ABA's Letter to the Agencies on the Request for Comments re: Appraisals and Evaluations for Real Estate Transactions

Robert E. Feldman
Executive Secretary,
Federal Deposit Insurance Corporation 550 17th Street, N.W.
Washington, D.C. 20429

Ann E. Misback
Secretary,
Board of Governors of the Federal Reserve System 20th Street and Constitution Ave, N.W.
Washington, D.C. 20551

Chief Counsel’s Office
Attn: Comment Processing
Office of the Comptroller of the Currency 400 7th Street, S.W.
Washington, D.C. 20219

Ladies and Gentlemen:

American Bankers Association (ABA) appreciates the opportunity to comment on the banking agencies’ (Agencies) interim final rule to amend the regulations requiring appraisals of real estate for certain transactions (IFR). As result of the National Emergency declared in connection with coronavirus, the IFR provides temporary relief to depository institutions by allowing a temporary deferral of up to 120 days for appraisals or evaluations following the closing of a transaction for certain residential and commercial real estate transactions. The deferral excludes transactions for the acquisition, development, and construction of real estate. Relief though this temporary provision will expire on December 31, 2020.

ABA thanks the Agencies for their work throughout the national health crisis to relax oreliminate rules that impede banks’ efforts to serve borrowers. Issuing the Interagency Statementon Appraisals and Evaluations for Real Estate Related Financial Transactions Affected byCoronavirus simultaneously with the IFR helps to provide clear guidance and needed flexibilityon real estate appraisals and evaluations. The statements will alleviate lending industry strugglesto close credit transactions specifically affecting interior property inspections. As borrowers,lenders, and appraisers deal with unprecedented changes required by Shelter-in-Place or Stay-at-Home orders, these accommodations are crucial to allow banks to close transactions and fundborrowers. ABA appreciates the concession the Agencies have granted, while maintaining soundunderwriting for each loan transaction.

Temporary Waiver Usage:

Our members generally indicate that the temporary waiver will be used conservatively, and onlywhere necessary. If, due to the pandemic, a bank is unable to obtain an appraisal or evaluation intime to meet a closing commitment, the institution will be sure the loan is prudently underwrittenand use best efforts and available information to develop well-informed estimate of collateralvalue of the subject property when allowing a temporary waiver. Our bankers report that theywill be more inclined to use the temporary exemption to allow financing to take place forcreditworthy borrowers engaged in residential transactions. The temporary waiver requires,“[W]hile appraisal and evaluations can be deferred, the agencies expect institutions to use bestefforts and available information to develop a well-informed estimate of the collateral value ofthe subject property.” Data to satisfy this condition is readily available in alternative form forresidential properties. On the other hand, a “well-informed estimate of collateral value” forcommercial real estate transactions may be too complex to meet that requirement under thistemporary waiver.

Clarification on ADC Exclusion:

The IFR provision excluding transactions for acquisition, development, and construction of real estaterequires further clarification for purposes of defining these types of loans. ABA requests that theAgencies clarify, via issuance of a FAQ or similar statement, the definition of “acquisition, developmentand construction of real estate.” Specifically, ABA seeks confirmation that the definition found inFFIEC RC-C Loan and Leases3 is the one that should be apply to the IFR for real estate appraisals. Thatdefinition is as follows:

1.a Construction, land development, and other land loans.

Report in column B loans secured by real estate made to finance land development (i.e., the process ofimproving land – laying sewers, water pipes, etc.) preparatory to erecting new structures or the on-siteconstruction of industrial, commercial, residential, or farm buildings. For this item, "construction"includes not only construction of new structures, but also additions or alterations to existing structuresand the demolition of existing structures to make way for new structures.

Also include in this item:

(1) Loans secured by vacant land, except land known to be used or usable for agriculturalpurposes, such as crop and livestock production (which should be reported in Schedule RC-C, part I,item 1.b, below, as loans secured by farmland).

(2) Loans secured by real estate the proceeds of which are to be used to acquire and improve developedand undeveloped property.

(3) Loans made under Title I or Title X of the National Housing Act that conform to the definition ofconstruction stated above and that are secured by real estate. Exclude loans to financeconstruction andland development that are not secured by real estate (report in other items of Schedule RC-C, part I, asappropriate).

Confirmation of this definition would go a long way to reduce uncertainty given the urgent need toassure immediate access to liquidity to businesses and households.

Conclusion:

ABA appreciates the agencies’ quick action on the interim final rule, and the decision to make iteffective immediately upon publication in the Federal Registry on April 17, 2020. We agree thatimmediate action was required under the challenges imposed by the COVID-19 emergency.

Thank you for allowing ABA to submit our comments in support of the interim final rule and thetemporary waiver.

Respectfully submitted,

Sharon Whitaker
Vice President, Real Estate Finance
Regulatory Compliance and Policy