Federal banking agencies have temporarily deferred the requirement to obtain appraisals and evaluations for up to 120 days after closing on existing residential or commercial real estate loan transactions in response to COVID-19. This relaxation will allow banks the ability to extend financing to creditworthy households and businesses more quickly. Real estate acquisition, development, and construction transactions are not eligible for the temporary deferral.
The temporary change in rules is also in response to government stay-at-home and social distancing mandates that are hindering the appraisal and evaluation processes. Terry Merfeld, a partner in the Des Moines Eide Bailly office, adds,
If the appraisal standards are not modified, the timeline for disbursing funds in connection with an existing loan transaction could be delayed by 6-12 weeks due to the lack of number of qualified appraisers available. This is all dependent on the area of the country you are in, number of appraisers available, and those willing to go out and conduct the appraisal given certain shelter-in-place designations.
Even though appraisals and evaluations may be deferred for extending or refinancing credit, agencies expect institutions to develop procedures to use best efforts and available information in estimating property values and adhere to internal underwriting standards. Institutions are also expected to develop risk mitigation strategies for appraisals and evaluations that reveal significantly lower than expected market values.
Appraisal and evaluation deferral is available on transactions closed on or before December 31, 2020.
In addition to the temporary appraisal and evaluation deferral, federal banking agencies, the National Credit Union Administration (NCUA), and the Consumer Financial Protection Bureau issued a joint statement to outline other appraisal standards flexibility and explain temporary changes to Fannie Mae and Freddie Mac appraisal standards for lenders.
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