Federal banking regulations currently require financial institutions in Missouri and around the country to obtain certified appraisals when commercial real estate loans are secured by properties worth $250,000 or more, but a rule change proposed on July 19 by the federal banking agencies would raise this threshold to $400,000. The change was proposed after banking regulations were reviewed in early 2017 and suggestions about possible regulatory relief had been considered. The current threshold has not been increased since being introduced in 1994.
The need for appraisal guidelines was established in 1989 with the passage of the Financial Institutions Reform, Recovery, and Enforcement Act, and Title XI of the law was amended in 1992 to permit federal agencies to set appropriate thresholds. These rules apply when loans are secured by commercial property, and the appraisal threshold increases to $1 million when repayment is primarily based on rental income or funds that will be generated by the sale of the property.
The federal banking agencies chose not to increase the appraisal threshold for residential property loans because they believe that taking such a step would have only a limited effect. This is because revising the threshold would not influence how the Federal Housing Authority and enterprises like Fannie Mae and Freddie Mac approach residential mortgages. Memories of the 2008 financial crisis have also prompted government watchdogs to take a cautious approach when considering any such regulatory revisions.
Attorneys with experience in complex commercial real estate transactions may be familiar with the myriad regulations involved, and they could use this knowledge to help investors and property owners avoid common pitfalls. Attorneys could also conduct thorough due diligence when alternative sources of funding, such as private lenders, are being considered. These lenders are not subject to the same regulations as traditional banks, but they often charge higher rates of interest and expect their loans to be repaid quickly.
