FIRREA Amendment Reappraises Appraisers

Article excerpt

Among its many provisions, the Financial Institutions Reform, Recovery and En-

forcement Act of 1989 sets new policies for real estate appraisal activities involving federally related real estate transactions.

What are federally related real estate transactions? Virtually any real estate transaction of an insured depository institution-loans to finance real property or loans secured by real property, for example. The law is intended to be very broad, says ABA Federal Legislative Representative Debbie Shannon. "About the only real estate loan not covered is a loan from your mother. "

The new appraisal rules are found in Title XI of FIRREA. The law created an appraisal subcommittee of the Federal Financial Institutions Examinations Council (FFIEC). This subcommittee will monitor the states' appraiser certification and licensing systems; maintain a national registry of certified and licensed appraisers; monitor appraisal standards and determinations as to whether a transaction requires a certified appraiser or a licensed appraiser; and monitor the work of the Appraisal Foundation, a nonprofit corporation of the appraisal industry.

The law states that all appraisals of federally related transactions must be performed by state-certified or licensed appraisers after July 1, 1991. The only exception is if the subcommittee finds a scarcity of certified or licensed appraisers in a particular region that would create "inordinate delays" in the transaction.

Under the law, all federally related real estate transactions of $1 million or more must be appraised by a state-certified appraiser, unless they involve one-to-four family properties, in which case they may be appraised by a state-licensed appraiser. In general, any

federally-related transactions not requiring a certitied appraiser can be handled by a licensed appraiser.

The five member agencies of the FFIEC-the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, the Federal Reserve Board, and the National Credit Union Administration-as well as the Resolution Trust Corp., are required to establish appraisal standards that meet the minimum requirements adopted by the Appraisal Foundation.

Getting started. The FFIEC subcommittee will begin operations with $5 million borrowed from the Treasury

Department, and additional funds will come through the regular appropriations process. The subcommittee will collect an annual registration fee of not more than $50 from appraisers who perform or wish to perform federally related work. These funds will be used to cover operating costs, repay the Treasury Department, and defray expenses of the Appraisal Foundation.

The subcommittee will be staffed by representatives of the FFIEC agencies, and a chairman will be selected by the subcommittee for a two-year term. However, an FFIEC spokeswoman says no appointments will be announced until 1990.

The impetus behind the new reform amendments was the notoriously faulty appraisal standards practiced or accepted by many thrifts. A recent General Accounting Office report on 26 failed thrifts found 88% of their total loans had

been made on the basis of inadequate appraisals.

Me new law seeks to discourage a reprise of those situations by imposing civil money penalty assessments for violations of the new rules. …