Legal Insight: FI Agencies Provide Guidance During Appraiser Shortage

The federal banking agencies together with the National Credit Union Administration (the “Agencies”) issued an Interagency Advisory on the Availability of Appraisers that is intended to help address the real estate appraiser shortages being experienced by lending institutions.

Pursuant to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), the Agencies require the institutions they regulate to obtain a real estate appraisal from a state licensed or certified appraiser in any federally related transaction, unless an exemption applies. For most loans on single family homes, a licensed appraiser may perform the appraisal, with a certified appraiser being needed for more complex or expensive single-family transactions, and for multi-family and commercial transactions.

In connection with the banking agencies’ review of regulations under the Economic Growth and Regulatory Paperwork Reduction Act, industry members raised concerns about the timeliness of obtaining appraisals, and attributed the delays mainly to a shortage of state licensed or certified appraisers, particularly in rural areas. Concerns over obtaining appraisals on a timely basis have been raised by the mortgage industry in general. To address the timeliness issue, the Agencies discuss two options in the Advisory—temporary practice permits and temporary waivers.

The Agencies note that FIRREA provides that a state agency responsible for licensing or certifying appraisers must recognize the license or certification of an appraiser from another state on a temporary basis for federally related transactions. Thus, subject to any applicable state law limitations, licensed or certified appraisers could apply for a temporary practice permit in a state in which they are not currently licensed or certified to help alleviate a shortage of licensed or certified appraisers in the other state. Institutions that sell mortgage loans should check with investors and other interested parties regarding their policies for using an appraiser operating under a temporary practice permit.

The Agencies also note that FIRREA authorizes the Appraisal Subcommittee of the FFIEC, with FFIEC approval, to temporarily waive requirements in a specific geographic area to obtain an appraisal from a licensed or certified appraiser in connection with federally related transactions. Requests for such a waiver may be submitted to the Appraisal Subcommittee by a state appraiser licensing or certifying agency, a federal bank regulatory agency, a regulated financial institution or credit union, or other persons or institutions with a demonstrable interest in appraiser regulation. Regardless of who submits a request for a temporary waiver, if the waiver is granted it will apply to all regulated institutions with regard to federally related transactions in the specific geographic area. The Appraisal Subcommittee could terminate a temporary waiver before the scheduled expiration date should it determine that the appraiser shortage had abated.

A temporary waiver would apply only to the requirement that an appraisal be performed by a state licensed or certified appraiser. All other requirements under FIRREA would still apply, such as the need for the appraisal to conform with general accepted appraisal standards as evidenced by the Uniform Standards for Professional Appraisal Practice (unless principles of safe and sound banking require compliance with stricter standards), and that the appraisal be written and contain sufficient information and analysis to support the institution’s decision to engage in the transaction.

Even if a temporary waiver for a given geographic area is granted, institutions that intend to make loans in the area and sell the loans should check with investors and other interested parties regarding the ability to rely on the waiver.

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