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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 10405
December 4, 1990
1
J
PROPOSED REVISION OF REAL ESTATE
APPRAISAL STANDARDS
Comment Invited by January 25, 1991
To All State Member Banks and Bank Holding Companies
in the Second Federal Reserve District, and Others Concerned:
The following statement has been issued by the Board of Governors of the Federal Reserve
System:
The Federal Reserve Board has issued for comment proposed amendments to Regulation H (Mem
bership of State Banking Institutions in the Federal Reserve System) and Regulation Y (Bank Holding
Companies and Change in Bank Control) regarding real estate appraisal standards.
Comment is requested by January 25, 1991.
Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA)
required the Board and the other financial institutions regulatory agencies to promulgate regulations gov
erning appraisal standards and practices in real estate-related transactions of financial institutions.
The Board’s existing regulation sets the level above which financial institutions are required to retain
the services of a licensed or certified appraiser in such transactions at $100,000. Subsequent to the
Board’s action, the other federal financial institutions regulatory agencies adopted a $50,000 level. The
Board’s proposal seeks comment on whether it should change that level to conform to the threshold es
tablished by the other agencies.
The proposal also would amend the preamble to the Board’s rule to encourage the states to adopt
meaningful licensing criteria for appraisers while reserving to the states certain flexibility in those areas.
In addition, set forth on page 4 of this circular is the text of Governor Seger’s Dissenting State
ment in this matter.
Printed on the following pages is the text of the Board’s proposal, as printed in the Federal
Register of November 26, 1990. Comments thereon should be submitted by January 25, 1991 and
sent to the Board, as specified in the notice.
E.
G
erald
C
o r r ig a n
,
President.
Federal Register / Vol. 55, No. 227 / Monday, November 26, 1990 / Proposed Rules
FEDERAL RESERVE SYSTEM
12CFR Parts 208 and 225
[Regulation H, Regulation Y; Docket No. R0711]
Revised Appraisal Standards for
Federally Related Transactions
AGENCY: Board of Governors of the
Federal Reserve System.
a c t io n : Notice of proposed rulemaking.
SUMMARY: Pursuant to Title XI of the
Financial Institutions Reform, Recovery,
and Enforcement Act of 1989
(“FIRREA”), the Board promulgated
amendments to its Regulations H (12
CFR part 208) and Y (12 CFR part 225) to
implement provisions regarding real
estate appraisal standards. The Board’s
rules currently require State certified
and licensed appraisers to be utilized in
conducting appraisals in real estaterelated financial transactions having a
transaction value of more than $100,000.
The Board now seeks comment on
whether that $100,000 level should be
changed. In addition, the Board
proposes to add to the section-bysection analysis in section C of the
Supplementary Information to the rule a
statement which clarifies the Board’s
intentions regarding the qualifications of
State licensed appraisers.
DATES: Comments must be submitted on
or before Friday, January 25,1991.
ADDRESSES: Comments, which should
refer to Docket No. R-0711, may be
mailed to the Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Avenue, NW., Washington,
DC 20551, to the attention of Mr.
William W. Wiles, Secretary: or
delivered to room B-2223, Eccles
Building, between 8:45 a.m. and 5:15 p.m.
Comments may be inspected in room B1 1 2 2 , Eccles Building, between 9 a.m.
and 5 p.m., except as provided in § 261.8
of the Board’s Rules Regarding
Availability of Information, 12 CFR
261.8.
FOR FURTHER INFORMATION CONTACT:
Roger T. Cole, Assistant Director (202/
452-2618), Stanley B. Rediger, Senior
Financial Analyst (202/452-2629), or
Virginia M. Gibbs, Senior Financial
Analyst (202/452-2521), Division of
Banking Supervision and Regulation; or
Michael J. O’Rourke, Senior Attorney
(202/452-3288) or Mark J. Tenhundfeld,
Attorney (202/452-3612), Legal Division.
For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Earnestine Hill or Dorothea
Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION: On June
28,1990 (55 FR 27,762 (July 5,1990)), the
Board adopted its rule regarding
appraisal standards for federally related
transactions as directed by Title XI of
FIRREA. At the time the Board adopted
the rule, staff of the banking agencies
had agreed that real estate-related
financial transactions valued at more
than $100,000 would require the services
of a licensed or certified appraiser. The
banking agencies felt that a $100,000
level would comport with the letter and
spirit of Title XI, while at the same time
responding to concerns about increased
costs and burdens imposed on small
financial institutions and consumers
seeking small real estate loans. This
consensus was reached after careful
consideration of all comments received
in response to the Board’s proposed rule
and after extensive discussions among
representatives from the federal
financial institutions regulatory
agencies. However, since the Board
published its rule, concerns have been
raised about whether $100,000 is an
appropriate level.
In light of these concerns, the other
banking agencies have reconsidered
their positions. The Office of the
Comptroller of the Currency and the
Federal Deposit Insurance Corporation
have reached a consensus with the
Office of Thrift Supervision and the
National Credit Union Administration
that favors a threshold level of $50,000
above which real estate-related
financial transactions would require the
services of a licensed or certified
appraiser. The federal financial
institutions regulatory agencies other
than the Board have incorporated this
$50,000 level into their appraisal
regulations.
The Board now seeks comment on
whether it should conform the threshold
level established in its regulation to the
level adopted by the other agencies.1 In
addition to the general question
regarding the propriety of changing this
threshold level to $50,000, the Board also
specifically requests comment on: (1)
The incremental increase in the cost of
obtaining appraisals for transactions
having a transaction value between
$50,000 and $100,000 if the proposal is
adopted: (2) the availability of licensed
or certified appraisers to perform
appraisals for such transactions: and (3)
the history of losses resulting from
inadequate appraisals rendered in
connection with transactions having a
transaction value of between $50,000
and $100,000.
Concern also was expressed by some
commenters to the Board's rule
1 If the proposal is adopted, appropriate changes
also will be made to the rule's Preamble to reflect
the lower threshold amount.
2
49057
regarding the ability of State licensed
appraisals to perform appraisers of nonresidential properties and complex
residential properties rendered in
connection with federally related
transactions having a transaction value
of $250,000 or less. In adopting its rule,
the Board stressed that an appraiser
must be competent to perform the
appraisal in question, regardless of the
individual’s title or designation. Since
the Board adopted its rule, the Appraisal
Subcommittee of the Federal Financial
Institutions Examination Council has
issued a statement 2 informing the
States that the qualification criteria for
the “Residential Real Property
Appraiser” classification developed by
the Appraisal Qualifications Board of
the Appraisal Foundation reflect
meaningful standards for licensed
appraisers. These criteria include,
among others, experience and education
standards determined by the Appraisal
Qualifications Board as suitable for the
performance of competent appraisals.
The Board concurs with the Appraisal
Subcommittee that such criteria reflect
meaningful standards for licensed
appraisers.
In establishing a “safe harbor” for
States in adopting meaningful licensing
standards consistent with Title XI, the
Appraisal Subcommittee did not
preclude the States from adopting other
licensing criteria, so long as such criteria
are consistent with Title XI. Indeed, as
the Appraisal Subcommittee itself has
noted on a number of occasions, Title XI
has left the development of licensing
criteria to the States, subject only to
oversight by the Subcommittee for
consistency with Title XI in federally
related transactions. In that regard, the
Board notes that States could adopt
licensing criteria other than that
specifically suggested by the Appraisal
Subcommittee, and that adoption of
such criteria would not necessarily be
inconsistent with the Subcommittee’s
published advisories, the Board’s
regulation, or Title XI.
The Board also is cognizant of the
impending statutory deadline imposed
on the States by Title XI for the
establishment and operation of State
appraisal regulatory programs. The
Board recognizes that there may be
initial start-up problems and certain
inefficiencies in the de novo
establishment of such programs,
particularly with regard to the timing of
and procedures involved in both
processing and qualifying appraisers for
licenses. In that light, the Board believes
2 See Appraisal Subcommittee Advisory 90-1
(Press Release dated August 9,1990).
49058
Federal Register / Vol. 55, No. 227 / Monday, November 26, I960 / Proposed Rules
the possibility exists that States, on
occasion, may feel it necessary to
provide transitional arrangements of a
short-term nature with respect to their
licensing criteria, particularly in order to
ensure the availability of appraisers to
conduct federally related transactions
as of the statutory deadline imposed in
Title XI. The Board believes that limited,
short-term transitional arrangements
(such as with regard to the education
and experience criteria) would not
necessarily be inconsistent with the
provisions of this regulation and the
spirit of Title XI.
The Board again stresses that a title or
designation alone does not ensure that
an appraiser is competent to perform a
given appraisal. Any determination of
competency must be based on the
appraiser’s experience and training as
they relate to a particular appraisal
assignment.
In light of the above, the Board
proposes to replace the language
appearing in the preamble to the Board’s
rule,3 regarding the appropriate
minimum standards for State licensed
appraisers conducting appraisals in
connection with federally related
transactions, with the following:
—“ ‘State licensed appraiser.’ Each
State may elect to adopt licensing
criteria that are less rigorous than
certification criteria. However, licensing
criteria must be adequate to protect
federal financial and public policy
interests. For example, simply
‘grandfathering’ all existing appraisers
generally would not be acceptable.
Rather, the States and territories are to
design criteria that will ensure that
licensed appraisers will have the
experience and training sufficient to
perform appraisals that comply with this
regulation.
The Appraisal Subcommittee of the
Federal Financial Institutions
Examination Council has issued a
statem ent4 informing the States that the
qualification criteria for the ‘Residential
Real Property Appraiser’ classification
developed by the Appraisal
Qualifications Board of the Appraisal
Foundation reflect meaningful standards
for licensed appraisers. These criteria
include, among others, experience and
education standards determined by the
Appraisal Qualifications Board as
suitable for the performance of
competent appraisals. The Board
concurs with the Appraisal
Subcommittee that such criteria reflect
3 The language to be replaced currently appears
in the section-by-section analysis of the Preamble at
Part C of the Supplementary Information.
4 See Appraisal Subcommittee Advisory 90-1
(Press Release dated August 9,1990).
meaningful standards for licensed
appraisers.
In establishing a ‘safe harbor’ for
States in adopting meaningful licensing
standards consistent with Title XI, the
Appraisal Subcommittee did not
preclude the States from adopting other
licensing criteria, so long as such criteria
are consistent with Title XL Indeed, as
the Appraisal Subcommittee itself has
noted on a number of occasions, Title XI
has left the development of licensing
criteria to the States, subject only to
oversight by the Subcommittee for
consistency with Title XI in federally
related transactions. In that regard, the
Board notes that States could adopt
licensing criteria other than those
specifically suggested by the Appraisal
Subcommittee, and that adoption of
such criteria would not necessarily be
inconsistent with the Appraisal
Subcommittee’s published advisories,
the Board’s regulation, or Title XI of
FIRREA.
The Board also is cognizant of the
statutory deadline imposed on the
States by Title XI for the establishment
and operation of State appraisal
regulatory programs. The Board
recognizes that there may be initial
start-up problems and certain
inefficiencies in the de novo
establishment of such programs,
particularly with regard to the timing of
and procedures involved in both
processing and qualifying appraisers for
their licenses. In that light, the Board
believes the possibility exists that
States, on occasion, may feel it
necessary to provide transitional
arrangements of a short-term nature
with respect to their licensing criteria,
particularly in order to ensure the
availability of appraisers to conduct
federally related transactions as of the
statutory deadline imposed in Title XI.
The Board believes that limited, short
term transitional arrangements (such as
with regard to the education and
experience criteria) would not
necessarily be inconsistent with the
provisions of this regulation and the
spirit of Title XI.
Additional assurance that licensed
appraisers will have the qualifications
necessary to perform the appraisals
authorized under this rule is provided by
the requirement that all appraisers
comply with the USPAP Competency
Provision. Under the Competency
Provision, an appraiser must notify the
client if the appraiser discovers that an
assignment raises problems that are
beyond his or her knowledge or
experience. Moreover, the appraiser
must take the necessary steps to have
the assignment completed competently
3
through personal study, affiliation with
an appraiser that possesses the
necessary knowledge and experience, or
retention of the services of an individual
with the required knowledge and
experience.”
Regulatory Flexibility Act Analysis
Title XI of FIRREA requires the Board
to establish standards for performing
appraisals in connection with “federally
related transactions,” which are defined
to include those real estate related
transactions that, among other things,
require the services of an appraiser. In
considering whether to change the
existing level above which the services
of an appraiser would be required, the
Board has taken into account the
legislative history of Title XI, which
encourages federal financial institutions
regulatory agencies to adopt identical or
substantially similar regulations.
The Board anticipates that the
proposed regulatory change would
increase the cost of federally related
transactions having a transaction value
between $50,000 and $100,000. These
costs will either have to be absorbed by
the regulated institutions or be passed
on to their customers. The Board
specifically seeks comment on the
incremental increase in the cost of
obtaining appraisals for transactions
that would be affected by this proposal.
Paperwork Reduction Analysis
In accordance with section 3507 of the
Paperwork Reduction Act of 1980 (44
U.S.C. chapter 35; 5 CFR 1320.14), the
proposed revisions to Regulations H and
Y that relate to recordkeeping
requirements have been promulgated
under authority delegated to the Board
by the Office of Management and
Budget.
These proposed amendments would
affect bank holding companies, state
member banks (“SMBs”), and nonbank
subsidiaries of bank holding companies
("BHC subs”) that will engage in
federally related transactions having a
transaction value between $50,000 and
$100,000. In developing these proposed
amendments, the Board has consulted
with the Office of the Comptroller of the
Currency, the Federal Deposit Insurance
Corporation, the Office of Thrift
Supervision, the National Credit Union
Administration, and the Resolution
Trust Corporation. The Legislative
history of Title XI encourages those
institutions to adopt substantially
similar regulations.
The Federal Reserve System estimates
that 1,183 institutions would be affected
by these recordkeeping requirements if
the proposal were adopted. Each
Federal Register / Vol. 55, No. 227 / Monday, November 26, 1990 / Proposed Rules
federally related transaction would be
expected to require, on average, 15
minutes for review and recordkeeping.
The Board now estimates that the total
reporting burden for complying with the
regulation as proposed to be revised is
54,716 burden hours. This reflects an
increase in burden hours of 22,791, as
calculated below. The total reporting
burden, even if the proposal is adopted,
Number of
respondents
Current:
S M B s................................................................................................................................
B H C s u b s .........................................................................................................................
1,073
110
Total............................ .............................................................................................
1,183
Proposed:
S M B s.................................................................................................................................
B H C s u b s .........................................................................................................................
1,073
110
Total..........................................................................................................................
1,183
x
A
would remain less than one percent of
the total annual System reporting
burden.
Annual
frequency
Net Change:
S M B s.......................................................... .........................................................................................................
B H C subs............................................................................................................................................................
49059
Estimated
average
number of
hours per
response
X
86
322
.25
.25
Estimated total
annual burden
hours
23,070
8,855
31,925
148
546
.25
.25
39,701
15,015
54,716
+ 16,631
+ 6,160
+62
+ 22 4
+ 22,791
Total.
List of Subjects in 12 CFR Part 225
Administrative practice and
procedure, Appraisals, Banks, Banking,
Capital adequacy, Federal Reserve
System, Holding companies, Reporting
and recordkeeping requirements,
Securities, State member banks.
For the reasons set forth in its
document, the Board proposes to amend
12 CFR part 225 as follows:
PART 225— BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL
§ 225.63 Appraisals not required;
transactions requiring a State certified or
licensed appraiser.
1. The authority citation for part 225
continues to read as follows:
(a) * * *
(1) The transaction value is $50,000 or
less;
Authority: 12 U.S.C. 1817(j)(13), 1818,1831i,
1843(c)(8), 1844(b), 3106, 3108, 3907, 3909,
3310, and 3331-3351.
2. In § 225.63, paragraph (a)(1) is
revised to read as follows:
*
*
*
*
*
Board of G overnors of the Federal Reserve
System, Novem ber 19,1990.
William W. Wiles,
Secretary of the Board.
[FR Doc. 90-27636 Filed 11-23-90: 8:45 am]
BILLING CODE 6210-01-M
Dissenting Statement of Governor Seger
I dissent from the Board’s decision to reconsider the level at which real estate-related transactions conducted by fi
nancial institutions would require the services of a licensed or certified appraiser under the Board’s appraisal regulation.
The purpose of Title XI of FIRREA and the Board’s regulation is to promote safety and soundness among our financial
institutions through competent appraisal practices. This proposal does not serve to advance this goal.
The Board’s supervisory experience to date suggests that credit losses arising from inadequate appraisals of typical
l-to-4 family residential properties have not been a major cause of failures of commercial banking organizations regulated
by the Federal Reserve. Accordingly, I believe there is no basis for the Board to reconsider its initial determination that
a $100,000 level is appropriate. In my view, this is an anti-consumer proposal and, if adopted, would serve as an unnec
essary financial burden on our financial institutions, without otherwise promoting safety and soundness.
4
@FedFRASER