Loan Processing Could Slow Due to Appraiser Shortage

Due to a shortage of licensed and certified appraisers in rural areas, which has led to significant delays in the consideration of loan applications, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, National Credit Union Administration, and the Office of the Comptroller of the Currency issued a joint advisory Wednesday to regulated institutions on suggested alternatives. Appraisals are of paramount importance in pushing through loan applications, as financial institutions will not supply a mortgage to a prospective buyer for more than the property is valued by the appraisal.

The advisory offers two possible solutions for effected areas to deal with the shortage. The first and most ideal option is for states to issue temporary practice permits, which would allow appraisers licensed in other states to work in areas experiencing shortages. Out-of-state licensed appraisers must apply to the wanting state’s regulatory agency for their temporary permit. Per Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act, states are barred from requiring extreme licensing requirements or charging excessive fees in order to secure the permit.

States experiencing shortages are also encouraged to engage in reciprocity with one another and recognize each state’s appraisal certification and licensing, allowing out-of-state appraisers to perform duties for federally related transactions without having to go through all the red tape.

The second, and more complicated and cumbersome option would be for the Appraisal Subcommittee (ASC) to issue temporary waivers of any state imposed certification or licensing requirements to facilitate the timely completion of federally related transactions.

In order for the ASC to consider a temporary waiver, a federal bank regulatory agency, regulated credit union or financial institution, or state appraisal licensing agency must submit a request and provide evidence of the shortage of appraisers in a certain geographic area and also prove that the shortage is the cause of “significant delays.”

This route is also the more time consuming of the two, as the ASC is required to post a public notice on the Federal Registrar and has 15 days to post its decision. And, even if the temporary waiver is approved by the ASC, its validity is still up to the discretion of the Federal Financial Institutions Examination Council (FFIEC), who has the final say.

There is, however, one benefit for institutions to attempt to obtain a temporary waiver, which is that, once approved, the waiver will apply to all regulated institutions in that geographical area regardless of which institution submitted the application. The ASC determines how long the waiver will be valid, and may terminate the waiver if the shortage ebbs. Financial institutions may also petition for an extension if the shortage persists after the waiver’s expiration, although that, once again, will be subject to review by both the ASC and the FFIEC.