Postponing An Appraisal Until After Closing? For Some, It Will Be Possible For The Rest Of The Year.

Three federal banking regulators came together this week to announce a temporary suspension of appraisals for credit-worthy borrowers while the country prepares for the economic impact of COVID-19. The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement saying, “…the completion of appraisals and evaluations required under the agencies’ appraisal regulations may be deferred by a regulated institution for up to 120 days from the date of closing. The temporary deferrals apply to all residential and commercial real estate secured transactions, including loans for new money or refinancing transactions…”. The statement goes on to list the exceptions, most notably for loans obtained for new construction.

This ruling only applies to lenders who are under the auspices of those three bodies, thus it doesn’t include loans guaranteed by Fannie Mae and Freddie Mac. Those two entities, however, have already begun to relax their appraisal requirements in the wake of coronavirus with appraisal waivers and exterior-only appraisals. The hope with all these initiatives is to keep a little bit of life in the housing market so it doesn’t come to a complete standstill.

The statement does caution lenders to ensure they have a ‘mitigation strategy’ since there is a very real possibility of properties going down in value, either in the 120 day time frame or even after that if the economic impact turns out to be worse than many are expecting. While the real estate industry has pivoted quickly to adapt to virtual showings and closings, lenders have tightened their standards and a record number of people have applied for unemployment. Even though the year started out with demand that exceeded supply, there is enough uncertainty right now about the amount of cash that will be available in the economy that it’s hard to know how many people will be able to afford a home. Postponing appraisals is one way to prevent a complete collapse.