Compliance Q&A: What Can I Do About a Lack of Appraisers in a Rural Area?

By Leslie Callaway, CRCM, CAFP; Mark Kruhm, CRCM, CAFP; and Rhonda Castaneda, CRCM

Q My bank has several branches in rural counties. It has become quite a problem in some of these rural areas to find appraisers who are available to provide timely appraisals. Is there any exemption for banks that service rural areas when this scarcity of appraisers delays the loan origination?

A Yes. The S. 2155 regulatory reform law passed in 2018 exempts rural properties from the appraisal requirement if certain conditions are met. Notwithstanding any other provision of law, an appraisal in connection with a federally related transaction involving real property or an interest in real property is not required if it meets all the following conditions:

  1. The real property or interest in real property is located in a rural area, as defined under Regulation Z.
  2. Not later than three days after the date on which the closing disclosure form is given to the consumer, the mortgage originator or its agent, directly or indirectly:
    • Has contacted not fewer than three state certified appraisers or state licensed appraisers, as applicable, on the approved appraiser list in the market area.
    • Has documented that no state certified appraiser or state licensed appraiser, as applicable, was available within five business days beyond customary and reasonable fee and timeliness standards for comparable appraisal assignments as documented by the mortgage originator or its agent.
  3. The transaction is less than $400,000.
  4. The mortgage originator is subject to oversight by a federal financial institution’s regulatory agency.
  5. The loan is held in portfolio, with certain limited exceptions.

Effective Jan. 1, 2020, an evaluation will be required in lieu of an appraisal for these rural properties. (Answer provided October 2019.)

QAn executive officer at our bank wishes to obtain a loan for $125,000 that will be secured in full by a certificate of deposit or savings account. Does not Regulation O limit such loans to $100,000?

A No. Per §215.5(c)(3) of Regulation O, a bank is authorized to extend credit to an executive officer in “any amount” if it is secured in a manner described in §215.4(d)(3)(i)(A) through (C). Section 215.4(d)(3)(i)(C) allows for “extensions of credit secured by a perfected security interest in a segregated deposit account in the lending bank.” Thus, as long as there is a perfected security interest in the certificate of deposit or savings account, the loan is not subject to the other limits of §215.5(c)(4), i.e., the higher of 2.5 percent of the bank’s unimpaired capital and unimpaired surplus or $25,000, but in no event more than $100,000. (Answer provided June 2019.)

Answers are provided by Leslie Callaway, CRCM, CAFP, director of compliance outreach and development; Mark Kruhm, CRCM, CAFP, senior compliance analyst; and Rhonda Castaneda, CRCM, senior compliance analyst, ABA Regulatory Policy and Compliance. Answers do not provide, nor are they intended to substitute for, professional legal advice. Answers were current as of the response date shown at the end of each item.