The Board of Governors of the Federal Reserve System, The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency (“Agencies”) just announced a new interim rule permitting more flexibility for the postponement of an appraisal for certain residential or commercial property mortgage loans by banks under the oversight of any of the Agencies. “Under the interim final rule, regulated institutions may close a real estate loan [acquisition or refinance] without a contemporaneous appraisal or evaluation, subject to a requirement that institutions obtain the appraisal or evaluation, as would have been required under the appraisal regulations without the deferral, within a grace period of 120 days after closing of the transaction. While appraisals and evaluations can be deferred, the agencies expect institutions to use best efforts and available information to develop a well-informed estimate of the collateral value of the subject property.” The new interim rule will be in effect for all transactions that close on or before December 31, 2020, but only becomes official once it is printed in the Federal Register, which is expected imminently, but a current copy can be viewed here.
This rule change will permit banks subject to oversight by one of the Agencies, and not brokers or funding companies, to postpone an appraisal for the 120 day grace period for portfolio loans. Loans sold to or guaranteed by the FHA, HUD, VA, Fannie Mae or Freddie Mac are allowing exterior only or desktop appraisals in certain cases in their policy making discretion, and are not covered by this rule. Separately, the National Credit Union Association, which regulates credit unions, is actively considering a similar rule.
The mortgage lending environment is rapidly evolving and lenders and borrowers need to be in touch with counsel to make sure they are protected in pending transactions and are utilizing the latest best practices for new matters.