Bank and Thrift Regulation

The de minimus appraisal threshold is the dollar level set by federal financial regulators to exempt real estate loans made by federally insured financial institutions from statutory appraisal requirements. To reduce regulatory burden and foster economic growth, federal banking and thrift regulators issued a proposed rule in June 1993 to raise the de minimus appraisal threshold from $100,000 to $250,000 for both residential and commercial real estate loans. For loans of $250,000 and below, financial institutions would be allowed to use a real estate evaluation instead of an appraisal. An evaluation is generally a simpler assessment of real estate market value made by individuals who need not be state licensed or certified. Some Members of Congress, consumer groups, and the appraisal industry have raised concerns that raising the de minimus appraisal threshold could harm the safety and soundness of financial institutions. They have also expressed concern about consumers' ability to be protected from and take action against questionable evaluation practices. This report assesses the regulatory guidance provided to financial institutions on evaluations, examination procedures provided to examiners on financial institutions' evaluation practices, and federal policies to protect consumers from questionable evaluation practices.

GAO found that: (1) financial regulators do not provide adequate guidance to financial institutions for establishing minimum evaluation standards or specific procedures for their examiners; (2) although the guidance provided to financial institutions is deliberately intended to be broad to allow institutions latitude in evaluation practices, it does not address regulatory goals; (3) regulatory guidance does not provide minimum standards on the qualifications and independence of people conducting evaluations or the content of evaluations; (4) the qualifications and independence of people performing evaluations, as well as the content of the evaluations, vary widely, and could result in evaluations that are too extensive or that fail to meet regulatory expectations; (5) most financial regulators have not established examination procedures for their examiners to use in reviewing financial institutions' evaluation practices; (6) the lack of specific examination procedures creates the potential for inconsistencies in examination coverage; and (7) regulators believe that consumer complaints about questionable evaluation practices filed at a financial institution or sent to a regulator would receive prompt and serious investigation by examiners.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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