The Federal Reserve and the other federal financial institutions regulatory agencies have granted a waiver of their appraisal regulations for three years to regulated financial institutions that are entering into transactions with borrowers affected by Hurricanes Katrina and Rita ("Hurricanes"). The waiver is expected to reduce loan processing times and, therefore, may assist institutions in responding to the financial needs of borrowers affected by the Hurricanes. See the attached joint Federal Register notice.1
The waiver covers real estate-related transactions involving real estate located in certain Alabama, Mississippi, and Texas counties and Louisiana parishes that have been designated by the Federal Emergency Management Agency (FEMA) as qualifying for "Individual and Public Assistance (all categories)" and "Individual and Public Assistance (Categories A and B)" as a result of the Hurricanes. A listing of the designated disaster areas is in the appendix of the attached Federal Register notice. Exceptions for the major disasters declared due to Hurricane Katrina will expire on August 29, 2008, in Alabama, Mississippi, and Louisiana, and for Hurricane Rita on September 24, 2008, in Louisiana and Texas.
To qualify for the waiver, a financial institution needs to document that:
(1) the transaction involves real property located in the designated
disaster areas; (2) the property involved was directly affected by the
major disaster or the transaction would facilitate recovery from the disaster(s);
(3) there is a binding commitment to fund the transaction that is made
within three years after the date the major disaster was declared; and (4) the
value of the real property supports the institution's involvement in the transaction.
Whether or not an institution elects to take advantage of this waiver is a
business decision that may be determined by the institution on a case-by-case
basis. When an institution decides to rely on the appraisal waiver for a particular
real estate-related transaction, the institution should provide sufficient
documentation in the loan file to support its credit decision and assessment
of the collateral's value.2
Institutions should continue to extend credit on terms that are consistent
with safe and sound banking principles.
Reserve Banks are asked to provide a copy of this letter and the Federal Register notice to state member banks and bank holding companies and to appropriate supervision staff. Questions concerning the appraisal waiver should be directed to Ms. Virginia Gibbs, Senior Supervisory Financial Analyst, at 202-452-2521. Additional materials and guidance issued by the Federal Reserve and related to the recent Hurricanes can be found on the Board's website on the Hurricane Katrina webpage.