Regulators Defer Appraisal Requirements for Certain Real Estate Transactions
Commentary by Steven Lofchie
The Federal Reserve Board ("FRB"), the OCC and the FDIC (collectively, "the regulators") adopted an interim final rule which defers certain regulations requiring an appraisal or evaluation of real estate. The interim final rule defers the regulations for a maximum of 120 days following the closing of residential and commercial real estate transactions.
According to the regulators, the interim final rule provides relief to financial institutions by allowing them to immediately extend liquidity to creditworthy households and businesses during the COVID-19 pandemic. The regulators clarified that the deferral of appraisal requirements under the interim final rule does not include transactions involving acquisitions, development or construction of real estate. In addition, the regulators encouraged institutions to use best efforts and available information in developing a well-informed valuation of real estate property collateral prior to a loan closing, in addition to underwriting loans in accordance with the Standards for Safety and Soundness and Real Estate Lending Standards.
The interim final rule is effective upon publication in the Federal Register and comments must be submitted within 45 days after the date of publication. The interim final rule will expire on December 31, 2020.
Interagency Statement
Separately, in an interagency statement, the OCC, the FRB, the FDIC, the National Credit Union Administration ("NCUA") and the CFPB, in consultation with state financial regulators, addressed challenges concerning appraisals and evaluations for financial transactions involving real estate amid COVID-19.
In the joint statement, the agencies outlined existing exceptions to appraisal requirements in addition to encouraging financial institutions to take advantage of the recently issued relief under the interim final rule. The agencies noted that in certain circumstances financial institutions may use an existing evaluation or appraisal instead of obtaining a new appraisal if a financial institution can ensure that the appraisal is still valid. However, the agencies also recognized that financial institutions may have different criteria for assessing an appraisal and, therefore, individual financial institutions will not be subjected to examiner criteria during the COVID-19 emergency if such financial institution complies with "safe and sound practices."
Commentary
What does the virus do to New York City property values? It may be the case that all property values are somewhat speculative at this point, or maybe also in the intermediate future. It will take time before we know the extent, if any, to which the ordinary routines of life, such as riding the subway, are impacted.