On May 31, 2017, acting through interagency guidance, the federal bank regulatory agencies (the “Agencies”) highlighted two approaches for addressing a perceived scarcity of licensed residential real estate appraisers. Federal law requires use of a state certified or licensed appraiser for most federally related transactions (“FRTs”). For example, federal regulations require appraisals to be conducted for, inter alia, all residential transactions with a value of $250,000 or more, see, e.g., 12 C.F.R. § 34.43(a), and state-certified appraisers are required in certain high dollar value and complex transactions. See, e.g., 12 C.F.R. § 34.43(d). Furthermore, the OCC may require an appraisal whenever the agency believes that it is necessary to address safety and soundness concerns. See, e.g., 12 CFR § 34.43(c). A shortage in appraisers may lead to significant delays in the mortgage loan origination or loss mitigation review process. Therefore, the Agencies’ interagency advisory notes that the use of temporary practice permits and temporary waivers will work to mitigate the shortage of appraisers and allow transactions requiring appraisals to be completed in a timely manner.
A temporary practice permit allows a state certified appraiser to be recognized within another state on a provisional basis to perform appraisals on FRTs across state lines. § 1122(a) of Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). Appraisers must apply to the relevant state appraiser regulatory agency to obtain a temporary practice permit. This may be a viable solution for densely-populated geographic markets where licensed appraisers tend to operate on a cross-border basis, e.g., the northeast U.S. However, this approach may not be as helpful in rural areas or larger states where appraisers are less likely to travel from state-to-state on a regular basis.
A temporary waiver allows the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (“FFIEC”) to grant temporary waivers of any requirement relating to certification or licensing of individuals to perform appraisals under Title XI, provided certain findings are made and the approval of FFIEC has been granted. FIRREA § 1119. Temporary waivers are allowed in areas experiencing a shortage of appraisers leading to significant delays in obtaining appraisals of FRTs. Requests for temporary waivers can be made by banks or other regulated financial institutions and must include a demonstration of the scarcity of appraisers, as well as the resultant significant delays in the specific geographic area. If the waiver is granted, the requirement to use a certified appraiser on FRTs would be waived for all regulated institutions in the entire affected area, not just the institution initially requesting the waiver. While this approach may help to expedite the appraisal process, these appraisals would be completed by individuals who may not have the qualifications that other state certified appraisers possess.
Furthermore, while this interagency advisory gives some flexibility in navigating the shortage of appraisers, the other requirements relating to completing a sound appraisal are still applicable. Appraisers acting under a temporary practice permit or a temporary waiver must still have knowledge of the relevant geographic area in order to adequately complete the appraisal. Additionally, the appraisal itself remains subject to the internal review process and must comply with the Interagency Appraisal and Evaluation Guidelines. 45 Fed. Reg. 77450, 77461-62 (December 10, 2010). Thus, even when utilizing an appraiser acting under a temporary permit or temporary waiver, banks must ensure that the person performing the appraisal has the requisite knowledge, expertise, and experience to complete the appraisal in accordance with applicable law and safe and sound banking practices.
This article was authored by Travis P. Nelson and Mary K. Bessemer. Travis Nelson, resident in the Princeton, NJ and New York, NY offices, is a member of the Firm’s Financial Services Regulatory Group. Travis is formerly with the Enforcement Division of the Office of the Comptroller of the Currency, in Washington, DC. Travis is also Chair of the Banking Law Section of the New Jersey State Bar Association, Editor of the ABA’s Banking Law Committee Journal, adjunct faculty at Villanova University School of Law, and a frequent speaker on financial services issues. Mary Bessemer is a Summer Associate, resident in the Firm’s Princeton, NJ office, and a third-year law student at Seton Hall University Law School.