With their Notice of Proposed Rulemaking this past summer, the federal agencies intensified the debate over an appropriate change, if any, in the appraisal exemption level as identified in the Interagency Appraisal and Evaluation Guidelines. The agencies proposed an increase in the current de minimus level, locked in at $250,000 for over 20 years, to $400,000 to provide commercial banks more flexibility in using commercial evaluations in lieu of appraisals with the primary intent to produce regulatory relief.
The fulcrum of this initiative is the small balance commercial lending space that, according to our proprietary research, generated loan volume in excess of $200 billion in 2017 involving commercial and multifamily mortgages under $5 million in value.
Because of Boxwood’s pre-eminent focus on this small commercial property and loan space, we surveyed our clients this past November about their reactions to and outlook for the proposed rule change.
As we discuss in our recent narrative report, Boxwood’s survey of commercial bank appraisers and credit officers generally confirmed the agencies’ primary assertion that the higher threshold exemption will lower costs for financial institutions. Yet our finding of predominantly moderate increases in commercial evaluations will probably yield less robust financial benefits than the agencies projected. Here is a synopsis of the report’s findings:
This latter finding runs afoul of the agencies’ expectations for “significant” cost savings by financial institutions. To be fair though, the agencies considered other factors like time savings in calculating their assessment of the level of potential cost reductions.
Boxwood’s own assessment is that the promise of regulatory relief may be best achieved – and, importantly, on a recurring basis at that – if more financial institutions prudently relax restraints on commercial evaluation use with larger-sized renewal loans.
Download or register for Boxwood full report here