The Financial Institutions Reform, Recovery And Enforcement Act (FIRREA) was enacted to ensure that real estate appraisals are performed up to standard. This includes regulation on the competency of the appraisers, supervisory standards, and accurate and full documentation. The FIRREA also holds claim to the creation of the Resolution Trust Corporation, the restructuring of the regulation authority, the abolishment of the Federal Savings and Loan Insurance Corporation, and the creation of the Savings Association Insurance Fund and the Bank Insurance Fund.

FIRREA Explained

The Financial Institutions Reform, Recovery And Enforcement Act (FIRREA) was enacted in 1989, following the savings and loan crisis. Its purpose was to create a more efficient, productive and effective base on which to build the industry and better serve as a safeguard for future transactions. It resulted in dramatic changes to the savings and loan industry and its federal regulation, including deposit insurance. Changes included the following:

  1. The Federal Home Loan Bank Board (FHLBB) was abolished.
  2. The Federal Savings and Loan Insurance Corporation (FSLIC) was abolished, and all assets and liabilities were assumed by the FSLIC Resolution Fund administered by the FDIC and funded by the Financing Corporation (FICO).
  3. The Office of Thrift Supervision (OTS), a bureau of the U.S. Treasury Department, was created to charter, regulate, examine, and supervise savings institutions.
  4. The Federal Housing Finance Board (FHFB) was created as an independent agency to take the place of the FHLBB to oversee the 12 Federal Home Loan Banks.
  5. The Savings Association Insurance Fund (SAIF) took the place of the FSLIC as an ongoing insurance fund for thrift institutions (like the FDIC, it insured savings and loan accounts up to $100,000). SAIF is administered by the FDIC.
  6. The Resolution Trust Corporation (RTC) was established to dispose of failed thrift institutions taken over by regulators after January 1, 1989. The RTC makes insured deposits at those institutions available to their customers.

Other Regulations Initiated by FIRREA

In addition, FIRREA gave both Freddie Mac and Fannie Mae additional responsibility to support mortgages for low- and moderate-income families. It also created the Bank Insurance Fund (BIF). Both of these funds were to be administered by the FDIC, but the Federal Deposit Insurance Reform Act of 2005 consolidated the two funds.

FIRREA also allowed bank holding companies to acquire thrifts. It also established new regulations for real estate appraisals. In addition, the FIRREA established Appraisal Subcommittee (ASC) within the Examination Council of the Federal Financial Institutions Examination Council. It also established new capital reserve requirements and increased public oversight of the process. It additionally required agencies to issue Community Reinvestment Act (CRA) ratings publicly and do written performance evaluations, using facts and data to support the agencies' conclusions.