[Federal Register Volume 60, Number 192 (Wednesday, October 4, 1995)]
[Rules and Regulations]
[Pages 51889-51895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24690]
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
Appraisals
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final amendments.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board is issuing final amendments to its regulation
regarding the appraisal of real estate, adopted pursuant to Title XI of
the Financial Institutions Reform, Recovery and Enforcement Act of
1989. The final amendments simplify compliance with regulatory
requirements for credit unions by changing provisions of the appraisal
regulation that govern: the publication of the Uniform Standards of
Professional Appraisal Practice (USPAP); minimum appraisal standards;
appraisals to address safety and soundness concerns; unavailable
information; additional appraisal standards developed by credit unions;
and appraiser independence. The final amendments should reduce costs
without affecting the reliability of appraisals used in connection with
federally related transactions.
EFFECTIVE DATE: October 1, 1995.
FOR FURTHER INFORMATION CONTACT: Herbert Yolles, Director, Department
of Risk Management, Office of Examination and Insurance, (703) 518-6360
or Michael McKenna, Staff
[[Page 51890]]
Attorney, Office of General Counsel, (703) 518-6540.
SUPPLEMENTARY INFORMATION:
A. Background
Title XI of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 (FIRREA) directed NCUA and the other financial
institution regulatory agencies to publish appraisal rules for
federally related real estate transactions within the jurisdiction of
each agency. In accordance with statutory requirements, NCUA's final
rule sets minimum standards for appraisals used in connection with
federally related real estate transactions and identified those
transactions that require a state certified appraiser and those that
require either a state certified or licensed appraiser.
While in most cases an appraisal is an essential part of a sound
underwriting decision, the Board believes that NCUA should not require
Title XI appraisals where they impose costs without significantly
promoting the safety and soundness of credit unions or furthering the
purpose of Title XI of FIRREA. Furthermore, it has been the Board's
experience that some requirements are no longer necessary. Accordingly,
on March 1, 1995, the Board issued proposed amendments to part 722, the
appraisal regulation. See 60 FR 13388 (March 13, 1995). The proposed
amendments were intended to simplify compliance for credit unions by
changing provisions in the appraisal regulation that govern: (i) The
publication of the USPAP; (ii) minimum appraisal standards; (iii)
appraisals to address safety and soundness concerns; (iv) unavailable
information; (v) additional appraisal standards developed by credit
unions; and (vi) appraiser independence.
B. Comments
Twenty-nine comments were received. Two commenters fully supported
the amendments. The remaining twenty-seven comments were generally
positive and consistently supported most of the proposed amendments.
The issues that generated the most comments were the de minimus amount
and appraiser independence.
Dollar Threshold for Obtaining an Appraisal (the De Minimus Amount)
The current appraisal regulation requires a credit union to obtain
an appraisal by a certified and licensed appraiser if the transaction
value is in excess of $100,000 for residential real estate and $50,000
for commercial property. See 12 CFR 722.3(a). The other federal
financial institution regulatory agencies \1\ have increased the
threshold to $250,000. See 59 FR 29482, June 7, 1994. The Board
considered whether the de minimus level should be increased for
federally-insured credit unions. Although credit unions are well
capitalized, they are generally much smaller than other financial
institutions. As a result, the relative size of an average real estate
loan in comparison to capital is generally much higher for a credit
union, which translates to much greater relative risk. A major portion
of the losses to the National Credit Union Share Insurance Fund in the
past ten years were associated with real estate lending. Consequently,
the Board did not propose to increase either threshold.
\1\ The Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of the Comptroller
of the Currency and the Office of Thrift Supervision.
---------------------------------------------------------------------------
Twelve commenters supported the Board's position. One commenter
specifically concurred with NCUA's rationale for not increasing the de
minimus level. Two commenters believed that increasing the dollar
threshold may cause safety and soundness problems. Eight commenters
recommended increasing the de minimus level to $250,000 for residential
real estate. Most of these commenters believed that retaining the
current threshold will make credit union loans more expensive and place
credit unions at a competitive disadvantage. Two commenters recommended
increasing the de minimus level to $150,000. One commenter suggested
increasing the de minimus level to $250,000 for business loans. The
Board does not believe the minimal effects on competition outweigh
safety and soundness concerns. For credit unions that engage in real
estate lending, their greatest single risk protection is to obtain a
licensed or certified appraisal to support the loan-to-value ratio. The
current thresholds of $100,000 for residential real estate and $50,000
for commercial property are sufficiently high to preclude most home
equity or second trust lending from the appraisal requirement, but are
low enough to ensure that appraisals are obtained for higher dollar
value real estate lending.
Valuation Requirement
The Board did not propose any change to the requirement that any
real estate transaction under the de minimus level, and not otherwise
exempt, receive a valuation. Three commenters recommended eliminating
the valuation requirement if the value of the loan was below a certain
dollar threshold. Two commenters would set the dollar threshold for a
valuation at $20,000 and one commenter would set the dollar threshold
at $50,000.
The Board continues to believe that there should be no de minimus
level on the valuation requirement. Loans which are secured by real
estate are often made at substantially lower interest rates than
noncollateralized loans. The value of the real estate secured as
collateral reduces the potential risk of the loan, thereby enabling the
credit union to lend at a lower interest rate or smaller spread. Unless
a valuation is performed that meets the requirements of part 722, the
credit union has no assurance that the real estate offered as
collateral is of sufficient value to provide the necessary risk
protection to justify the reduced interest rate. However, the Board is
exempting from the valuation requirement those real estate loans that
are insured by a third party. In this case, there is virtually no risk
to the credit union and the valuation requirement serves no practical
purpose.
One commenter recommended that the agency define the term
``valuation'' in the preamble of the final regulation. The term was
defined in the preamble to the original final rule. See 55 FR 30199
(July 25, 1990). The term was broadly defined to allow credit unions
the flexibility to use various methods to measure market value. Any
further refinement of the definition would reduce that flexibility. The
Board does not believe that would be in the best interests of credit
unions.
Some credit unions have established programs in which minimal
valuation procedures are used for real estate loans which are below
certain dollar thresholds and/or are below certain loan-to-value
ratios. These minimal procedures do not involve a physical inspection
of the property or ``drive by'', but instead may rely on other written
evidence such as a recent tax assessment. The Board has no objection to
such alternative valuation procedures, as long as the credit union has
fully documented how the alternate procedures will work and
demonstrated that the procedures do not impose an unacceptable risk by
not performing a physical inspection. The credit union must also
demonstrate how the other written evidence correlates to the value of
the collateral. What constitutes an unacceptable level of risk will
vary for each credit union and each loan based on such factors as the
credit union's size, capital level and experience with real estate
lending, and the borrower's debt level and credit history. For this
reason, the Board believes that it would be inappropriate for it to
attempt to set
[[Page 51891]]
specific parameters on the valuation procedures that credit unions may
employ.
1. Exemptions
The Board proposed amendments to clarify and expand the
circumstances in which a Title XI appraisal is not required. The Board
addressed the following areas: (1) The ``abundance of caution''
provision; (2) liens for purposes other than the real estate's value;
(3) requirements for renewals, refinancings and other subsequent
transactions; (4) transactions involving real estate notes; (5)
transactions insured or guaranteed by a United States Government Agency
or United States Government Sponsored Agency; and (6) transactions that
meet the qualification for sale to a United States Government Agency or
United States Government Sponsored Agency.
The ``Abundance of Caution'' Provision
NCUA's appraisal regulation currently provides that an appraisal is
not required when a lien on real estate has been taken as collateral
``solely'' through an abundance of caution and where the terms of the
transaction as a consequence have not been made more favorable than
they would have been in the absence of a lien. See 12 CFR 722.3(a)(2).
To emphasize the broader scope of the abundance of caution exemption,
the Board proposed to delete the word ``solely'' from the current
exemption. Seven commenters supported and one opposed this amendment.
The supporters believed it would add flexibility to credit union's
lending policies. One of these commenters suggested that the final
regulation also eliminate the requirement that ``the terms of the
transaction have not been made more favorable than they would have been
in the absence of the lien.'' This commenter stated that if this
requirement is not eliminated credit unions would be at a competitive
disadvantage with banks and thrifts.
The Board is unwilling to further expand the abundance of caution
provision. When the terms of a loan are more favorable than they would
have been in the absence of a lien, the more favorable terms are
warranted because of the value of the collateral. Without a certified
or licensed appraisal (or a valuation if the transaction is below the
de minimus level) the credit union has no assurance that the collateral
is of sufficient value to provide the necessary risk protection.
The opposing commenter believes this amendment may lead to
unwarranted risk. However, this amendment will only affect a small
number of transactions and cannot be used when the terms of the
transaction have been made more favorable than they would have been in
the absence of the lien. A loan falling into this category will not
carry any additional risk. Therefore, the Board is adopting this
amendment as proposed.
Liens for Purposes Other Than the Real Estate's Value
The Board proposed a new exemption for transactions in which a
credit union takes a lien on real estate for purposes other than the
value of the real estate, such as when it takes a lien on real estate
to protect the legal rights to other collateral. In such cases an
appraisal would not be required. Seven commenters supported this
amendment. One of these commenters stated that this new exemption would
benefit credit unions since it would allow them to take additional
security without adding the burden of obtaining an appraisal.
Accordingly, the Board is adopting the amendment as proposed.
Requirements for Renewals, Refinancing and Other Subsequent
Transactions
The Board proposed exempting from the appraisal requirement
subsequent transactions provided no new monies were advanced other than
funds necessary to cover reasonable closing costs and where there has
been no obvious and material change in the market conditions or
physical aspects of the property which would threaten the credit
union's collateral protection. Fifteen commenters supported this
proposal. One of these commenters stated that this amendment would be
beneficial to credit unions and members who wish to refinance an
existing mortgage with the same credit union, in order to take
advantage of a lower interest rate, but not incur the added expenses of
another appraisal.
One commenter recommended even greater flexibility to situations in
which an appraisal is not required for renewals, refinancings, and
other subsequent transactions. This commenter would exempt a
transaction which involves an existing extension of credit provided it
meets one of two criteria: (i) There is no advancement of new money
except to cover reasonable closing costs or (ii) there has been no
obvious and material change in market conditions or physical aspects of
the property that threatens the adequacy of the credit union's real
estate collateral protection after the transaction, even with the
advancement of new monies. This commenter stated that banks and thrifts
have this exemption and credit unions would be at a competitive
disadvantage without it. The Board believes that an appraisal is
necessary if new funds are advanced. The Board believes that safety and
soundness concerns outweigh the possible minimal affects on
competition.
One commenter supports the proposal but would also require a drive-
by appraisal to confirm there had been no material change in the
collateral. The Board believes that credit unions should retain the
flexibility on how best to determine whether there has been any
material change in the collateral. Three commenters objected to this
amendment believing an appraisal is necessary because market conditions
may have changed since the loan was originally granted. The Board
disagrees. If the credit union has made the loan being refinanced and
no additional funds are advanced, the risk is only associated with the
extension of the repayment period. The Board believes that in most
cases this risk will be minimal. In addition, the Board believes that
the credit unions will be aware of the deteriorating market trends and
will seek a new appraisal if they believe it is necessary. The Board is
adopting in final the amendment as proposed. This exemption is not
applicable if a member refinances a mortgage with a new lender.
Transactions Involving Real Estate Notes
The Board proposed to allow credit unions to purchase, sell, invest
in, exchange, or extend credit secured by real estate notes or
interests in real estate notes or interests in real estate without
obtaining a new Title XI appraisal if each note or real estate interest
is supported by an appraisal that meets the regulatory appraisal
requirements for the institution at the time the real estate-secured
note was originated. (The transaction would, of course, have to meet
other statutory and regulatory requirements applicable to federally-
insured credit unions.) The Board believes that this amendment will
serve federal public policy interests by helping to ensure that the
appraisal regulation does not unnecessarily inhibit secondary mortgage
market transactions that involve real estate-secured loans and real
estate interests. Six commenters supported this proposal. Most of these
commenters believe that this change would permit credit unions to buy
or sell loans more easily on the secondary market. Consequently, the
Board is adopting this amendment as proposed.
[[Page 51892]]
Transactions Insured or Guaranteed by a United States Government Agency
or United States Government Sponsored Agency
NCUA's appraisal regulation currently provides that loans insured
or guaranteed by an agency of the United States government are exempt
from NCUA's appraisal requirements. The Board proposed to delete the
requirement that the transaction be supported by an appraisal that
conforms to the requirements of the insuring or guaranteeing agency.
Five commenters supported this amendment. One commenter objected to it
on safety and soundness grounds. The Board believes that loan program
standards sufficiently protect credit unions since in order to receive
the insurance or guarantee, the transaction must meet all underwriting
requirements of the insurer or guarantor, including real estate
appraisal or valuation requirements. It is unnecessary to require these
transactions to also meet the overlapping requirements of NCUA.
Moreover, this exemption will eliminate the confusion among credit
unions that two separate appraisals are required; one meeting NCUA's
Regulations and another meeting the federal loan program standards.
Accordingly, the Board is adopting the proposed amendment in final.
Transactions That Meet the Qualifications for Sale to a United States
Government Agency or Government Sponsored Agency
NCUA proposed to permit credit unions to originate, hold, buy or
sell transactions that meet the qualifications for sale to any U.S.
government agency and certain government sponsored agencies without
obtaining a separate appraisal conforming to NCUA's Regulations. The
Board believes that permitting credit unions to follow these
standardized appraisal requirements, without the necessity of obtaining
an appraisal or appraisal supplement will increase a credit union's
ability to buy and sell these loans. Also, it may help a credit union
with liquidity problems. Four commenters supported this amendment. One
commenter suggested that the list of the government sponsored agencies
that was in the proposed rule's preamble be included in the preamble of
the final regulation so that credit unions would be able to identify
those agencies more easily. The Board agrees. These government
sponsored agencies are:
* Banks for Cooperatives.
* Federal Agricultural Mortgage Corporation (Farmer Mac).
* Federal Farm Credit Banks.
* Federal Home Loan Banks (FHLBs).
* Federal Home Loan Mortgage Corporation (Freddie Mac).
* Federal National Mortgage Association (Fannie Mae).
* Student Loan Marketing Association (Sallie Mae).
* Tennessee Valley Authority (TVA).
The Board believes the appraisal standards of the U.S. government
agencies established to maintain a secondary market in various types of
loans are appropriate for these exempt transactions. Furthermore, the
Board believes that compliance with these standards will protect the
safety and soundness of regulated financial institutions. Accordingly,
the Board is adopting the proposed amendments in final.
2. Appraisals to Address Safety and Soundness Concerns
The Board proposed to clarify that NCUA may require Title XI
appraisals to address safety and soundness concerns where real estate-
related financial transactions present greater-than-normal risk to
individual credit unions. For example, NCUA may require a troubled
credit union to obtain an appraisal for transactions below the
threshold level. Two commenters supported this amendment. One commenter
objected stating that USPAP standards already provide sufficient
safeguards. In general, the Board believes that the USPAP standards are
sufficient but as the above example demonstrates there may be occasions
where additional standards are necessary. Accordingly, the Board is
adopting this amendment as proposed.
3. Minimum Appraisal Standards
The Board proposed to reduce the number of minimum appraisal
standards applicable to Title XI appraisals for federally-related
transactions from the thirteen standards found in Sec. 722.4(a) of
NCUA's Regulations (12 CFR 722.4(a)) to five and eliminate the current
prohibition on the use of the USPAP Departure Provision in connection
with federally-related transactions. The Board proposed to require all
appraisals for federally-related transactions to: (i) Conform to
generally accepted appraisal standards as evidenced by the USPAP; (ii)
be written and contain sufficient information and analysis to support
the credit union's decision to engage in the transaction; (iii) analyze
and report appropriate deductions and discounts for proposed
construction or renovation, partially leased buildings, no-market lease
terms and tract developments with unsold units (iv) be based upon the
definition of market value as set forth in the regulation; and (v) be
performed by State licensed or certified appraisers.
The Board also proposed deleting Appendix A from the regulation
since USPAP would be referenced in the regulation.
Nine commenters supported the modification and believe that
eliminating the parallel USPAP standards will ease regulatory burden.
Most of these commenters believed that this amendment will eliminate
any confusion on what standards to follow. One commenter specifically
stated that the elimination of Appendix A will make it clear to credit
unions that any reference to USPAP is the current edition. Ten
commenters did not believe this change will ease regulatory burden but
they did not object to the change. One of these commenters stated that
all the proposed changes are the responsibility of the appraiser and
not the credit union. One commenter objected to the amendment because
he does not believe the current standards impose any sort of regulatory
burden. Two commenters believe the proposed amendments will affect the
usefulness of an appraisal. The Board does not believe an appraisal
will be less useful by eliminating these standards since an appraiser
must still follow the parallel USPAP standards. By eliminating the
regulatory standards that parallel USPAP standards the Board is simply
reducing the confusion on what standards need to be followed in the
preparation of appraisals for federally related transactions.
Departure Provision
The Board proposed to permit credit unions to use appraisals
prepared in accordance with the USPAP Departure Provision for
federally-related transactions. The Departure Provision permits limited
exceptions to specific guidelines in the USPAP. The Board believes that
credit unions should be allowed to determine, with the assistance of
the appraiser, whether an appraisal to be prepared in accordance with
the Departure Provision is appropriate for a particular transaction and
consistent with principles of safe and sound lending. Thirteen
commenters supported the ability of a credit union to use USPAP's
Departure Provision. Most of these commenters do not believe this
change would affect the reliability of an appraisal report. They
believe this change would provide credit unions with added flexibility
which will result in decreased appraisal costs. Five commenters believe
the use of the Departure Provision may affect an appraisal's
reliability and two of these
[[Page 51893]]
commenters stated that the interpretation of the data given by the
appraiser may be misleading and not acceptable. The Board believes that
appraisal data is always subject to some interpretation. A credit union
can minimize this risk by carefully selecting an appraiser.
Furthermore, appraisers preparing appraisals using the Departure
Provision must still comply with all binding requirements of the USPAP
and must be sure that the resulting appraisal is not misleading. The
amendment also makes clear that the written appraisal must contain
sufficient information and analysis to support the credit union's
decision to engage in the transaction. This puts the credit union on
notice of their responsibility to have appraisals that are appropriate
for the particular federally related transaction.
Deductions and Discounts
The Board proposed to retain the current standard in the appraisal
regulation regarding deductions and discounts. See 12 CFR 722.4(a)(8).
The USPAP provision on this subject requires the appraiser to include a
discussion of deductions and discounts when it is necessary to prevent
an appraisal from being misleading. The Board believes it is
appropriate to emphasize the need to include an appropriate discussion
of deductions and discounts applicable to the estimate of value in
Title XI appraisals for federally related transactions. For example, in
order to properly underwrite a loan, a credit union may need to know a
prospective value of a property, in addition to the market value as the
date of the appraisal. A prospective value of a property is based upon
events yet to occur, such as completion of construction or renovation,
reaching a stabilized occupancy level, or some other event to be
determined. Thus, more than one value may be reported in an appraisal
as long as all values are clearly described and reflect the projected
dates when future events could occur.
The standard on deductions and discounts emphasize the need for
appraisers to analyze, apply and report appropriate discounts and
deductions when providing values based on future events. In financing
the purchase of an existing home in a long-standing community, there
typically would be no need to apply any discounts or deductions to
arrive at the market value of the property since the credit union's
financing of the project does not depend on events such as further
development of the property or the sale of units in a tract
development. Therefore, the Board is adopting in final the amendment as
proposed.
Remaining Standards
The Board also proposed to retain the current market value standard
in the appraisal regulation which requires the appraisal to be based on
the definition of market value in NCUA's Regulations. See 12 CFR
722.4(a)(2). Finally, the Board proposed a new standard that all
appraisals for federally related transactions must be prepared by
licensed or certified appraisers. This requirement is mandated by Title
XI of FIRREA and is repeated in other parts of the appraisal
regulation.
The Board is adopting the minimum appraisal standards as proposed.
The Board believes these five standards will simplify compliance with
the appraisal regulation without diminishing the usefulness of Title XI
appraisals prepared for federally related transactions. Under these
standards, the USPAP is referenced but is no longer part of NCUA's
Regulations. This approach no longer requires NCUA to republish changes
to the USPAP adopted by the Appraisal Standards Board in Appendix A of
this rule. The appendix is deleted from NCUA's appraisal regulation.
4. Elimination of the Provision on Unavailable Information
The Board proposed to delete the current provision that requires
appraisers to disclose and explain when information necessary to the
completion of an appraisal is unavailable. See 12 CFR 722.4(b). The
USPAP currently requires appraisers to disclose and explain the absence
of information necessary to complete an appraisal that is not
misleading. See USPAP Standard Rule 2-2(k). Moreover, when information
that may materially affect the estimate of the value is unavailable,
the Board believes that generally accepted appraisal standards require
appraisers to explain the absence of that information and its effect on
the reliability of the appraisal. Therefore, to streamline the
regulation the Board is adopting the amendment as proposed.
5. Elimination of the Provision on Additional Appraisal Standards
The Board proposed to delete the current provision that merely
confirms the authority of credit unions to require appraisers to comply
with additional standards. See 12 CFR 722.4(c). As the regulation's
minimum appraisal standards for federally related transactions do not
prevent a credit union from requiring additional appraisal standards or
information to meet the credit union's business needs. It is
unnecessary to keep this provision in the appraisal regulation.
Consequently, the Board is adopting the proposed amendment in final.
6. Appraiser Independence
The Board proposed to permit a credit union to use an appraisal
that was prepared for any financial service institution including
mortgage bankers. Twenty commenters supported this amendment. One of
these commenters added a caveat that it should be permissible only if
the appraisal is ordered by a lending establishment and the appraiser
is one that has been approved by the lender. Three of these commenters
believed the appraiser should be certified or licensed. Two commenters
say the appraisal should be recent. Three commenters objected to this
provision. One of these commenters stated that relying on an appraisal
commissioned by another financial institution may lead to a faulty
credit decision. A credit union need not rely on an appraisal if it
does not have confidence in the report or the appraiser. The Board
believes that these are all business decisions that should be made by
the credit union and need not be regulated. However, it is incumbent on
the credit union to ensure that the appraisal conforms to the
requirements of the regulation and is otherwise acceptable.
Furthermore, the appraiser would not be allowed to have a direct or
indirect interest, financial or otherwise, in the property or the
transaction, and must have been directly engaged by the non-regulated
institution.
Age of Appraisal
In the preamble to the proposed amendments, the Board addressed the
maximum age for an acceptable appraisal. The Board believed that there
should be a maximum age (time from date of the appraisal to date of the
application of the loan) for an appraisal, but that the age should not
be so short as to unnecessarily require a new appraisal in the unlikely
event that a mortgage is refinanced within a reasonably short time or a
credit union is using an appraisal prepared for another financial
service institution. The Board realized that setting a specific time
period would not be appropriate in all situations. The Board proposed
allowing credit unions to determine the period for an appraisal but
recommending that any appraisal over six months not be used. Ten
commenters supported the six month recommendation and nine commenters
objected. Most of these commenters
[[Page 51894]]
would prefer that NCUA allow the determination to be made on a case by
case basis or continue with the current one year recommendation. They
also believed that in many locations an appraisal that is one year old
is still an accurate reflection of market value.
The Board does not have any empirical evidence to demonstrate that
an appraisal older than six months is inherently unreliable. The Board
believes that while any specific time period will not be appropriate in
all situations, appraisals generally can be relied upon for up to one
year. During periods of stable real estate market conditions,
appraisals that are one year old may be fairly accurate. However,
because of the uncertain nature of real estate market conditions, older
appraisals may be unreliable. It is the responsibility of the credit
union to be aware of market conditions. The ultimate judgment on
whether to use an appraisal rests with the credit union. This approach
provides guidance while permitting credit unions the flexibility to use
their best judgment in this matter.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact a proposed regulation may
have on a substantial number of small credit unions (primarily those
under $1 million in assets). The final amendments reduce regulatory
burden and are less restrictive than current requirements. Overall, the
Board expects the changes to benefit members and federally-insured
credit unions regardless of size by reducing costs without
substantially increasing the risk of loss. In addition, most small
credit unions do not offer real estate loans. Accordingly, the Board
determines and certifies that the final rule is not expected to have a
significant economic impact on a substantial number of small credit
unions and that a Regulatory Flexibility Analysis is not required.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. The final rule will apply to all federally-
insured credit unions and reduce regulatory requirements. The Board has
determined that the final amendments would not have a substantial
direct effect on the states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government.
Paperwork Reduction Act
The final rule decreases paperwork requirements for a credit union.
The paperwork requirements were submitted to the Office of Management
and Budget (OMB) for approval under the Paperwork Reduction Act. A
notice will be published in the Federal Register once approval is
received from OMB.
List of Subjects in 12 CFR Part 722
Appraisals, Credit unions, State-certified and State-licensed
appraisers
By the National Credit Union Administration Board on September
28, 1995.
Becky Baker, --
Secretary to the Board.
Accordingly, NCUA amends 12 CFR part 722 as follows:
PART 722--APPRAISALS
1. The authority citation for part 722 continues to read as
follows:
Authority: 12 U.S.C. 1766, 1789 and Pub. L. No. 101-73.
2. Section 722.3 is amended by revising the section headings,
revising paragraphs (a) and (d) and adding a new paragraph (e) to read
as follows:
Sec. 722.3 Appraisals required; transactions requiring a State
certified or licensed appraiser.
(a) Appraisals required. An appraisal performed by a State
certified or licensed appraiser is required for all real estate-related
financial transactions except those in which:
(1) The transaction value is $100,000 or less except if it is a
business loan and then the transaction value is $50,000 or less;
(2) A lien on real property has been taken as collateral through an
abundance of caution and where the terms of the transaction as a
consequence have not been made more favorable than they would have been
in the absence of a lien;
(3) A lien on real estate has been taken for purposes other than
the real estate's value;
(4) A lease of real estate is entered into, unless the lease is the
economic equivalent of a purchase or sale of the leased real estate;
(5) The transaction involves an existing extension of credit at the
credit union, provided that:
(i) There is no advancement of new monies, other than funds
necessary to cover reasonable closing costs; and
(ii) There has been no obvious and material change in market
conditions or physical aspects of the property that threatens the
adequacy of the credit union's real estate collateral protection after
the transaction;
(6) The transaction involves the purchase, sale, investment in,
exchange of, or extension of credit secured by, a loan or interest in a
loan, pooled loans, or interests in real property, including mortgage-
backed securities, and each loan or interest in a loan, pooled loan, or
real property interest met the requirements of this regulation, if
applicable, at the time of origination;
(7) The transaction is wholly or partially insured or guaranteed by
a United States government agency or United States government sponsored
agency; or
(8) The transaction either:
(i) Qualifies for sale to a United States government agency or
United States government sponsored agency; or
(ii) Involves a residential real estate transaction in which the
appraisal conforms to the Federal National Mortgage Association or
Federal Home Loan Mortgage Corporation appraisal standards applicable
to that category of real estate.
* * * * *
(d) Valuation requirement. Secured transactions exempted from
appraisal requirements pursuant to paragraphs (a)(1) of this section
and not otherwise exempted from this regulation or fully insured shall
be supported by a written estimate of market value, as defined in this
regulation, performed by an individual having no direct or indirect
interest in the property, and qualified and experienced to perform such
estimates of value for the type and amount of credit being considered.
(e) Appraisals to address safety and soundness concerns. NCUA
reserves the right to require an appraisal under this subpart whenever
the agency believes it is necessary to address safety and soundness
concerns.
3. Section 722.4 is revised to read as follows:
Sec. 722.4 Minimum appraisal standards.
For federally related transactions, all appraisals shall, at a
minimum:
(a) Conform to generally accepted appraisal standards as evidenced
by the Uniform Standards of Professional Appraisal Practice (USPAP)
promulgated by the Appraisal Standards Board of the Appraisal
Foundation, 1029 Vermont Ave., NW., Washington, DC 20005;
(b) Be written and contain sufficient information and analysis to
support the institution's decision to engage in the transaction;
(c) Analyze and report appropriate deductions and discounts for
proposed construction or renovation, partially
[[Page 51895]]
leased buildings, non-market lease terms, and tract developments with
unsold units;
(d) Be based upon the definition of market value as set forth in
Sec. 722.2(f); and
(e) Be performed by State licensed or certified appraisers in
accordance with requirements set forth in this subpart.
4. Section 722.5 is amended by revising paragraph (b) to read as
follows:
Sec. 722.5 Appraiser independence.
* * * * *
(b) Fee Appraisers. (1) If an appraisal is prepared by a fee
appraiser, the appraiser shall be engaged directly by the credit union
or its agent and have no direct or indirect interest, financial or
otherwise, in the property or the transaction.
(2) A credit union also may accept an appraisal that was prepared
by an appraiser engaged directly by another financial services
institution; if:
(i) the appraiser has no direct or indirect interest, financial or
otherwise, in the property or transaction; and
(ii) the credit union determines that the appraisal conforms to the
requirement of this regulation and is otherwise acceptable.
Appendix A--[Removed]
5. Appendix A to Part 722 is removed.
[FR Doc. 95-24690 Filed 10-3-95; 8:45 am]
BILLING CODE 7535-01-U
