House Committee Requests GAO Review of Appraisal Thresholds

The House Financial Services Committee has sent a letter to the Government Accountability Office asking the agency to study whether not requiring appraisals to secure mortgages for certain real estate transactions poses a risk of inaccurate home valuations for homeowners.

On 11 February, Congresswoman Maxine Waters (D-CA), Chairwoman of the U.S. House of Representatives Committee on Financial Services, and Congressman Lacy Clay (D-MO), Chairman of the Subcommittee on Housing, Community Development and Insurance, wrote to Gene Dodaro, Comptroller General of the Government Accountability Office (GAO), asking the GAO to study whether actions by federal financial regulators to expand the number of real estate transactions that don’t require an appraisal diminishes protections for homeowners.

 Title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) requires the use of appraisals for federally related real estate transactions which includes mortgages provided by lenders regulated by a federal agency. Title XI provides for an exemption of real estate transactions below a certain monetary threshold and authorizes federal financial regulators to revise the threshold and the Appraisal Subcommittee to grant waivers.

On 19 December 2019, the Appraisal Foundation had written Chairwoman Waters and Senator Sherrod Brown, Ranking Member of the Senate Committee on Banking, Housing and Urban Affairs, requesting the GAO study to compare the original intent of Title XI compared to its impact today. The Appraisal Foundation noted its concern about the recent increase in the threshold at which an appraisal is required to $400,0000 and a waiver to Title XI for the state of North Dakota. As part of FIRREA, the U.S. Congress authorized the Foundation to be the organization to set appraisal valuation standards as well as real estate appraiser qualifications.

On 27 September 2020, the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) issued a final rule that increased the threshold from $250,000 to $400,000 for real estate transactions requiring an appraisal. The Consumer Financial Protection Bureau (CFPB) concurred with the increase in threshold. In 1994, the last time the appraisal threshold was increased, the amount increased from $100,000 to the current $250,000. The regulators cited the appreciation of real estate value over the past 25 years and requirement of real estate evaluations which started around the last increase as the reasons for raising the threshold.

The threshold does not apply to real estate loans or loan guarantees provided by the Federal Housing Administration (FHA), Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA) and Fannie Mae and Freddie Mac. The individual policies of each of the federal departments and agencies require that a real estate appraisal to be performed in order to secure a loan or guarantee.

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How This Impacts Mobility

Employee transfers often involve the purchase and/or sale of a private residence. Transferees, as do most homebuyers, traditionally need a home mortgage in order to secure the purchase of a home and the buyers of their origin location home also will need a mortgage. With the increase in threshold, more residences not financed through the FHA, HUD, VA or guaranteed by Fannie Mae or Freddie Mac, will be eligible for a home evaluation as opposed to appraisal. However, even with the increased threshold, private mortgage lenders may still choose to require buyers to get an appraisal on a home below the $400,000 threshold. Because an appraisal is a more thorough assessment of the value of a home than an evaluation, it is more costly and thus increases the fees paid by buyers involved in these transactions.