[Federal Register Volume 60, Number 48 (Monday, March 13, 1995)]
[Proposed Rules]
[Pages 13388-13393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5592]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
Appraisals
AGENCY: National Credit Union Administration (NCUA).
ACTION: Proposed amendments.
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SUMMARY: The NCUA Board is proposing 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 proposed 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; minimum appraisal standards;
appraisals to address safety and soundness concerns; unavailable
information; additional appraisal standards developed by credit unions;
and appraiser independence. The proposed amendments should reduce costs
without affecting the reliability of appraisals used in connection with
federally related transactions.
DATES: Comments must be postmarked or received by May 12, 1995.
ADDRESSES: Send comments to Becky Baker, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314 or via NCUA's electronic bulletin board to Becky Baker
at 703-518-6480.
FOR FURTHER INFORMATION CONTACT: Kent Buckham, Deputy Director, (703)
518-6360, Herbert Yolles, Director, Department of Risk Management,
Office of Examination and Insurance, (703) 518-6360 or Michael McKenna,
Staff 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), 12 U.S.C. 3331 et seq., 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. Section 1121(4) of FIRREA, 12 U.S.C
3350(4), defines a federally related transaction as a real estate-
related financial transaction that, among other things, requires the
services of an appraiser. A real estate-related financial transaction
is defined as any transaction that involves (i) the sale, lease,
purchase, investment in or exchange of real property, including
interests in property, or the financing thereof; (ii) the refinancing
of real property or interests in real property; and (iii) the use of
real property or interests in real property as security for a loan or
investment, including mortgage-backed securities. See 12 U.S.C.
3350(5).
In July of 1990, the Board published regulations to meet the
requirements of Title XI of FIRREA. See 55 FR 30199, July 25, 1990. The
Board recognized that not all real estate-related financial
transactions would require an appraisal. Accordingly, in the original
appraisal regulation, NCUA did not require a state-certified or -
licensed appraiser for real estate-related transactions having a
transaction value less than or equal to $50,000. In July of 1993, the
Board raised the de minimus amount for an appraisal performed by a
state-certified or -licensed appraiser to $100,000 (See 58 F.R. 40040,
July 27, 1993). The dollar threshold was raised because NCUA had not
found any evidence indicating that there had been a significant
increase in the defaults on real estate-related loans of less than
$50,000 and that the increase would not represent a threat to the
safety and soundness of credit unions but rather would reduce
unnecessary costs and paperwork requirements.
Recently, the other federal financial institution regulatory
agencies\1\ have increased the threshold to $250,000. See 59 FR 29482,
June 7, 1994. The Board has considered whether the de minimus level
should be increased for federally-insured credit unions. At this time,
the Board does not perceive a need to increase the threshold. Many
credit unions do not have the on-staff expertise to prepare appraisals.
In addition, 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 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 has been
associated with real estate lending.
\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.
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For credit unions that do engage in real estate lending, the
greatest single risk protection they can obtain is 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 professional appraisals are obtained for higher-
dollar value real estate lending. Therefore, the Board is not proposing
to increase either of these dollar thresholds. However, the Board
believes that the appraisal regulation can be revised to provide
clarity and ease the regulatory burden on credit unions for some
categories of transactions.
B. Proposed Amendments
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
purposes of Title XI of FIRREA. Accordingly, the Board is proposing to
amend its appraisal regulation to clarify [[Page 13389]] and expand the
circumstances in which a Title XI appraisal is not required.
It is also NCUA's experience that the current minimum standards
applicable to federally related transactions and requirements
concerning the independence of appraisers can be simplified without
significantly affecting the reliability of Title XI appraisals.
Therefore, the Board is proposing to amend the appraisal regulation to
eliminate standards that parallel standards in the Uniform Standards of
Professional Appraisal Practice (``USPAP'') promulgated by the
Appraisal Standards Board of the Appraisal Foundation. In addition, the
Board is proposing to amend the regulation concerning appraiser
independence to permit credit unions to use appraisals prepared for
other financial service institutions. The Board also proposes to
simplify compliance with regulatory requirements for both credit unions
and appraisers by changing provisions of the appraisal regulation that
govern: (i) publication of USPAP; (ii) unavailable information; (iii)
appraisals to address safety and soundness concerns and (iv) additional
appraisal standards developed by credit unions. The proposed changes
should reduce costs without affecting the reliability of appraisals
used in connection with federally related transactions.
1. Exemptions
The ``Abundance of Caution'' Provision
The Board proposes to amend the regulation to clarify and expand
the scope of the exemption for real estate liens taken in an
``abundance of caution.'' 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).
NCUA's experience with implementing the appraisal regulation
indicates that the existing abundance of caution exemption has been
interpreted too narrowly. Therefore, to emphasize the broader scope of
the abundance of caution exemption, the Board proposes to delete the
word ``solely'' from the current exemption. However, this amendment
would still not allow a credit union to use this exemption when there
is a change to the terms of the loan because the credit union also
received a lien on real estate.
Liens for Purposes Other Than the Real Estate's Value
As defined in NCUA's Regulations, an appraisal is a written
statement independently and impartially prepared by a qualified
appraiser setting forth an opinion as to the market value of real
estate. See 12 CFR 722.2(a). When the market value of the real estate
as an individual asset is not part of the credit union's decision to
take a lien against real estate, no purpose is served by requiring the
institution to obtain an appraisal. The Board is proposing a new
exemption for transactions in which a credit union takes a lien on real
estate for a purpose other than the value of the real estate. On
occasion a credit union takes a real estate lien to protect the legal
rights to other collateral and not because of the value of the real
estate as an individual asset. For instance, where the collateral for a
loan is a small business, a credit union may take a lien against the
land and improvements in order to be able to sell the entire business
as a going concern if the borrower defaults. Similarly, in lending
associated with agriculture, credit unions may take a lien against the
real estate upon which the growing crops sit to ensure their access to
the agricultural product.
Requirements for Renewals, Refinancing and Other Subsequent
Transactions
The Board is proposing to clarify the exemption for renewals,
refinancings, and other transactions resulting from an existing
extension of credit to simplify the conditions under which the
exemption applies. NCUA's appraisal regulation currently provides that
an appraisal is not required for a subsequent transaction that results
from a maturing extension of credit if: (i) The borrower has performed
satisfactorily according to the original terms; (ii) no new monies are
advanced other than as previously agreed; (iii) the credit standing of
the borrower has not deteriorated; and (iv) 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.
See 12 CFR 722.3(a)(4). It has been NCUA's experience that the current
exemption may not provide sufficient flexibility to credit unions and
borrowers when a transaction is refinanced before its maturity. This is
especially true when the member is seeking a more favorable interest
rate. The proposed amendment would exempt a subsequent transaction
provided no new monies are advanced other than funds necessary to cover
reasonable closing costs and 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. This
exemption would not be applicable if a member refinances a mortgage
with a new lender.
Transactions Involving Real Estate Notes
The Board is proposing to amend the exemption regarding the
purchase of real estate-secured loans, loan participations, pooled
loans, interests in real property, and mortgage-backed securities. The
proposed amendment would allow credit unions to purchase, sell, invest
in, exchange, or extend credit secured by 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
current exemption simply refers to the purchase of these interests. In
addition, the Board is proposing to change the text of this exemption
to more clearly state the appraisal requirements that the underlying
notes must meet.
The Board believes that the proposed amendment would 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. The proposed amendment would make clear that a credit union
need not obtain a new Title XI appraisal for loans originated before
the effective date of NCUA's regulation in order to buy or sell them in
the secondary mortgage market.
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. See 12 CFR 722.3(a)(6). The Board
is proposing to amend this provision in the regulation by deleting the
requirement that the transaction be supported by an appraisal that
conforms to the requirements of the insuring or guaranteeing agency. In
order to receive the insurance or guarantee, the transaction must meet
all underwriting [[Page 13390]] requirements of the insurer or
guarantor, including real estate appraisal or evaluation requirements.
The Board believes that the standards of these loan programs are
sufficient to protect the safety and soundness of credit unions.
Transactions that Meet the Qualifications for Sale to a United States
Government Agency or Government Sponsored Agency
NCUA proposes to not require a Title XI appraisal for any
transaction that meets the qualifications for sale to any United States
government agency or government sponsored agency. The Board believes
that the appraisal standards of U.S. government agencies or government
sponsored agencies established to maintain a secondary market in loans
are sufficient to protect federal financial and public policy interest
in the loans those government or government sponsored agencies
purchase. The Board also believes that compliance with these standards
will protect the safety and soundness of credit unions. By referring to
any U.S. government agency or U.S. government sponsored agency, the
proposed amendment would include not only loans sold to federal
agencies, but also any transaction that meets the qualifications for
sale to agencies established or chartered by the federal government to
serve public purposes specified by the U.S. Congress. 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).
If a federally insured credit union is otherwise authorized to
originate, hold, buy or sell transactions that meet the qualifications
for sale to any U.S. government agency and the above listed government
sponsored agencies, this proposal would allow them to do so 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 and also their liquidity if
necessary.
2. Appraisals to Address Safety and Soundness Concerns
The Board is proposing to amend its regulations to clarify that the
agency may require Title XI appraisals to address safety and soundness
concerns. Under this provision, NCUA could require appraisals 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. This amendment would simply and explicitly clarify
NCUA's current authority.
3. Minimum Appraisal Standards
The Board is proposing to reduce the number of minimum appraisal
standards applicable to Title XI appraisals for federally-related
transactions from the thirteen appraisal 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.
Title XI of FIRREA states that each federal financial institution
regulatory agency shall prescribe appropriate standards for the
performance of real estate appraisals in connection with federally-
related transactions under the jurisdiction of each such agency. These
rules require, at a minimum that: (i) Real estate appraisals be
performed in accordance with generally accepted appraisal standards as
evidenced by the Appraisal Standards Board of the Appraisal Foundation;
and (ii) that such appraisals shall be written appraisals. Under Title
XI, each agency may require compliance with additional standards if it
makes a determination in writing that such additional standards are
necessary in order to properly carry out its statutory
responsibilities. See 12 U.S.C 3339.
At the time NCUA began drafting its appraisal regulation,\2\ the
Appraisal Standards Board was in the process of amending its appraisal
standards. Because of uncertainty about the content of the standards
and interpretations that would be promulgated by the Appraisal
Standards Board, the Board included within its appraisal regulation
thirteen minimum standards that paralleled existing or proposed USPAP
standards, including compliance with USPAP. NCUA also prohibited the
use of the USPAP Departure Provision in connection with federally-
related transactions. The Departure Provision permits an appraiser to
prepare an appraisal without complying with certain recommended
provisions of the USPAP if the appraisal report is not rendered
misleading.
\2\NCUA coordinated with 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 when it drafted its original appraisal regulation. All
the federal financial institution regulatory agencies adopted
substantially similar appraisal regulations in 1990.
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Minimum Appraisal Standards and USPAP
The Board has gained considerable experience with the Appraisal
Standards Board and its appraisal standards and believe that it is no
longer necessary to include all the additional standards in its
appraisal regulation. The Board believes that the Departure Provision
of the USPAP may appropriately be used in connection with federally-
related transactions. Therefore, the Board is proposing to simply
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 institution's decision to engage in the transaction;
(iii) analyze and report appropriate deductions and discounts for
proposed construction or renovation, partially leased buildings, non-
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 believes these five standards will simplify compliance
with the appraisal regulation without affecting the usefulness of the
Title XI appraisals prepared for federally related transactions. The
proposed amendments would allow credit unions to make use of the
USPAP's Departure Provision and eliminate several regulatory standards
that parallel existing USPAP standards. Under these proposed standards,
the USPAP is referenced but would no longer be part of NCUA's
Regulations. This approach would no longer require NCUA to republish
changes to the USPAP adopted by the Appraisal Standards Board, and thus
references to USPAP in the regulation could be assumed to always refer
to the most current edition. The Board believes this approach minimizes
potential conflicts between an institution's duty to follow NCUA's
appraisal requirements and an appraiser's professional obligation to
follow the latest USPAP version. If the Board adopts this approach in
the final rule, the USPAP provisions applicable [[Page 13391]] to
federally-related transactions will no longer be published as Appendix
A to NCUA's appraisal regulation. Therefore, the Board is proposing to
delete Appendix A from its appraisal regulation.
The Board would like to make clear that if this amendment is
adopted in final, the principles of safe and sound lending may require
credit unions to comply with stricter standards than the USPAP.
Although the credit union has the primary responsibility for obtaining
a Title XI appraisal that meets its needs, NCUA may by regulation or
guidance identify USPAP standards that are inappropriate for federally
related transactions. For example, the USPAP allows an appraiser to
appraise property even though the appraiser may have a direct or
indirect interest in the property, if the interest is disclosed in the
appraisal report. However, the Board believes that federal financial
and public policy interests are better served by requiring that an
appraiser for a federally related transaction not have any direct or
indirect interest, financial or otherwise, in the transaction or the
property. This requirement is discussed further in the section
addressing appraiser independence.
Departure Provision
The proposed minimum standards would also 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.
Appraisers preparing appraisals using the Departure Provision still
must comply with all binding requirements of the USPAP and must be sure
that the resulting appraisal is not misleading. The Board believes that
if this amendment is adopted in final 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. The proposed amendment would make clear that
the written appraisal must contain sufficient information and analysis
to support the credit union's decision to engage in the transaction.
This would put credit unions on notice of their responsibility to have
appraisals that are appropriate for the particular federally related
transaction.
Deductions and Discounts
The Board is proposing 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 only 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 is intended to make clear
that appraisers must analyze, apply and report appropriate discounts
and deductions when providing values based on future events. In
financing the purchase of an existing home, 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.
Remaining Standards
The Board is also proposing to retain the current standard in the
appraisal regulation on market value that 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 is proposing a new standard that
makes clear 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.
4. Elimination of the Provision on Unavailable Information
The Board is proposing 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 completion of 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, the
elimination of this provision would not result in a substantive change
in the requirements applicable to appraisals for federally related
transactions since the Board is proposing to require appraisals to
conform to the USPAP.
5. Elimination of the Provision on Additional Appraisal Standards
The Board is proposing 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). The regulation's
minimum appraisal standards for federally related transactions do not
prevent a credit union from requiring an appraiser to follow additional
standards or provide addition information to satisfy the credit union's
business needs and thus it is unnecessary to regulate this in the
appraisal regulation.
6. Appraiser Independence
The Board is proposing to amend and clarify its appraisal
regulation to permit the use of appraisals prepared for financial
service institutions other than institutions subject to Title XI of
FIRREA. NCUA's current appraisal regulation provides that fee
appraisers must be engaged by the credit union or its agent. An
exception to this requirement is permitted if the appraiser is directly
engaged by another institution that is subject to Title XI of FIRREA.
See 12 CFR 722.5(b).
The current provision was adopted to help ensure that appraisers
would not be subject to conflicts of interest as a result of having
been engaged by borrowers. However, the Board believes that the current
provision is too restrictive. It requires a credit union to obtain a
new appraisal if the borrower originally sought the loan from an
institution that is not subject to Title XI of FIRREA and is not an
agent of the credit union. There also has been uncertainty about the
meaning of agent in these cases.
The Board proposes to permit a credit union to use an appraisal
that was prepared for any financial services institution, including
mortgage bankers. The appraiser would not be allowed to have a direct
or indirect interest, financial or otherwise, in the property
[[Page 13392]] or the transaction, and must have been directly engaged
by the non-regulated institution. Further, the credit union would be
required to ensure that the appraisal conforms to the requirements of
the regulation and is otherwise acceptable. The prohibition on the
credit union using an appraisal prepared for the borrower would remain
in effect.
Age of Appraisal
Some have suggested that NCUA's appraisal regulation contain a
maximum allowable age of an appraisal for use by a credit union. They
believe 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 another
appraisal be prepared in the uncommon instance where a mortgage is
refinanced within a reasonably short time or a credit union is using an
appraisal prepared for another financial service institution. Hence,
the Board realizes that any specific time period will not be
appropriate in all situations. The Board has specifically decided to
permit each institution to determine the allowable period for an
appraisal, but recommends that any appraisal over six months old not be
used.
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 proposed 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 proposed 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 proposed rule will apply to all
federally-insured credit unions. The proposed rule will reduce
regulatory requirements for all federally-insured credit unions. The
Board has determined that the proposed 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 proposed rule, if adopted, will decrease paperwork requirements
for a credit union. The paperwork requirements will be submitted to the
Office of Management and Budget (OMB) for review under the Paperwork
Reduction Act. Written comments on the paperwork requirements should be
forwarded directly to the OMB Desk Officer indicated below at the
following address: OMB Reports Management Branch, New Executive Office
Building, Room 10202, Washington, DC 20530. Attn: Milo Sunderhauf. NCUA
will publish a notice in the Federal Register once OMB action is taken
on the submitted requirement.
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 March 1,
1995.
Becky Baker,
Secretary to the Board.
Accordingly, NCUA proposes to amend 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 heading,
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 must be $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 paragraph, 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) and (a)(5) of this
section and not otherwise exempted shall be supported by a written
estimate of market value, as defined in this part, 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 part whenever the
agency believes it is necessary to address safety and soundness
concerns.
3. Section 722.4 is revised to read as follows: [[Page 13393]]
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 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 part.
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 part and is otherwise acceptable.
Appendix A [Removed]
5. Appendix A to part 722 is removed.
[FR Doc. 95-5592 Filed 3-10-95; 8:45 am]
BILLING CODE 7535-01-U
