FRH4_20180523_omb

Supporting Statement for the
Recordkeeping Requirements Associated with Real Estate Appraisal Standards for
Federally Related Transactions Pursuant to Regulations H and Y
(FR H-4; OMB No. 7100-0250)
Real Estate Appraisals
(Docket No. R-1568) (RIN 7100 AE81)
Summary
The Board of Governors of the Federal Reserve System (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend for three years,
with revision, the Recordkeeping Requirements Associated with the Real Estate Appraisal
Standards for Federally Related Transactions Pursuant to Regulations H and Y (FR H-4; OMB
No. 7100-0250). These recordkeeping requirements are specified in Title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) as set forth in the
Board’s Regulation H, subpart E (12 CFR 208.50-208.51) and Regulation Y, subpart G
(12 CFR 225.61-225.67). These regulations require that, for federally related transactions,
regulated institutions obtain real estate appraisals performed by certified or licensed appraisers in
conformance with uniform appraisal standards. There is no formal reporting form and the
information is not submitted to the Federal Reserve.
On April 9, 2018, the Board, Office of the Comptroller of the Currency (OCC), and
Federal Deposit Insurance Corporation (FDIC) (collectively, the agencies) published a final rule
to amend the agencies’ regulations requiring appraisals of real estate for certain transactions.
The final rule increases the threshold level at or below which appraisals are not required for
commercial real estate transactions from $250,000 to $500,000. The threshold change in the
final rule will result in lenders being able to use evaluations instead of appraisals for certain
transactions. The revisions are effective April 9, 2018. The estimated total annual burden for
the FR H-4 is 31,422 hours.
Background and Justification
Title XI of FIRREA (12 U.S.C. 3331 et seq.) directs the federal financial institutions
regulatory agencies1 to publish appraisal rules for federally related transactions within the
jurisdiction of each agency. The purpose of the statute is “to provide that federal financial and
public policy interests in real estate related transactions will be protected by requiring that real
estate appraisals utilized in connection with federally related transactions are performed in
writing, in accordance with uniform standards, by individuals whose competency has been
demonstrated and whose professional conduct will be subject to effective supervision.”2
Section 1121 of FIRREA, 12 U.S.C. 3350(4), defines a federally related transaction as a
real estate-related financial transaction that is regulated by or engaged in by a federal financial
1

The federal financial institutions regulatory agencies consist of the Board, OCC, FDIC, and National Credit Union
Administration (NCUA).
2
See section 1101, Title XI of FIRREA.

institutions regulatory agency and requires the services of an appraiser. In addition, a real estaterelated financial transaction is defined as any transaction that involves (1) the sale, lease,
purchase, investment in or exchange of real property, including interests in property, or the
financing thereof, (2) the refinancing of real property or interests in real property, and (3) the use
of real property or interests in real property as security for a loan or investment, including
mortgage-backed securities.
In 1990, the agencies published regulations to meet the requirements of Title XI of
FIRREA. The regulations identify which transactions require an appraiser, set forth minimum
standards for performing appraisals, and distinguish those appraisals requiring the services of a
state-certified appraiser from those requiring a state-licensed appraiser. The regulations further
identify categories of real estate-related financial transactions that do not require the services of
an appraiser and, accordingly, are subject to neither Title XI of FIRREA nor those provisions of
the agencies’ regulations governing appraisals.
In 1991, as part of a burden reduction study mandated by the FDIC Act, the agencies
determined that the appraisal requirements of Title XI could impose additional costs on both
lenders and borrowers. The agencies decided that there were certain real estate-related
transactions for which Title XI appraisals imposed significant costs without promoting, to a
significant extent, the safety and soundness of regulated institutions or furthering the purposes of
Title XI of FIRREA. Therefore, in June 1994, the agencies amended their regulations to clarify
and expand the circumstances under which certain real estate-related transactions would not
require Title XI appraisals. Also, in October 1994, the agencies issued the Interagency
Appraisal and Evaluation Guidelines (interagency guidelines) to provide further clarification to
the regulations and to set forth prudent appraisal and evaluation policies and practices. In
November 1998, the Board amended the Regulation Y real estate appraisal requirement for bank
holding companies (BHCs) and their nonbank subsidiaries. The amendment permits a BHC, or
its nonbank subsidiary that has the authority to underwrite or deal in mortgage-backed securities,
to do so without demonstrating that the loans underlying the securities are supported by
appraisals that at origination met the Board’s appraisal regulation.
The Board and the other agencies have issued additional guidance and clarification to
their appraisal regulations. On December 10, 2010, after notice and comment, the agencies
issued the revised Interagency Appraisal and Evaluation Guidelines.3 These guidelines
incorporate several appraisal-related guidance documents4 that the agencies have issued over the
past several years and provide clarification to the agencies’ expectations for a regulated
institution’s compliance with the appraisal regulation.
Description of Information Collection
For federally related transactions, Title XI of FIRREA requires state member banks
3

See 75 FR 77450 (December 10, 2010).
While several previously issued guidance documents were rescinded with the issuance of the revised guidelines,
several appraisal-related guidance documents were retained, including SR letter 05-05, “FAQs on Interagency
Statement on Independent Appraisal and Evaluation Function;” and SR letter 05-14, “Interagency FAQs on
Residential Tract Development Lending.”
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(SMBs) and BHCs with credit-extending nonbank subsidiaries to use appraisals prepared in
accordance with minimum appraisal standards in the regulation, including the Uniform Standards
of Professional Appraisal Practice promulgated by the Appraisal Standards Board of the
Appraisal Foundation. Generally, these standards prescribe the requirements for analyzing the
value of real property as well as the requirements for reporting such analysis and a value
conclusion. An appraisal means a written statement independently and impartially prepared by a
qualified appraiser setting forth an opinion as to the market value of an adequately described
property as of a specific date(s), supported by the presentation and analysis of relevant market
information.
SMBs and BHCs with credit-extending nonbank subsidiaries are expected to maintain
records that demonstrate that appraisals used in their real estate-related lending activities comply
with these regulatory requirements. While there is no obligation for a regulated institution to file
appraisals with the Board, institutions must have policies and procedures governing their
appraisal function to ensure compliance with the appraisal regulation. As part of an onsite
examination of an institution, examiners may collect information and data on a particular
appraisal or an institution’s appraisal policies and practices to assess the condition of the
institution and its compliance with the appraisal regulation.
Proposed Revisions
On April 9, 2018, the agencies published a final rule to amend the agencies’ regulations
requiring appraisals of real estate for certain transactions. The final rule increases the threshold
level at or below which appraisals are not required for commercial real estate transactions from
$250,000 to $500,000. The final rule defines commercial real estate transaction as a real estaterelated financial transaction that is not secured by a single 1-to-4 family residential property. It
excludes all transactions secured by a single 1-to-4 family residential property, and thus
construction loans secured by a single 1-to-4 family residential property are excluded. For
commercial real estate transactions exempted from the appraisal requirement as a result of the
revised threshold, regulated institutions must obtain an evaluation of the real property collateral
that is consistent with safe and sound banking practices.
The threshold change will result in lenders being able to use evaluations instead of
appraisals for certain transactions. It is estimated that the time required to document the review
of an appraisal or an evaluation is the same. While the revisions will not change the amount of
time that institutions spend complying with the Title XI appraisal regulation, the agencies are
using a more accurate methodology for calculating the burden of the information collection
based on the experience of the agencies. The agencies are (1) using the average number of loans
per institution as the frequency and (2) using 5 minutes as the estimated time per response for the
appraisals or evaluations.
Time Schedule for Information Collection
Bank examiners test for compliance with the appraisal regulation during examinations of
SMBs banks and inspections of BHCs’ credit-extending nonbank subsidiaries. There is no
formal reporting form and the information is not submitted to the Federal Reserve.

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Legal Status
The FR H-4 is authorized pursuant to FIRREA (12 U.S.C. 3339). The adoption of
written policies and use of an appraisal statement for federally related transactions is mandatory.
Since the recordkeeping requirements do not require any information to be submitted to the
Federal Reserve, issues of confidentiality do not normally arise. However, if the Federal
Reserve were to collect a copy of the appraisal report during an examination, the documents
could be exempt from disclosure under Freedom of Information Act (FOIA) (5 U.S.C 552(b)(4)
and (b)(8)).
Consultation Outside of the Agency
On July 31, 2017, the agencies published a joint notice of proposed rulemaking in the
Federal Register (82 FR 35478) for public comment. The comment period for this notice
expired on September 29, 2017. The agencies received no comments on the Paperwork Reduction
Act (PRA). On April 9, 2018, the agencies published a final rule in the Federal Register
(83 FR 15019). The final rule is effective April 9, 2018.
Estimate of Respondent Burden
The total annual burden for the FR H-4 is estimated to be 31,442 hours. The agencies are
using a more accurate methodology for calculating the burden of the information collection
based on the experience of the agencies. The agencies are using (1) the average number of loans
per institution as the frequency and (2) 5 minutes as the estimated time per response for the
appraisals or evaluations. These recordkeeping requirements represent less than 1 percent of
total Federal Reserve System annual paperwork burden.

FR H-4
SMBs
Sections 208.50 – 208.51
Nonbank subsidiaries of BHCs
Sections 225.61 – 225.67
Total

Number of
Annual
respondents5 frequency

Estimated
average time
per response

Estimated
annual burden
hours

828

419

5 minutes

28,911

1,215

25

5 minutes

2,531
31,442

The total cost to the public is estimated to be $1,762,324.6
5

Of these respondents, 601 SMBs and 35 nonbank subsidiaries of BHCs are considered small entities as defined by
the Small Business Administration (i.e., entities with less than $550 million in total assets)
www.sba.gov/document/support--table-size-standards.
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Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $18, 45% Financial Managers at
$69, 15% Lawyers at $68, and 10% Chief Executives at $94). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2017, published March 30, 2018, www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The Federal Reserve System does not incur any direct costs as a result of this information
collection.

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