30.2 Title XI Valuation Thresholds, Exemptions and Credentials

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Title XI of FIRREA and Federally Related Transactions

Congress enacted Title XI of FIRREA following the savings and loan crisis to ensure that real estate collateral securing loans from federally insured institutions is reliably and independently appraised.

Federally Related Transactions (FRTs) Defined

Under Title XI (12 U.S.C. § 3350(4)), a Federally Related Transaction (FRT) is any real estate-related financial transaction that:

1. A federal financial institutions regulatory agency (OCC, FRB, FDIC, or NCUA) engages in, contracts for, or regulates; and
2. Requires the services of an appraiser under regulatory threshold rules.

Apply exemptions: A transaction qualifying for sale to a government agency or GSE, or a residential appraisal conforming to the specified GSE standards, can qualify for an exemption. Intention to sell is not the entire legal test. Portfolio status alone does not make every loan a federally related transaction requiring an appraisal; check all applicable exemptions and any evaluation requirement.

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Mandatory Valuation Thresholds: Appraisals vs. Evaluations

Interagency regulations establish monetary thresholds that dictate when an institution must obtain a formal certified/licensed appraisal versus a written evaluation:

1. Commercial Real Estate (CRE) Threshold ($500,000)

In 2018, the federal banking agencies raised the appraisal threshold for commercial real estate from $250,000 to $500,000.

• Commercial real estate transactions with a transaction value greater than $500,000 require a formal appraisal conducted by a State Certified General Appraiser.
• Commercial transactions of $500,000 or less are exempt from the appraisal mandate, but the institution must obtain a compliant written evaluation.

2. Residential Real Estate (1-4 Family) Threshold ($400,000)

In 2019, the federal banking agencies raised the threshold for 1-4 family residential real estate transactions from $250,000 to $400,000.

• 1-4 family residential transactions greater than $400,000 require a formal appraisal by a State Certified or State Licensed Appraiser.
• Transactions of $400,000 or less are exempt from the formal appraisal requirement, requiring a written evaluation instead.

3. Business Loan Exemption ($1,000,000)

A business loan with a transaction value of $1,000,000 or less is exempt from the appraisal requirement if the primary source of repayment is not dependent on the sale of, or rental income derived from, the real estate collateral (e.g., an operating commercial loan secured by real estate as secondary collateral, repaid from business operational cash flows). A written evaluation is required if real estate collateral is pledged.

4. Other Exemptions and Existing Credit

A qualifying abundance-of-caution lien or transaction involving a real-estate-backed security or loan pool can be exempt from both the appraisal and evaluation requirements under the relevant provisions. For an abundance-of-caution lien, assess whether the loan would have been made on the same terms without the lien rather than assuming that a low loan-to-value ratio suffices.

Existing extensions of credit have a separate appraisal exemption. Section 323.3(a)(7) covers qualifying renewals or modifications when either no obvious material change threatens collateral protection, even with new money, or no new money is advanced except reasonable closing costs. An appropriate evaluation is required for this category under Section 323.3(b). Review existing valuations and property conditions under the interagency guidelines; do not treat every no-new-money renewal as wholly exempt from valuation review.

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Appraiser Qualification Standards & Credentials

Appraisers must be independent and state-certified or state-licensed in accordance with qualification criteria established by the Appraiser Qualifications Board (AQB) of The Appraisal Foundation:

1. State Certified General Appraiser

• Authority: Authorized to appraise all types and values of real property, including complex commercial properties, multi-family developments, industrial complexes, and residential subdivisions.
• Mandatory Use: Required for all commercial real estate transactions exceeding $500,000.

2. State Certified Residential Appraiser

• Authority: Authorized to appraise 1-4 family residential properties without regard to transaction value or property complexity.
• Mandatory Use: Required for all complex 1-4 family residential transactions exceeding $400,000, A state-certified appraiser is required for all federally related transactions of $1,000,000 or more; select the certification appropriate to the property type, such as certified general for commercial property.

3. State Licensed Appraiser

• Authority: Authorized to appraise non-complex 1-4 family residential properties with transaction values below $1,000,000, and complex residential properties with transaction values up to $400,000.
• Limitation: Cannot appraise complex residential transactions exceeding $400,000 or commercial real estate exceeding $500,000.

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Standards for Written Evaluations

When a transaction qualifies for an appraisal threshold exemption, the financial institution must nevertheless obtain a written evaluation under the Interagency Appraisal and Evaluation Guidelines before making the credit decision.

Core Content Requirements for Evaluations

A compliant written evaluation must:

1. Identify the physical location and legal description of the subject real estate;
2. Describe the property's physical condition based on an inspection or reliable recent visual data;
3. Analyze prevailing local economic conditions and real estate market trends (supply, demand, absorption rates);
4. Detail the valuation methodology used, explaining the rationale for selecting the sales comparison, income capitalization, or cost approach;
5. Document all assumptions, limiting conditions, and calculation sources; and
6. Formulate a clear, well-supported estimate of the property's market value in its actual physical condition as of a specific date.

Independence of Evaluators

The person performing the evaluation must be independent of the loan origination, sales, collection, and approval processes, and have no direct or indirect interest in the property or transaction. While the evaluator need not be a licensed appraiser, they must possess demonstrated real estate valuation competence in the relevant local market.

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Appraisal Independence Requirements (AIR) & TILA Section 129E

Enacted under Section 1472 of the Dodd-Frank Act, Section 129E of the Truth in Lending Act (TILA, 15 U.S.C. § 1639e) and CFPB Regulation Z (12 CFR § 1026.42) establish strict Valuation Independence requirements for consumer credit transactions secured by the consumer's principal dwelling.

Core Prohibitions on Coercion and Valuation Influence

It is unlawful for any creditor, mortgage broker, or real estate agent to:

• Coerce, extort, induce, bribe, or intimidate an appraiser, or attempt to do so, for the purpose of causing the appraised value to be based on any factor other than the appraiser's independent professional judgment;
• Condition an appraiser's compensation or retention on the property reaching a predetermined target valuation;
• Withhold or threaten to withhold timely payment for an appraisal because the valuation did not meet loan underwriting requirements;
• Imply that current or future appraisal assignments depend on the appraiser reaching a requested valuation; or
• Alter, modify, or delete any portion of an appraisal report without the appraiser's explicit consent.

Permissible Communications with Appraisers

Regulation Z explicitly permits lawful communications, including:

• Asking the appraiser to consider additional, appropriate property information, including additional comparable sales;
• Requesting the appraiser to provide further explanation, detail, or substantiation for conclusions;
• Requesting the appraiser to correct objective, factual errors in the report; or
• Withholding compensation based on breach of contract or substandard appraisal performance.