Reg Y - Forgoing the FIRREA Appraisal

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Question:

Under Regulation Y Sec 225.63(a)(2) there is an exception if a lien is taken in an abundance of caution. Would this include a lien taken on an existing home as additional collateral for a construction loan that will have a FIRREA appraisal on new construction, but is not adequate collateral so we are taking the existing home? Can we forgo the FIRREA appraisal on that collateral taken in an abundance of caution?

Answer:

In my opinion, by the very nature of what you described, the lien on the existing home is not being taken in an abundance of caution. It is being taken because the new construction is not adequate collateral for the loan. The very meaning of abundance of caution means you have enough collateral to satisfy all requirements, but are still taking the additional collateral anyway.

First published on BankersOnline.com 7/21/08