Hello,

As you may have seen the FDIC approved a final rule to increase the CRE appraisal threshold from $250k to $500k. The rule should be published sometime in April, and as I understand it will be effective as of the date published.

My question is once published, is the rule date based on application, or closing date? For instance, if an application for a $300k CRE secured loan is taken three days before the rule is published/effective, I presume the appraisal would not be required.

Do you agree? Thank you!

It will be effective on the date of publication and there is no mention of application or closing date in the final rule. However, the requirement to have an appraisal is based on the closing of the loan, so I believe that the application date is not important, it will be effective for all loans closed after publication.

Thank you Randy appreciate it!

This might be a silly question....but is this rule only for banks regulated by the FDIC?

What if the real estate collateral is a mixed-use property? Say, 1 residential unit and 1 commercial unit.

No it is being reviewed by the Fed and OCC currently and will apply to all banks once published.

CWSCB - I am not sure but my guess (and I'm not a smart man) is this. I think that would come down to how you are doing the loan, which includes factors such as owner/non-owner occupied, etc. Ultimately it would come down to how it is reported on your call report. See footnote 70 from the rule. (again, this is just my understanding)

70 The definition of ''Commercial Real Estate Transaction'' would largely capture the
following four categories of loans secured by real estate in the Call Report (FFIEC 031;
RCFD 1410), namely loans that are: (1) For construction, land development, and other
land loans; (2) secured by farmland; (3) secured by residential properties with five or
more units; or (4) secured by nonfarm nonresidential properties. However, loans secured
by a single 1-to-4 family residential property would be excluded from the definition. The
definition applies to corresponding categories of real estate-secured loans in the FFIEC
041 and FFIEC 051 forms of the Call Report.

Approved by the OCC and Fed yesterday, and the three regulators (the FDIC approved it first) issued a joint press release.

https://www.bankersonline.com/topstory/157842

Thanks John.

Has anyone seen this published in the Federal Register yet? I can't find it and we have a transaction we are close to closing that we'd like to use the exemption and not require an appraisal.

Has anyone seen anything mentioned other than multiple 1-4 transactions? That is all I recall being discussed when I skimmed over the final rule.

I didn't see it this week and it isn't there today.

No. The only mention I saw related to multiple 1-4 transactions.

From an article I wrote earlier this week:
"The final rule defines a “commercial real estate transaction” as a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property. Therefore, this change excludes all transactions secured by a single 1-to-4 family residential property. The rule, however, does include a construction loans secured by multiple 1-to-4 family residential properties as a commercial real estate transaction. This means that a loan that is secured by a single 1-to-4 family residential property, including a loan for construction, will remain subject to the $250,000 threshold, which remains the threshold for residential mortgage loans.

The final rule was posted in the Federal Register today for the FDIC, Fed, and OCC:

FDIC: https://www.gpo.gov/fdsys/pkg/FR-2018-04-09/pdf/2018-06960.pdf
Fed: https://www.gpo.gov/fdsys/pkg/FR-2018-04-09/pdf/2018-06960.pdf
OCC: https://www.gpo.gov/fdsys/pkg/FR-2018-04-09/pdf/2018-06960.pdf

Please help me interpret the farmland category of commercial real estate:

1. Applicant requests loan to buy ranch that contains a 1-4 RP. The purpose is, the applicant wants to live there. Not farmland, the $250,000 threshold applies.

2. Same applicant,same ranch, but the purpose is to raise cattle. Does the $250,000 threshold still apply because there is a 1-4 unit on the property? Or, does the purpose of this loan change the collateral to being secured by farmland?

Thank you!!

1. Yes, I agree based on what you provided.
2. It is my understanding that this loan is secured by a "single -4 family residential property," and therefore, would be subject to the $250,000 threshold.

From the final rule:
"(e) Commercial real estate transaction means a real estate-related financial transaction that is not secured by a single 1-to-4 family residential property. "

So Adam, do you think the fact that there happens to be a 1-4 on the property exclude the loan from being considered a QBL, if it qualifies??

Great point, Randy. For some reason I wasn't seeing the question in terms of a QBL (probably because I'm not in Texas and the term "ranch" relates to a one story house in my area).

No, the presence of the 1-4RP would not exclude the loan as a QBL (if it qualifies). Therefore, if the loan is a QBL, it would still be subject to the $250,000 threshold.

For clarification for MTBDeb, the following is how a loan would qualify as a QBL:
"...the Title XI appraisal regulations have established a $1 million threshold that is applicable to any business loans that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. For example, a loan secured by a farm, which could include a situation where one or more affiliated limited liability companies own the farmland securing the loan, could be treated as a QBL subject to the $1 million threshold, if repayment is primarily from the proceeds from the farm business (e.g., sale of crops and related payments)."

Commercial

What's not so clear to me with the new Rule is what to do when you have a loan secured by Multiple properties, each of which is an individual 1-4 family property.

I'm sure you saw this so I'm not sure I understand your question:

"The agencies have included the term ‘‘single’’ in the definition to clarify that only transactions secured by one 1-to-4 family residential property are excluded from the definition of ‘‘commercial real estate transaction,’’ whether financing construction or for other purposes. This change addresses potential confusion about whether a loan for the construction of multiple residential
properties would meet the definition of ‘‘commercial real estate transaction;’’ a loan that is secured by multiple 1-to-4 family residential properties (for example, a loan to construct multiple properties in a residential neighborhood) would meet the definition of commercial real estate transaction and thus be subject to the higher threshold. This approach addresses concerns about consumer protection, because a large portion of loans to finance the purchase or initial construction of a single 1-to-4 family residential property that are secured by the property are likely to be extended to consumers who will use the property as their dwelling. By contrast, transactions secured by multiple 1-to-4 family properties are more likely to be transactions to real estate developers or investors in rental properties.

Yes, I am aware of that. I posted my issue in another thread. Basically, under the InterAgency Guidance (which wasn't updated), when you have multiple properties securing a loan, you drill down to the property level (and it's value) to determine whether an appraisal or evaluation is necessary, rather than the loan amount. My issue with the updated Regulation, since there is a new split between commercial and a single 1-4 family property, then what do you do when multiple 1-4 family properties secure a loan? Do you base the determination on $500,000 because this is a "commercial transaction" now, or do you use $250,000 for your decision because the individual property being analyzed is a single 1-4 family dwelling?

https://www.bankersonline.com/forum/ubbt...sal#Post2177583

This is the other thread where it is lightly discussed at the end.

What is "QBL"? Qualified Business Loan?

Yes. QBL = Qualifying business loan.

From the preamble to the 4/9/18 final rule:
"Under the current thresholds, established in 1994, all real estate-related financial transactions with a transaction value of $250,000 or less, as well as certain real estate-secured business loans (qualifying business loans or QBLs) with a transaction value of $1 million or less, do not require Title XI appraisals. QBLs are business loans that are real estate-related financial transactions and that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment."