February 25, 2020 – Most of us know which loans are classified as FRTs. The loans that have caused confusion are those that are under the various threshold levels. Are those FRTs or non-FRTs? So, here is a short explanation that will hopefully be of assistance.
We start out with everything being a FRT.
Then we see if any of the 12 or 13 exemptions apply. Here we fork in two directions.
1. For the 9 exemptions where neither an appraisal nor an evaluation are needed (e.g. Abundance of Caution, Unsecured loans, loans sold to FNMA/Freddie et al), those transactions are outside of FIRREA entirely and thus are not FRTs.
2. For the 3 or 4 exemptions that do not require an appraisal, but require an evaluation, these loans also are NOT FRTs. However, federal regulations still apply as they cover what is needed in the evaluation realm.
The federal regulators only care about evaluations being done by a competent person and providing safety and soundness to banks/CUs. The December 2010 IAEG is NOT law and, thus, although it addresses who can perform evaluations, the content of evaluations, et al, none of that matters to the bank examiners. The only requirements in the law itself is that someone competent perform these (can be a licensed appraiser or not a licensed appraiser) and the resulting report provides what is needed for safety and soundness to be met.
So, it is left to the courts to decide debates on whether states can require that only licensed appraisers can perform evaluations. Although federal regulators believe states have this right, they recognize that the preemption argument can be made and judges might see it that way.
It obviously would be nice if things were not left to various judges to give different rulings. However, that is not the situation we have to live with.