New federal rule defers appraisal requirement for up to 120 days

Federal regulators this week adopted an interim final rule deferring the requirement for banks to get appraisals on properties until up to 120 days after a mortgage is closed.

The change was announced by the Treasury Department’s Office of the Comptroller of the Currency (OCC), the Federal Reserve’s Board of Governors and the Federal Deposit Insurance Corporation (FDIC). As such, the new rule, which is effective until Dec. 31, only applies to banks regulated by the three agencies.

The deferrals may apply to both residential and commercial transactions that involve existing properties, with the agencies’ announcement noting heightened risks in financing the acquisition, development and construction of real estate. And mortgages deferring appraisals under the new rule must be kept by the banks themselves; loans backed by or sold to government-sponsored enterprises like Fannie Mae and Freddie Mac, or government agencies like the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA), will continue to require pre-closing appraisals.

The rule is explicit that “appraisals and evaluations are being deferred, not waived,” and that institutions should “make best efforts to obtain a credible valuation of real property collateral before the loan closing.” An institution’s “prudent underwriting estimation of the collateral value of the subject property” will be considered as meeting the appraisal requirement during the 120-day grace period.

The new interim rule will go into effect after its publication date in the Federal Register, which was not indicated in the agencies’ announcement.

The move isn’t the first by federal regulators to relax appraisal requirements in the wake of the ongoing coronavirus outbreak. To limit potential transmission via appraisers coming in contact with the virus in people’s homes, the Federal Housing Finance Agency (FHFA) last month directed Fannie and Freddie to allow alternatives for traditional interior appraisals. Such alternatives include desktop appraisals and exterior-only inspections; notably, that provision applies to loans backed by the government-sponsored enterprises, which the new interim rule does not cover.


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