Bank and Thrift Regulation: Observations on Proposed Changes to Appraisal Requirement

GAO discussed the threshold for exempting federally insured financial institutions' real estate transactions from appraisal requirements, focusing on the proposed change in the threshold and its effect on real estate valuation, deposit insurance funds, and consumers. GAO noted that: (1) current law requires appraisals for all financial institutions' real estate transactions and that states implement programs for licensing and certifying appraisers; (2) the appraisals must be written, comply with uniform standards, and be conducted by competent and professional individuals under proper supervision; (3) most regulators have raised their appraisal threshold to $100,000 because low loss rates make appraisals unnecessary; (4) the regulators' proposed threshold change includes raising the threshold to $250,000, expanding and clarifying existing appraisal exemptions, and identifying additional circumstances under which appraisals would not be required; (5) objections to the threshold change include safety and soundness problems, increased risk exposure from inadequate appraisals, failure to affect credit availability, and the negative impact on loan applicants; (6) proponents believe that the risk to deposit insurance funds will not increase, inadequate appraisals are not a problem, lending costs will decline, loan closings will be expedited, and appraisals for most residential properties will still occur; and (7) the proposed change could reduce consumers' costs and the regulatory burden, but there is little information on the adverse impact of appraisals on consumers.