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Regulators finalize rule expanding exemption for home appraisals

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WASHINGTON — The three federal banking regulators have issued a final rule raising the threshold for residential real estate transactions that require an appraisal from $250,000 to $400,000 in order to ease regulatory burdens and keep pace with home prices.

The proposal was originally released in November by the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency.

The agencies have said that increasing the threshold by $150,000 would make appraisal requirements less burdensome without threatening the safety and soundness of financial institutions.

Under the final rule, residential real estate transactions that are exempt from an appraisal will be required to obtain an evaluation, a more streamlined version of an appraisal that can be completed without a license.

But appraisers have argued that evaluations pose a risk to lenders and consumers, while appraisals can help lenders identify borrowers that might be over-leveraged.

The final rule adopted Friday also includes the rural residential appraisal exemption outlined in the regulatory relief bill President Trump signed last May, and also requires institutions to review appraisals to ensure that they comply with the uniform set of appraisal standards.

In a press release, the banking regulators said the Consumer Financial Protection Bureau was consulted and agreed with the rationale to raise the appraisal threshold.

“The Bureau concludes that, in light of the Banking Agencies’ conclusion on cost savings and other additional factors discussed below, including the existence of other consumer protections, the Threshold provides reasonable protection for consumers as a whole, notwithstanding some benefits that are unlikely to materialize for consumers receiving an evaluation in lieu of an appraisal,” CFPB Director Kathy Kraninger said in a letter concurring with the move.

The proposal to raise the threshold was developed in response to comments submitted to the agencies under the Economic Growth and Regulatory Paperwork Reduction Act. The 1996 law requires the agencies to undertake a review every 10 years to identify outdated or unnecessary rules. Commenters said the previous appraisal exemption level for residential transactions — which was last increased in 1994 — has been outpaced by price appreciation in the real estate market.

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