Banks can now delay appraisals for up to 120 days after closing

In a late April 14 press release, three federal financial regulatory agencies, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, announced a relief effort that will delay real estate appraisals and evaluations for up 120 days after a transaction closes.

The release stated that the move is designed to offer “temporary relief to allow regulated institutions to extend financing to creditworthy households and businesses quickly in the wake of the national emergency declared in connection with COVID-19.”

There are some stipulations to the appraisal delay program, which will be in place until the end of 2020.

Loans must be kept within the financing institution, and those backed by Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae or Freddie Mac, will not be eligible and thus, will require an appraisal prior to closing, as normal.

The program is detailed in a multipage statement released by the Fed in conjunction with the public announcement.

It contains additional language about appraisal flexibility, namely the execution of desktop, exterior-only evaluations. It reads in Section 1:

“Rather, as allowed by USPAP, an appraiser can determine the characteristics of a property through, among other things, any combination of property inspection, asset records, photographs, property sketches, and recorded media.”

The 120-day window introduces a risk additive in terms of market value. The issuing institutions recommend that eligible lenders install suitable risk models to determine of the value will hold after the delay.

“The passage of time is a criterion that institutions can consider when determining whether an appraisal remains valid. If the institution determines that the appraisal still reflects market value, the institution may rely on the appraisal based on an acceptable level of risk as evidenced by a loan’s LTV ratio and other underwriting criteria.”

It is recommended that real estate agents communicate with lender partners for additional information on the new interim rule before sharing it with buyers and sellers. It is not expected to alter the cost of an appraisal.

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