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June 08, 2016

USDA Final Rule on B&I Loans Raises Appraisal Threshold

The U.S. Department of Agriculture’s Rural Business-Cooperative Service on June 3 released its final rule that makes changes to its Business and Industry Guaranteed Loan Program to improve program delivery, clarify regulations and reduce delinquencies. The final rule takes effect Aug. 2.

Of special interest to appraisers, the final rule raises the appraisal requirement threshold from $100,000 to $250,000 on all collateral to be released, and the requirement for a current appraisal for collateral to be liquidated will be increased from $200,000 to $250,000. The $250,000 threshold is consistent with Office of Management and Budget’s guidelines set forth in OMB Circular A-129.

In a joint comment letter that the Appraisal Institute and the American Society of Farm Managers and Rural Appraisers submitted in November 2014, the organizations cautioned the USDA about raising the appraisal threshold due to “reported concerns with the quality of appraisals prepared for lenders participating in the B&I program, which are often engaged with turnaround time and price at the forefront and minimally reviewed by USDA lenders.” AI recommended coupling any threshold increase with requirements related to appraisal review.

The USDA included in the final rule one of the recommendations AI mentioned in its comment letter, namely that the USDA should “require B&I lenders to follow their primary regulator’s policies relating to Appraisals and Evaluations below the appraisal threshold” in situations where an appraisal isn’t required and the USDA relies on the lender’s evaluation of the collateral.

Read a copy of the USDA’s final rule.

See the joint AI, ASFMRA 2014 Comment Letter(log-in required).

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