Bank and Thrift Regulation

Observations on Proposed Changes to Appraisal Requirement Gao ID: T-GGD-94-102 March 1, 1994

This testimony focuses on the "de minimus" appraisal threshold--the dollar level that regulatory agencies have set for exempting real estate transactions of federally insured banks, thrifts, and credit unions from appraisal requirements. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 requires that written appraisals, done by professionals and in compliance with uniform standards, be done for real estate transactions valued at more than $100,000. In June 1993, federal regulators proposed a rule change that would raise the threshold to $250,000, thereby reducing the number of transactions requiring appraisals, and substituting less formal evaluations. GAO discusses (1) the current appraisal legislation and requirements; (2) the proposed change in the threshold; (3) the arguments for and against the proposal; (4) the regulators' response to public comments; and (5) GAO's preliminary observations on the proposal's effect on valuations of real estate, deposit insurance funds, and consumers.

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