Saturday, 19 October, 2019

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Loans Affected by the De Minimus Increase

Loans Affected by the $400,000 Appraisal Threshold Increase

NCUA is advocating for an increase in the de minimus to $400K for loans provided by Credit Unions…

The $400,000 de minimus is now ‘official’ but it doesn’t apply to most appraisals.

Here’s an article from HousingWire, published on 10/8/2019, which correctly states when this change took effect, which you should read.

From the article:

Now, it’s important to note that the new rules do not apply to loans wholly or partially insured or guaranteed by, or eligible for sale to, a government agency or government-sponsored agency.

What that means is that loans sold to or guaranteed by the Federal Housing Administration, Department of Housing and Urban Development, Department of Veterans Affairs, Fannie Mae, or Freddie Mac will still require an appraisal, per each agency or companies’ rules.

Put simply, the loans that are affected by this rule are either held in portfolio by lenders or sold to secondary market investors via the private-label securitization market.

From FDIC Press Release:

Federal Banking Agencies Issue Final Rule to Exempt Residential Real Estate Transactions of $400,000 or Less from Appraisal Requirements

…The appraisal threshold was last changed in 1994. Given price appreciation in residential real estate transactions since that time, the change will provide burden relief without posing a threat to the safety and soundness of financial institutions.

For transactions exempted from the appraisal requirement, the final rule requires institutions to obtain an evaluation to provide an estimate of the market value of real estate collateral. Evaluations are generally less burdensome than appraisals and have been required since the 1990s…

However, one additional item of note: NCUA is advocating for an increase in the de minimus to $400K for loans provided by Credit Unions. So far, this has not been approved. They did, however, raise commercial lending de minimus to $1,000,000 recently.

Image credit flickr – Paul Sableman

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