-secured loans. unnecessary to require regulated The agencies’ appraisal regulations currently provide that an appraisal is not required for a subsequent transaction that results from a maturing extension of credit if: (i) The borrower has performed satisfactorily according to the original terms; (ii) no new monies are advanced other than as previously agreed; (iii) the credit standing of the borrower has not deteriorated; and (iv) there has been no obvious and material deterioration in market conditions or physical aspects of the property which would threaten the institution’s collateral protection. See 12 CFR 34.43(a)(4) (OCC); 12 CFR 225.63(a)(4) (Board); 12 CFR 323.3(a)(4) (FDIC); and 12 CFR 564.3(a)(4) (OTS). Under the institutions to ensure compliance with appraisal requirements of the federal insurer or guarantor. The OTS also is proposing to adopt this provision as part of its appraisal regulation in 12 CFR Part 564 and, if adopted, will modify its current regulations to be consistent with this provision. The Board is proposing to adopt a new exemption for transactions insured or guaranteed by a United States government agency or government sponsored agency. 10. Transactions That Meet the Qualifications for Sale to a United States Government Agency or Government Sponsored Agency The agencies are proposing to adopt an exemption for transactions that meet the qualifications for sale to a United States government agency or government sponsored agency. Currently, the appraisal regulations of the OCC, FDIC and OTS provide that appraisals in connection with transactions involving l-to-4 family residential properties need not comply with certain appraisal standards if the appraisals conform to the appraisal standards approved by the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac). See 12 CFR 34.44(b) (OCC); 12 CFR 323.4(b) (FDIC); and 12 CFR 564.8(d)(1) (OTS). The proposed amendment would permit a regulated institution to originate, hold, buy or sell transactions that meet the qualifications for sale to any United States government agency or government sponsored agency without obtaining a Title XI appraisal. The agencies believe that the appraisal standards of U.S. government agencies or government sponsored agencies established to maintain a secondary market in loans are sufficient to protect federal financial and public policy interests in the loans those government or government sponsored agencies purchase. The agencies also believe that compliance with these standards will protect the safety and soundness of financial institutions. By referring to any U.S. government agency or U.S. government sponsored agency, the proposed amendment would include transactions that meet the qualifications for sale to entities such as the College Construction Loan Insurance Association and Federal Agricultural Mortgage Corporation, as well as the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation. Tne agencies believe that permitting regulated institutions to follow these Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules standardized appraisal requirements, without the necessity of obtaining an additional appraisal or appraisal supplement, will increase institutions’ ability to buy and sell these loans and their liquidity. If the proposed amendment is adopted, the OCC, FDIC and OTS would delete their current provisions. The Board has no similar provision. B. Use o f Evaluations The agencies are proposing minor changes to the provisions of their regulations governing the use of evaluations. Currently, the OCC, Board and OTS require evaluations for all transactions that do not require appraisals. See 12 CFR 34.43(a) (OCC); 12 CFR 225.63(a) (Board); and 12 CFR 564.3(a) (OTS). The FDIC’s regulation provides that 11. Transactions by Regulated supervisory guidelines, general banking Institutions as Fiduciaries practices or other prudent standards The agencies are proposing a new may require an appropriate valuation of exemption for transactions in which a real property collateral. See 12 CFR regulated institution is acting in a 323.3(a). The agencies believe that the fiduciary capacity and is not required to effect of these provisions for some obtain an appraisal under other law. regulated institutions may have been to The agencies do not believe that a require evaluations for certain real Title XI appraisal should be required estate-related financial transactions when a regulated institution engages in when the evaluations did not assist in a real estate-related financial transaction protecting the safety and soundness of in a fiduciary capacity, unless other the institutions. federal, state or common law requires an The agencies propose to amend this appraisal for those transactions. Losses provision to state that evaluations as a result of these transactions would should be obtained for some, but not all, not, absent some negligence by the real estate-related financial transactions institution, be incurred by the that do not require Title XI appraisals. institution. Thus, exempting these Under the proposed amendment, transactions from the Title XI appraisal regulated institutions would be requirement should not adversely affect expected to obtain an evaluation the safety and soundness of financial whenever necessary to assist the institutions. When an appraisal is institution in its decision to enter into required under other law, it should the real estate-related financial conform to the requirements of the transaction. These include transactions agencies’ regulations. below the threshold level, business loans below $1 million where real estate 12. Transactions Where the Services of is not the primary source of repayment, an Appraiser Are Not Necessary To and transactions resulting from an Protect Federal Financial and Public existing extension of credit. Policy Interests C. Appraisals to Address Safety and As a result of their experience in Soundness Concerns implementing their regulations, the agencies recognize that it is impossible The agencies are proposing to amend to identify all transactions for which the their regulations to clarify that each services of an appraiser should not be agency may require Title XI appraisals required under Title XI of FIRREA. The to address safety and soundness specific exemptions of the proposed concerns. Under this provision, the regulation describe the major categories agencies could require appraisals where of transactions that would not require real estate-related financial transactions appraisals. However, the agencies are present greater-than-normal risk to proposing to retain the authority to individual institutions. For example, an determine in a given case that the agency may require a problem services of an appraiser are not required institution or an institution in troubled in order to protect federal financial and condition to obtain appraisals for public policy interests in real estatetransactions below the proposed related financial transactions or to threshold level. protect the safety and soundness of the D. Publication o f USPAP institution. The agencies also are seeking 13. Definition of Real Estate comment on alternatives to the current The Board is proposing to incorporate practice of publishing the Uniform the definition of real estate and real Standards of Professional Appraisal property currently employed by the Practice (USPAP) as an appendix to other agencies. That definition each agency's appraisal regulation. specifically excludes mineral rights, Section 1107 of FIRREA states that timber rights, growing crops, water appraisal standards shall be prescribed rights, and similar interests. in accordance with procedures set forth 31883 in section 553 of title 5, United States Code, including the publication of notice and receipt of written comments or the holding of public hearings with respect to any standards or requirements proposed to be established. As part of the effort to simplify their regulations, the agencies are considering three alternatives for satisfying the statutory requirement to publish appraisal standards applicable to federally related transactions. Under Alternative I, the applicable provisions of the USPAP would be repeated in the agencies’ regulations. Under Alternative II, the provisions of the USPAP would be included in the agencies’ rules through incorporation by reference. Under both Alternatives I and II, a failure to comply with the USPAP in any particular transaction would be a violation of the regulation. Therefore, if an agency wanted to pursue an enforcement or remedial action against a regulated institution, the agencies would only have to show that the USPAP was not followed. In addition, under Alternatives I and II the agencies would have to comply with the notice and comment requirements of the Administrative Procedure Act, 5 U.S.C. 553, in order to adopt any substantive changes to the USPAP promulgated by the Appraisal Standards Board of the Appraisal Foundation. This could mean that the version of the USPAP used by the agencies and regulated institutions could be outdated. Institutions, therefore, would not be able to use the substantive changes of the current version of the USPAP until the agencies could amend their regulations in accordance with notice and comment rulemaking procedures. Under Alternative III, the USPAP would not be a part of the agencies’ regulations. Adopting this approach would mean that a failure to follow the USPAP would not constitute a violation of the regulation. Therefore, if an agency wanted to pursue an enforcement or remedial action against a regulated institution, it would have to demonstrate that the failure to follow the USPAP in the particular situation violated generally accepted appraisal standards. Under this alternative, the agencies would not have to republish changes to the USPAP adopted by the Appraisal Standards Board. References to the USPAP would not be to a particular edition. Instead, references would be assumed to always mean the most current edition. 31884 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules E. Minimum Standards The agencies propose to amend their regulations to reduce the number of minimum appraisal standards applicable to Title XI appraisals for federally related transactions from 14 to four and eliminate the current prohibition on the use of the USPAP Departure Provision in connection with federally related transactions. Title XI of FIRREA states that each federal financial institutions regulatory agency shall prescribe appropriate standards for the performance of real estate appraisals in connection with federally related transactions under the jurisdiction of each such agency. These rules shall require, at a minimum that: (i) real estate appraisals be performed in accordance with generally accepted appraisal standards as evidenced by the standards promulgated by the Appraisal Standards Board of the Appraisal Foundation; and (ii) that such appraisals shall be written appraisals. Under Title XI, each agency may require compliance with additional standards if it makes a determination in writing that such additional standards are necessary in order to properly carry out its statutory responsibilities. At the time the agencies began drafting their appraisal regulations, the Appraisal Standards Board was in the process of amending its appraisal standards. Because of uncertainty about the content of the standards that would be promulgated by the Appraisal Standards Board, and the interpretation of those standards, the agencies included within their appraisal regulations 13 minimum standards that paralleled existing or proposed USPAP standards. Compliance with these 13 standards was required in addition to compliance with the USPAP. The agencies also prohibited the use of the USPAP Departure Provision in connection with federally related transactions. The Departure Provision permits an appraiser to prepare an appraisal without complying with certain recommended provisions of the USPAP if the appraisal report is not rendered misleading. The agencies have gained considerable experience with the Appraisal Standards Board and its appraisal standards and believe that it is no longer necessary to include all the additional standards in their appraisal regulations. The agencies also believe that the Departure Provision of the USPAP may appropriately be used in connection with federally related transactions. In addition to the standard involving the USPAP, the agencies are proposing to adopt three minimum standards that would require Title XI appraisals to: (i) be written; (ii) set forth a market value as defined in the regulation; and (iii) be performed by a certified or licensed appraiser in accordance with the regulation. Although the agencies are proposing to streamline their appraisal regulations by eliminating standards in their current regulations that parallel USPAP requirements, the agencies are requesting specific comment on whether other minimum standards should be required. F. Elimination o f Provision on Unavailable Information The agencies are proposing to delete the current provision that requires appraisers to disclose and explain when information necessary to the completion of an appraisal is unavailable. See 12 CFR 34.44(c) (OCC); 12 CFR 225.64(b) (Board); 12 CFR 323.4(c) (FDIC); and 12 CFR 564.4(b) (OTS). The USPAP currently requires appraisers to disclose and explain the absence of information necessary to completion of an appraisal that is not misleading. See USPAP Standard Rule 2-2(k). Therefore, the elimination of this provision would not result in a substantive change in the requirements applicable to appraisals for federally related transactions if the agencies continue to require, as a minimum standard, that appraisals conform to standards contained in the USPAP, either as adopted and published by the agencies or incorporated by reference into the agencies’ regulations. Elimination of this provision could result in a change in the enforceability of this requirement if the agencies adopt Alternative III, which would establish a minimum appraisal standard that requires appraisals to conform to generally accepted appraisal standards as evidenced by the USPAP, rather than adopting Alternatives I and II, which would establish a standard that requires compliance with the USPAP. Under Alternative in, a regulated institution that accepted an appraisal in which the appraiser failed to disclose and explain the absence of information necessary to completion of an appraisal that is not misleading would be in violation of the regulation only if generally accepted appraisal standards required the absence pf necessary information to be disclosed and explained. While the regulated institution’s failure to comply with the USPAP would not be a violation of the regulation, the agencies would rely on USPAP Standard Rule 2-2(k) as evidence of what constitutes generally accepted appraisal standards in determining whether the regulated institution met the minimum standard. G. Elimination o f Provision on Additional Appraisal Standards The agencies propose to delete the current provision confirming that the agencies’ adoption of minimum appraisal standards for federally related transactions does not prevent a regulated institution from requiring appraisers to comply with additional standards. See 12 CFR 34.44(d) (OCC); 12 CFR 225.64(c) (Board); 12 CFR 323.4(d) (FDIC); and 12 CFR 564.4(c) (OTS). A regulated institution may ask the appraisers it hires to provide any additional information the institution may require in connection with the preparation of an appraisal. The agencies believe that regulated institutions retain the authority to require appraisers to provide additional information to satisfy the institutions’ business needs. H. Appraiser Independence The agencies are proposing to amend and clarify their appraisal regulations to permit use of appraisals prepared for financial services institutions other than institutions subject to Title XI of FIRREA. The agencies’ current appraisal regulations provide that fee appraisers must be engaged by the regulated institution or its agent. An exception to this requirement is permitted if the appraiser is directly engaged by another institution that is subject to Title XI of FIRREA. The current provision was adopted to help ensure that appraisers would not be subject to conflicts of interest as a result of having been engaged by borrowers. However, the agencies believe that the current provision is too restrictive. It requires a regulated institution to obtain a new appraisal if the borrower originally sought the loan from an institution that is not subject to Title XI of FIRREA and is not an agent of the regulated institution. There also has been uncertainty about the meaning of agent in these cases. The agencies propose to permit a regulated institution to use an appraisal that was prepared for any financial services institution, including mortgage bankers. The appraiser would not be allowed to have a direct or indirect interest, financial or otherwise, in the property or the transaction, and must nave been directly engaged by the non* regulated institution. Further, the regulated institution would be required to ensure that the appraisal conforms to Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules the requirements of the regulation and is otherwise acceptable. III. Public Comment The agencies are requesting public comment on all aspects of their proposed rules as well as specific comment on certain proposals. All comments are voluntary and no individual or institution is required to provide any of the information requested below, nor must comments be provided in any particular format. The agencies are requesting comment in Questions 1 through 9 concerning the threshold level, loss history for certain transactions, effect of the proposed changes on credit availability, effect of the proposed threshold on housing loans sold in the secondary market, proposed exemption for business loans, proposed exemption for sales to government agencies or government sponsored agencies, and the effect of the current regulation on the cost and time needed to complete certain transactions. In addition, the agencies request comment on whether the four proposed minimum standards for appraisals are sufficient to serve the purposes of Title XI. In particular, the agencies request comment on whether the regulations (or other agency guidance) should incorporate any of the current standards, the standards discussed in questions 10 through 13 below, or any other standard. It would assist the agencies in reviewing the comments if commenters referred to the numbers listed below when responding to those requests for comment Further, commenters are 31885 asked to clearly identify the exemption or provision they are discussing. All commenters are advised that, pursuant to the Administrative Procedure Act, all information provided to the agencies will be available for public inspection. A. Specific Comment 1. Threshold Level Should the agencies increase the threshold level below which an appraisal is not required from $100,000 to $250,000, and why? Would a threshold higher than $250,000 be appropriate, and why? 2. Loss Experience (a) Threshold Level. Number of loans Real estate-secured loans and size of loans Outstand ing prin cipal amount of loans (12/ 31/92) Loss on loans (an nual net chargeoffs) (12/ 31/92) Loans secured by 1-to-4 family residential real estate: Loans greater than $250,000 ........................ ................................................................................. Loans of $250 000 or less ........................................... Loans secured by commercial real estate: Loans greater than $250 000 ............................................. Loans of $250,000 or le s s ....................................................................................................................... (b) Business Loans Less than $1 Million Where Sale of. or Rental Income Derived from, the Real Estate Taken as Collateral is Not the Primary Source o f Repayment. Number of loans (12/ 31/92) Real estate-secured loans Outstand ing prin cipal amount of loans (12/ 31/92) Loss on loans (an nual net chargeoffs) (12/ 31/92) All real ©state-secured business lo a n s ................ .................... ..................................................... Real estate-secured business loans less than $1 million that are not dependent on the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment for the 3. Credit Availability (a) To what extent, if any, will an increase in the threshold level to $250,000 affect the availability of credit for real estate-secured loans below $250,000? Where possible, please provide quantitative data on the expected effect on lending. (b) To what extent, if any, would the proposed amendment exempting real estate-secured business loans (including farm loans) of less than $1 million that are not dependent upon the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment, affect the availability of credit for small- and medium-sized businesses? Where possible, please provide quantitative data on the expected effect on lending to small- and medium-sized businesses. (c) To what extent, if any, would the proposed amendments affect the availability of credit for community development lending? Where possible, please provide quantitative data on the expected effect on community development lending. 4. Effect of the Proposed $250,000 Threshold on Housing Loans Sold in the Secondary Market To what extent, if any, do you sell your housing loans on the secondary market, e.g., to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation? How often is an appraisal required regardless of the size of the loan in these cases? What effect, if any, would an increase in the threshold to $250,000 have on these types of housing loans? Where possible, please provide quantitative data. 5. Business Loans Less Than $1 Million Secured by Real Estate That are Not Dependent on the Sale of, or Rental Income Derived From, the Real Estate Taken as Collateral as the Primary Source of Repayment (a) Should the exemption for real estate-secured business loans be based on the extent to which the primary source of repayment of the loan is dependent upon the sale of, or rental 31886 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules income derived from, the real estate collateral? If yes, at what point should reliance on the sale of, or rental income derived from, the real estate taken as collateral be considered the "primary source” of repayment, and why? If no, what are alternative criteria that would be consistent with safety and soundness concerns, and why? (b) Is the $1 million limit on this exemption appropriate? If not, should the limit be higher, lower, or eliminated, and why? 6. Transactions that Meet the Qualifications for Sale to a United States Government Agency or Government Sponsored Agency The current proposal includes an exemption for transactions that meet the qualifications for sale to a United States government agency or government sponsored agency. Should this exemption apply to any U.S. government agency or government sponsored agency or should it be limited to certain agencies, and why? 7. Effect of Title XI Appraisals by Certified or Licensed Appraisers Based on historical data and the most recent experience under the existing appraisal regulations, does the requirement for a Title XI appraisal by a certified or licensed appraiser affect loan performance and ultimate loss experience: (a) For real estate-secured loans below $250,000? (b) For business loans of $1 million or less secured by real estate that are not dependent on the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment? 8. Effect of the Current Regulation on the Cost of Making Real Estate-Secured Loans To what extent, if any, has the current appraisal regulation affected the cost of real estate loans to the lender or borrower: (a) For transactions of $250,000 or less? (b) For business loans of $1 million or less secured by real estate that are not dependent on the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment? 9. Effect of the Current Regulation on Delay in Making Real Estate-Secured Loans To what extent, if any, has the current appraisal regulation affected the time necessary to complete a real estate loan: (a) For transactions of $250,000 or less? (b) For business loans of $1 million or less secured by real estate that are not dependent on the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment? 10. Data and Analysis on Revenues, Expenses and Vacancies The agencies request comment on whether it would be beneficial to require, by regulation, that appraisals include, where applicable, data and analysis on revenues, expenses and vacancies as well as on current market conditions. 11. Analyze and Report Deductions and Discounts The agencies request comment on whether the regulations should specifically require an analysis and report of appropriate deductions and discounts for proposed construction, partially leased buildings, submarket leases, and tract developments with unsold units. The USPAP does not specifically require that an appraiser analyze and report this data in the appraisal. 12. Separate Valuation of Personal Property The agencies request comment on whether it would be beneficial to require that personal property, fixtures and intangibles included in the appraisal be identified and separately valued, and the effect of their value on the overall value estimate be discussed. 13. Reconciliation of Three Approaches to Value The agencies request comment on whether it would be beneficial to require that an appraisal include a reconciliation of the three approaches to market value (i.e., the direct sales, income and cost approaches) and explain the elimination of any method not used by the appraiser. Regulatory Flexibility Act Statement Pursuant to section 605(b) of the Regulatory Flexibility Act, the OCC, the Board, the FDIC, and the OTS, hereby independently certify that the proposed rule is not expected to have a significant economic impact on a substantial number of small entities. Accordingly, a regulatory flexibility analysis is not required. However, the proposed rule, if adopted, is expected to result in reduced burden and costs for some small entities. For federally related transactions, Title XI of FIRREA requires financial institutions which are regulated by the OCC, the Board, the FDIC, or the OTS, to use appraisals prepared in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation. Since the USPAP standards only codify appraisal practices that are usual and customary in the appraisal industry, adoption of this regulation should not result in a material departure from existing practice by regulated institutions or cause a significant economic impact on a substantial number of small entities. OCC and OTS Executive Order Statement The OCC and the OTS have independently determined that this proposed rule does not constitute a “major rule" within the meaning of Executive Order 12291 and Treasury Department Guidelines. Accordingly, a Regulatory Impact Analysis is not required on the grounds that, if adopted, this proposed rule, exclusive of those effects attributable to requirements imposed by Title XI of FIRREA, (i) would not have an annual effect on the economy of $100 million or more, (ii) would not result in a major increase in the cost of financial institution operations or governmental supervision, and (iii) would not have a significant adverse effect on competition (foreign and domestic), employment, investment, productivity or innovation, within the meaning of the executive order. For federally related transactions, Title XI requires the financial institutions supervised by the OCC or the OTS to obtain appraisals prepared in accordance with generally accepted appraisal standards as evidenced by the appraisal standards promulgated by the Appraisal Standards Board of the Appraisal Foundation. Since these standards only codify appraisal practices and procedures that are usual and customary in the appraisal industry, they should not cause a significant departure from current appraisal practices by regulated institutions, or a substantial effect on the economy. OCC Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1960 (44 U.S.C 3504(h)). Comments on the collection of information should be sent to the Comptroller of the Currency, Legislative, Regulatory, and Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules International Activities, Attention: 1557-0190, 250 E Street, SW., Washington, DC 20219, with a copy to the Office of Management and Budget, Paperwork Reduction Project 15570190, Washington, DC 20503. The collection of information in this proposed regulation is in 12 CFR 34.44. This information is required by the OCC to protect federal financial and public policy interests in real estate-related financial transactions requiring the services of an appraiser. National banks will use this information in determining whether and on what terms to enter into federally related transactions, such as making loans secured by real estate. Hie OCC will use this information in its examination of national banks to ensure that national banks undertake real estate-related financial transactions in accordance with safe end sound banking principles. The likely recordkeepers are for-profit institutions. The estimated annual burden per recordkeeper varies from 0 hours to in excess of 100 hours, depending on individual circumstances, with an estimated average of 34.5 hours. Estimated number of recordkeepers: 3,600. Board Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h)). Comments on the collection of information should be sent to the Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551, with a copy to the Office of Management and Budget, Paperwork Reduction Project 71000250, Washington, DC 20503. The collection of information in this proposed regulation is in 12 CFR part 225. This information is required by the Federal Reserve System to protect federal financial and public policy interests in real estate-related financial transactions requiring the services of an appraiser. State member banks will use this information in determining whether and on what terms to enter into federally related transactions, such as making loans secured by real estate. The Federal Reserve System will use this information in its examination of State member banks and bank holding companies to ensure that they undertake real estate-related financial transactions in accordance with safe and sound banking principles. The likely recordkeepers are for-profit institutions. The estimated annual burden per recordkeeper varies from 0 hours to in excess of 100 hours, depending on individual circumstances, with an estimated average of 25.1 hours. Estimated number of recordkeepers: 1,183. FDIC Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h)). Comments on the collection of information should be sent to the Assistant Executive Secretary (Administration), room F—400, 550 17th Street, NW„ Washington, DC 20429, with a copy to the Office of Management and Budget, Paperwork Reduction Project 3064-0103, Washington, DC 20503. The collection of Information in this proposed regulation is in 12 CFR part 323. This information is required by the FDIC to protect federal financial and public policy interests in real estaterelated financial transactions requiring the services of an appraiser. State nonmember banks will use this information in determining whether and on what terms to enter into federally related transactions, such as making loans secured by real estate. The FDIC will use this information in its examination of State nonmember banks to ensure that they undertake real estaterelated financial transactions in accordance with safe and sound banking principles. The likely recordkeepers are for-profit institutions. The estimated annual burden per recordkeeper varies from 0 hours to in excess of 100 hours, depending on individual circumstances, with an estimated average of 20.0 hours. Estimated number of recordkeepers: 7,393. OTS Paperwork Reduction Act The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1980 (44 U.S.C. 3504(h)). Comments on the collection of information should be sent to the Office of Management and Budget, Paperwork Reduction Project (1550), Washington, DC 20503 with copies to the Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552. 31887 The collection of information in this notice of proposed rulemaking is found at 12 CFR 564.4. Each savings association will use the information in connection with determining whether and upon what terms to enter into a federally related transaction, such as making a loan on commercial real estate or purchasing property for its own operation. The OTS will use the information in its examination of savings associations to ensure that extensions of credit by the associations, which are collateralized by real estate, and permissible investments in real estate are undertaken in accordance with safe and sound banking principles. The likely recordkeepers are for-profit institutions. The estimated annual burden per recordkeeper varies from 0 to over 100 hours, depending on individual circumstances, with an estimated average of 59 hours. This is a reduction from the current average estimated burden per recordkeeper of 78.7 hours. The estimated number of recordkeepers is 2,200. List of Subjects 12 CFR Part 34 Mortgages, National banks, Real estate appraisals. Real estate lending standards, Reporting and recordkeeping requirements. 12 CFR Part 225 Administrative practice and procedure. Banks, Banking, Holding companies, Reporting and recordkeeping requirements. Securities. 12 CFR Part 323 Banks, Banking, Mortgages, Real estate appraisals. Reporting and recordkeeping requirements, State nonmember insured banks. 12 CFR Part 545 Accounting. Consumer protection, Credit, Electronic funds transfers, Investments, Manufactured homes, Mortgages, Reporting and recordkeeping requirements, Savings associations. 12 CFR Part 563 Accounting, Advertising, Crime, Currency, Flood insurance, Investments, Reporting and recordkeeping requirements, Savings associations, Securities, Surety bonds. 12 CFR Part 564 Appraisals, Real estate appraisals. Reporting and recordkeeping requirements, Savings associations. 31888 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules COMPTROLLER OF THE CURRENCY Standards Board of the Appraisal material deterioration in market Foundation, 1993 Edition (as adopted conditions or physical aspects of the December 8,1992), which is specifically property that threaten the institution’s incorporated by reference in accordance real estate collateral protection; with 5 U.S.C. 552(a) and 1 CFR part 51 (8) The transaction: (i) Involves the purchase, sale, (the USPAP is available from the investment in, exchange of, or extension Appraisal Foundation, 1029 Vermont of credit secured by, a loan or interest Avenue, NW., Suite 900, Washington, in a loan, pooled loans, or interests in DC 20005-3517); PART 34—REAL ESTATE LENDING real property, including mortgagedAND APPRAISALS ALTERNATIVE III FOR PARAGRAPH backed securities; and (ii) Is supported by an appraisal that (a) 1. The authority citation for part 34 meets the requirements of this subpart continues to read as follows: (a) Conform to generally accepted for each loan or interest in a loan, appraisal standards as evidenced by the Authority: 12 U.S.C. 1 etseq., 93a, 371, pooled loan, or real property interest Uniform Standards of Professional 1701 j—3, 1828(o), 3331 etseq. originated after August 24,1990; Appraisal Practice (USPAP) 2. In § 34.42, existing paragraphs (d) (9) The transaction is insured or promulgated by the Appraisal Standards through (1) are redesignated as guaranteed by a United States Board of the Appraisal Foundation; paragraphs (e) through (m) and a new government agency or United States (b) Be written; paragraph (d) is proposed to be added government sponsored agency; (c) Set forth a market value as defined to read as follows: (10) The transaction meets all of the qualifications for sale to a United States in this subpart; and S 34.42 Definitions. (d) Be performed by State licensed or government agency or United States * * * * * certified appraisers in accordance with government sponsored agency; (d) Business loan means a loan or (11) The regulated institution is acting requirements set forth in this subpart. 4. In § 34.45, paragraph (b) is revised extension of credit to any corporation, in a fiduciary capacity and is not to read as follows: general or limited partnership, business required to obtain an appraisal under trust, joint venture, pool, syndicate, sole other law; or §34.45 Appraiser independence. proprietorship, or other business entity. (12) The Office of the Comptroller of * * * * * * * * * * the Currency determines that the (b) Fee appraisers. (1) If an appraisal 2. In § 34.43, paragraph (a) is revised, services of an appraiser are not is prepared by a fee appraiser, the necessary in order to protect Federal paragraphs (b) through (d) are appraiser shall be engaged directly by financial and public policy interests in redesignated as paragraphs (c) through the regulated institution or its agent, real estate-related financial transactions (e), and a new paragraph (b) is added to and have no direct or indirect interest, or to protect the safety and soundness read as follows: financial or otherwise, in the property of the institution. or the transaction. § 34.43 Appraisals required; transactions (b) Evaluations and other appraisals. (2) A regulated institution also may requiring a State certified or licensed Transactions for which the services of a appraiser. accept an appraisal that was prepared State certified or licensed appraiser are by an appraiser engaged directly by (а) Appraisals required. An appraisal not required under paragraphs (a)(1), another financial services institution, if: performed by a State certified or (a)(5) or (a)(7) of this section (i) The appraiser has no direct or licensed appraiser is required for all real nevertheless should have an appropriate indirect interest, financial or otherwise, estate-related financial transactions evaluation of real property collateral except those in which: that is consistent with agency guidance. in the property or the transaction; and (ii) The regulated institution (1) The transaction value is $250,000 The Office of the Comptroller of the determines that the appraisal conforms or less; Currency reserves the right to require an to the requirements of this subpart and (2) A lien on real estate has been appraisal under this subpart whenever is otherwise acceptable. tsken as collateral in an abundance of the agency believes it is necessary to caution; Dated: May 25,1993. address safety and soundness concerns. (3) The transaction is not secured by * * * * * Eugene A. Ludwig, real estate; 3. Section 34.44, is revised to read as Comptroller o f the Currency. (4) A lien on real estate has been follows: FEDERAL RESERVE SYSTEM taken for purposes other than the real estate’s value; For the reasons outlined in the joint § 34.44 Minimum appraisal standards. (5) The transaction is a business loan preamble, the Board of Governors For federally related transactions, all that: proposes to amend 12 CFR part 225 as appraisals shall, at a minimum: (i) Has a transaction value of less than set forth below: $1 million; and ALTERNATIVE I FOR PARAGRAPH (a) PART 225— BANK HOLDING (ii) Is not dependent on the sale of, or (a) Conform to the Uniform Standards COMPANIES AND CHANGE IN BANK rental income derived from, the real of Professional Appraisal Practice CONTROL estate taken as collateral as the primary (USPAP) adopted by the Appraisal source of repayment; 1. The authority citation for 12 CFR Standards Board of the Appraisal (б) A lease of real estate is entered part 225 continues to read as follows: Foundation; into, unless the lease is the economic Authority: 12 U.S.C 1817(j)(13), 1818, equivalent of a purchase or sale of the ALTERNATIVE II FOR PARAGRAPH (a) 1831i, 1843(c)(8), 1844(b), 1972(1), 3106, leased real estate; (7) The transaction results from an (a) Copform to the Uniform Standards 3108, 3907, 3909, 3310, and 3331-3351. 2. Section 225.62 is amended by existing extension of credit, provided of Professional Appraisal Practice redesignating paragraphs (g) through (k) that there has been no obvious or (USPAP) adopted by the Appraisal Authority and Issuance For the reasons set out in the joint preamble, part 34 of chapter I of title 12 of the Code of Federal Regulations is proposed to be amended as set forth below: Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules as paragraphs (i) through (m), redesignating paragraphs (d) through (f) as paragraphs (e) through (g), and adding new paragraphs (d) and (h) to read as follows: §225.62 Definitions. * * * * * (d) Business Joan means 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. * * * . * * (h) Rea! estate or real property means an identified parcel or tract of land, with improvements, and includes easements, rights of way, undivided or future interests, or similar rights in a tract of land, but does not include mineral rights, timber rights, growing crops, water rights, or similar interests severable from the land when the transaction does not involve the associated parcel or tract of land. * * * * * 3. Section 225,63 is amended by revising the section heading and paragraph (a), redesignating paragraphs (b) and (c) as paragraphs (c) and (d), and adding a new paragraph (b) to read as follows: S 225.63 Appraisals required; transactions requiring a State-certified or State-licensed appraiser. (а) Appraisals required. An appraisal performed by a State certified or licensed appraiser is required for all real estate-related financial transactions except those in which: (1) The transaction value is $250,000 or less; (2) A lien on real estate has been taken as collateral in an abundance of caution; (3) The transaction is not secured by real estate; (4) A lien on real estate has been taken for purposes other than the real estate’s value; (5) The transaction is a business loan that: (i) Has a transaction value of less than $1 million; and (ii) Is not dependent on the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment; (б) A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate; (7) The transaction results from an existing extension of credit, provided that there has been no obvious or material deterioration in market conditions or physical aspects of the property that threaten the institution’s real estate collateral protection; (8) The transaction: (i) Involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgagedbacked securities: and (ii) Is supported by an appraisal that meets the requirements of this subpart for each loan or interest in a loan, pooled loan, or real property interest originated after August 9,1990; (9) The transaction is insured or guaranteed by a United States government agency or United States government sponsored agency; (10) The transaction meets all of the qualifications for sale to a United States government agency or United States government sponsored agency; (11) The regulated institution is acting in a fiduciary capacity and is not required to obtain an appraisal under other law; or (12) The Board determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution. (b) Evaluations and other appraisals. Transactions for which the services of a State cortified or licensed appraiser are not required under paragraphs (a)(1), (a)(5) or (a)(7) of this section nevertheless should have an appropriate evaluation of real property collateral that is consistent with agency guidance. The Board reserves the right to require an appraisal under this subpart whenever the agency believes it is necessary to address safety and soundness concerns. * * * * * 31889 (the USPAP is available from the Appraisal Foundation, 1029 Vermont Avenue, NW., Suite 900, Washington, DC 20005-3517); ALTERNATIVE III FOR PARAGRAPH (a) (a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation; (b) Be written; (c) Set forth a market value as defined in this subpart; and (d) Be performed by State licensed or certified appraisers in accordance with requirements set forth in this subpart. 5. Section 225.65 is amended by revising paragraph (b) to read as follows: § 225.65 Appraiser independence. * * * * * (b) Fee appraisers. (1) If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated institution or its agent, and have no direct or indirect interest, financial or otherwise, in the property or the transaction. (2) A regulated institution also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution, if: (i) The appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction; and (ii) The regulated institution determines that the appraisal conforms to the requirements of this subpart and is otherwise acceptable. Dated: May 28,1993. William W. Wiles. Secretary o f the Board. 4. Section 225.64 is revised to read asFEDERAL DEPOSIT INSURANCE follows: CORPORATION Authority and Issuance For the reasons set out in the joint preamble, part 323 of subchapter B of Chapter III of title 12 of the Code of ALTERNATIVE I FOR PARAGRAPH (a) Federal Regulations is proposed to be (a) Conform to the Uniform Standards amended as set forth below: of Professional Appraisal Practice PART 323— APPRAISALS (USPAP) adopted by the Appraisal Standards Board of the Appraisal 1. The authority citation for part 323 Foundation; is revised to read as follows: S 225.64 Appraisal standards. For federally related transactions, all appraisals shall, at a minimum: Authority: 12 U.S.C. 1818, 1819 ["Seventh" and ‘‘Tenth”], and 3331-3352. Conform to the Uniform Standards 2. Section 323.2 is amended by ALTERNATIVE II FOR PARAGRAPH (a) (a) of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation, 1993 Edition (as adopted December 8,1992), which is specifically incorporated by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51 redesignating paragraphs (d) through (1) as paragraphs (e) through (m) and adding a new paragraph (d) to read as follows: $323.2 Definitions. * * * * * 31890 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules (d) Business loan means 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. * * * * * 3. Section 323.3 is amended by revising the section heading and paragraph (a), revising the phrase in paragraph (d) "paragraphs (b) and (c) of this section’1to reed "paragraphs (c) and (d) of this section”, redesignating paragraph (d) as paragraph (e), and redesignating paragraphs (b) and (c) as paragraphs (c) and (d) and adding a new paragraph (b) to read as follows: $323.3 Appraisals required; transactions requiring a State certified or licensed appraiser, (а) Appraisals required. An appraisal performed by a State certified or licensed appraiser is required for all real estate-related financial transactions except those in which: (1) The transaction value is $250,000 or less; (2) A lien on real estate has been taken as collateral in an abundance of caution; (3) The transaction is not secured by real estate; (4) A lien on real estate has been taken for purposes other than the real estate’s value; (5) The transaction is a business loan that: (i) Has a transaction value of less than $1 million; and (ii) Is not dependent on the sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment; (б) A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate; (7) The transaction results from an existing extension of credit, provided that there has been no obvious or material deterioration in market conditions or physical aspects of the property that threaten the institution’s real estate collateral protection; (8) The transaction: (i) Involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgagedbacked securities; and (ii) Is supported by an appraisal that meets the requirements of this part for each loan or interest in a loan, pooled loan, or real property interest originated after September 19,1990; (9) The transaction is insured or guaranteed by a United States government agency or United States government sponsored agency; (10) The transaction meets all of the qualifications for sale to a United States government agency or United States government sponsored agency; (11) The regulated institution is acting in a fiduciary capacity and is not required to obtain an appraisal under other law; or (12) The FDIC determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution. (b) Evaluations and other appraisals. Transactions for which the services of a State certified or licensed appraiser are not required under paragraphs (a)(1), (a)(5) or (a)(7) of this section nevertheless should have an appropriate evaluation of real property collateral that is consistent with agency guidance. The FDIC reserves the right to require an appraisal under this part whenever the agency believes it is necessary to address safety and soundness concerns. * * * * * 4. Section 323.4 is revised to read as follows: S 323.4 Minimum appraisal standards. (d) Be performed by State licensed or certified appraisers in accordance with requirements set forth in this part. 5. Section 323.5 is amended by revising paragraph (b) to read as follows: $323.5 Appraiser Independence. * * * * * (b) Fee appraisers. (1) If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated institution or its agent, and have no direct or indirect interest, financial or otherwise, in the property or the transaction. (2) A regulated institution also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution, if: (1) The appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction; and (ii) The regulated institution determines that the appraisal conforms to the requirements of this part and is otherwise acceptable. By order of the Board of Directors. Dated at Washington, DC this 26th day of May, 1993. Federal Deposit Insurance Corporation. Hoyle L. Robinson, For federally related transactions, all appraisals shall, at a minimum: Executive Secretary. ALTERNATIVE I FOR PARAGRAPH (a) Authority and Issuance OFFICE OF THRIFT SUPERVIS40N (a) Conform to the Uniform Standards Accordingly, for the reasons set forth of Professional Appraisal Practice in the joint preamble, the Office of (USPAP) adopted by the Appraisal Thrift Supervision hereby proposes to Standards Board of the Appraisal amend chapter V, title 12 of the Code of Foundation; Federal Regulations, as set forth below: ALTERNATIVE II FOR PARAGRAPH (a) SUBCHAPTER C—REGULATIONS FOR FEDERAL SAVINGS ASSOCIATIONS (a) Conform to the Uniform Standards PART 545—OPERATIONS of Professional Appraisal Practice (USPAP) adopted by the Appraisal 1. The authority citation for part 545 Standards Board of the Appraisal continues to read as follows: Foundation, 1993 Edition (as adopted Authority: 12 U.S.C 1462a, 1463,1464, December 8,1992), which is specifically incorporated by reference in accordance 1828. with 5 U.S.C. 552(a) and 1 CFR part 51 2. Section 545.32 is amended by (the USPAP is available from the revising the first sentence of paragraph Appraisal Foundation, 1029 Vermont (b)(2) to read as follows: Avenue, NW., suite 900, Washington, $ 545.32 Reel estate loans. DC 20005-3517); * * * * * ALTERNATIVE III FOR PARAGRAPH (b) * * * (a) (2) Appraisals. A Federal savings association may make a real estate loan (a) Conform to generally accepted appraisal standards as evidenced by the only after an appraiser has submitted a signed appraisal of the security property Uniform Standards of Professional consistent with the requirements of part Appraisal Practice (USPAP) promulgated by the Appraisal Standards 564 of this chapter. * * * * * * * * Board of the Appraisal Foundation; (b) Be written; 3. Section 545.103 is amended by (c) Set forth a market value as defined revising the second sentence of in this part; and paragraph (b) to read as follows: 31891 Federal Register / Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules $545,103 Suretyship. * * * * * (b) * * * If real estate, the value must be established by a signed appraisal consistent with the requirements of part 564 of this chapter. * * * * * * * * SUBCHAPTER D—REGULATIONS APPLICABLE TO ALL SAVINGS ASSOCIATIONS PART 563—OPERATIONS 4. The authority citation for part 563 continues to read as follows: Authority: 12 U.S.C. 1462, 1462a, 1463, 1464. 1467, 1468,1817, 1818, 3806; 42 U.S.C. 4106; Pub. L. 102-242, sec. 306, 105 Stat. 2236, 2335 (1991). 5. Section 563 .170 is amended by revising paragraph (c)(l)(iv) to read as follows: $ 563.170 Examinations and audits; appraisals; establishm ent and maintenance of records. * * * * * (c) * * * ( 1) * * * (iv) One or more written appraisal reports, prepared at the request of the lender or its agent and for the lender’s use, and signed prior to the approval of such application (except in the case of an approval conditioned upon obtaining an appraisal) that satisfies the requirements of part 564 of this chapter: Provided, however, That nothing in this paragraph (c)(l)(iv) shall apply to property improvement loans, as that term is used in 24 CFR 200.167, insured by the Federal Housing Administration for which that agency does not require an appraisal or certification of valuation; * * * * * PART 564—APPRAISALS 6. The authority citation for part 564 is revised to read as follows: Authority: 12 U.S.C. 1462, 1462a. 1463, 1464,1828(m), 3331 ef seq. 7. Section 564.2 is amended by redesignating paragraphs (d) through (1) as paragraphs (e) through (m), respectively, and by adding a new paragraph (d) to read as follows: $584.2 * Definitions. * * * * (d) Business loan means 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. * * * * * 8. Section 564.3 is amended by revising paragraph (a), redesignating paragraphs (b) through (d) as paragraphs (c) through (e). and adding a new paragraph (b) to read as follows: $ 564.3 Appraisals required; transactions requiring a State certified or licensed appraiser. (а) Appraisals required. An appraisal performed by a State certified or licensed appraiser is required for all real estate-related financial transactions except those in which: (1) The transaction value is $250,000 or less; (2) A lien on real estate has been taken as collateral in an abundance of caution; (3) The transaction is not secured by real estate; (4) A lien on real estate has been taken for purposes other than the real estate’s value; (5) The transaction is a business loan that: (i) Has a transaction value of less than $1 million; and (ii) Is not dependent on the sale of, or rental Income derived from, the real estate taken as collateral as the primary source of repayment; (б) A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate; (7) The transaction results from an existing extension of credit, provided that there has been no obvious or material deterioration in market conditions or physical aspects of the property that threaten the institution’s real estate collateral protection; (8) The transaction: (i) Involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real property, including mortgagedbacked securities; and (ii) Is supported by an appraisal that meets the requirements of this part for each loan or interest in a loan, pooled loan, or real property interest originated after August 23, 1990; (9) The transaction is insured or guaranteed by a United States government agency or United States government sponsored agency; (10) The transaction meets all of the qualifications for sale to a United States government agency or United States government sponsored agency; (11) The regulated institution is acting in a fiduciary capacity and is not required to obtain an appraisal under other law; or (12) The Office of Thrift Supervision determines that the services of an appraiser are not necessary in order to protect Federal financial and public policy interests in real estate-related financial transactions or to protect the safety and soundness of the institution. (b) Evaluations and other appraisals. Transactions for which the services of a State certified or licensed appraiser are not required under paragraphs (a)(1), (a)(5) or (a)(7) of this section nevertheless should have an appropriate evaluation of real property collateral that is consistent with agency guidance. The Office of Thrift Supervision reserves the right to require an appraisal under this part whenever the agency believes it is necessary to address safety and soundness concerns. * * * * * 9. Section 564.4 is revised to read as follows: $ 564.4 Minimum appraisal standards. For federally related transactions, all appraisals shall, at a minimum: ALTERNATIVE I FOR PARAGRAPH (a) (a) Conform to the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation; ALTERNATIVE II FOR PARAGRAPH (a) (a) Conform to the Uniform Standards of Professional Appraisal Practice (USPAP) adopted by the Appraisal Standards Board of the Appraisal Foundation, 1993 Edition (as adopted December 8,1992), which is specifically incorporated by reference in accordance with 5 U.S.C. 552(a) and 1 CFR part 51 (the USPAP is available from the Appraisal Foundation, 1029 Vermont Avenue, NW., suite 900, Washington, DC 20005-3517); ALTERNATIVE III FOR PARAGRAPH (a) (a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation; (b) Be written; (c) Set forth a market value as defined in this part; and (d) Be performed by State licensed or certified appraisers in accordance with requirements set forth in this part. 10. Section 564.5 is amended by revising paragraph (b) to read as follows: $564.5 Appraiser independence. « * * * * (b) Fee appraisers. (1) If an appraisal is prepared by a fee appraiser, the appraiser shall be engaged directly by the regulated institution or its agent, 31892 Federal Register I Vol. 58, No. 106 / Friday, June 4, 1993 / Proposed Rules and have no direct or indirect interest, financial or otherwise, in the property or the transaction. (2) A regulated institution also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution, if: (i) The appraiser has no direct or indirect interest, financial or otherwise, in the property or the transaction; and (ii) The regulated institution determines that the appraisal conforms to the requirements of this part and is otherwise acceptable. 9564.8 [Amended] 11. Section 564.8 is amended by removing paragraph (d)(1), by removing the colon following the introductory text of paragraph (d), by revising the word "Appraisals” to read “appraisals” in paragraph (d)(2), and by removing the paragraph designation (d)(2). By the Office of Thrift Supervision. Jonathan L. Fiechter, Acting Director. (FR Doc. 93-13233 Filed 6-3-93; 8:45 am] BILLING CODE 4810-33-P, <210-01-?, 6714-01-P , •720-01-P
@FedFRASER