On March 4, 2016, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency (the “Agencies”) issued an Interagency Advisory on Use of Evaluations in Real-Estate Related Financial Transactions (SR 16-5, click here), which applies to all state member banks, bank holding companies, and nonbank subsidiaries of bank holding companies, regardless of the asset size of the supervised institution. The advisory clarifies the circumstances under which the use of an evaluation, as opposed to a full USPAP appraisal, in the underwriting of a real estate-related financial transaction complies with the Agencies’ real estate appraisal regulations (Board: 12 CFR 208, subpart E and 12 CFR 225, subpart G; FDIC: 12 CFR 323; and OCC: 12 CFR 34, subpart C) and the Interagency Appraisal and Evaluation Guidelines, click here, (the “Appraisal Regulations”). The advisory clarifies that under the Appraisal Regulations, the following transaction types do not require a full USPAP appraisal, but do require an evaluation: Transactions where the “transaction value” (generally the loan amount) is $250,000 or less and no other regulation requires an appraisal (e.g., higher-priced mortgages under TILA); Certain renewals, refinances, or other transactions involving existing extensions of credit; and Real estate-secured business loans with a transaction value of $1,000,000 or less and when the sale of, or rental income derived from, real estate is not the primary source of repayment for the loan.
