Appraisals-Availability to Applicants and Requirements for Transactions Involving an Existing Extension of Credit, 36248-36252 [2014-14889]

Download as PDF Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Proposed Rules 79 (incorporated by reference; see § 430.3). 4.3.5. Input voltage must be monitored and regulated to within ± 2 percent of the voltage required in section 3.1.3 for the duration of the test. 4.3.6. Electrical settings must be as described in section 7.0 IES LM–79 (incorporated by reference; see § 430.3). 4.3.7. An equal number of integrated LED lamps must be positioned in the base up and base down orientations throughout testing. 4.3.8. The integrated LED lamp must be operated at maximum input power. If multiple modes occur at the same maximum input power (such as variable CCT and CRI), the manufacturer can select any of these modes for testing. Measurements of all quantities described in sections 3 and 4 of this appendix must be taken at the same selected mode. 4.4. Measure Final Lumen Output. Measure the lumen output at the end of the test duration according to section 3. 4.5. Calculate Lumen Maintenance and Time to Failure pmangrum on DSK3VPTVN1PROD with PROPOSALS 4.5.1. Calculate the lumen maintenance of the lamp after the test duration ‘‘t’’ by dividing the final lumen output ‘‘xt’’ by the initial lumen output ‘‘x0’’. Initial and final lumen output must be measured in accordance with sections 4.1 and 4.4 of this appendix, respectively. 4.5.2. For lumen maintenance values greater than 1, the time to failure (in hours) is limited to a value less than or equal to four times the test duration. 4.5.3. For lumen maintenance values less than 1 but greater than or equal to 0.7, the time to failure (in hours) is calculated using the following equation: Where: t is the test duration in hours; x0 is the initial lumen output; xt is the final lumen output at time t, and ln is the natural logarithm function. The maximum time to failure is limited to four times the test duration t. 4.5.4. For lumen maintenance values less than 0.7, including lamp failures that result in complete loss of light output, time to failure is equal to the previously recorded lumen output measurement at a shorter test duration where the lumen maintenance is greater than or equal to 70 percent, and time to failure shall not be calculated in accordance with section 4.5.3 of this appendix. VerDate Mar<15>2010 14:46 Jun 25, 2014 Jkt 232001 5. Standby Mode Test Method for Determining Standby Mode Power NATIONAL CREDIT UNION ADMINISTRATION In cases where there is a conflict, the language of the test procedure in this appendix takes precedence over IES LM–79 (incorporated by reference; see § 430.3) and IEC 62301 (incorporated by reference; see § 430.3). 12 CFR Parts 701 and 722 5.1. Test Conditions and Setup 5.1.1. The ambient conditions, power supply, electrical settings, and instrumentation must be established in accordance with the specifications in sections 2.0, 3.0, 7.0, and 8.0 of IES LM– 79 (incorporated by reference; see § 430.3), respectively. 5.1.2. An equal number of integrated LED lamps must be positioned in the base up and base down orientations throughout testing. 5.1.3. The integrated LED lamp must be operated at the rated voltage throughout testing. For an integrated LED lamp with multiple rated voltages, the integrated LED lamp must be operated at 120 volts. If an integrated LED lamp with multiple rated voltages is not rated for 120 volts, the integrated LED lamp must be operated at the highest rated input voltage. 5.2. Test Method, Measurements, and Calculations 5.2.1. Standby mode power consumption must be measured for integrated LED lamps if applicable. 5.2.2. The integrated LED lamp must be stabilized prior to measurement as specified in section 5.0 of IES LM–79 (incorporated by reference; see § 430.3). The stabilization variation is calculated as [maximum—minimum)/minimum] of at least three readings of the input power and lumen output over a period of 30 minutes, taken 15 minutes apart. 5.2.3. The integrated LED must be configured in standby mode by sending a signal to the integrated LED lamp instructing it to have zero light output. 5.2.4. The standby mode power in watts must be measured as specified in section 5 of IEC 62301 (incorporated by reference; see § 430.3). [FR Doc. 2014–14823 Filed 6–25–14; 8:45 am] BILLING CODE 6450–01–P PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 RIN 3133–AE36 Appraisals—Availability to Applicants and Requirements for Transactions Involving an Existing Extension of Credit National Credit Union Administration (NCUA). ACTION: Proposed rule. AGENCY: As part of NCUA’s Regulatory Modernization Initiative, the NCUA Board (Board) is proposing to revise two of NCUA’s regulations regarding appraisals. Firstly, the Board is proposing to amend NCUA’s regulations to eliminate the now duplicative requirement that federal credit unions (FCUs) make available, to any requesting member/applicant, a copy of the appraisal used in connection with that member’s application for a loan secured by a first lien on a dwelling. A recent amendment to the Consumer Financial Protection Bureau’s (CFPB) Regulation B requires that all creditors, including FCUs, now automatically provide applicants with free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. Secondly, the proposed rule would amend NCUA’s appraisal regulations by expanding the current exemption for certain transactions involving an existing extension of credit. Under the expanded exemption, federally insured credit unions (FICUs) would be able to refinance or modify a real estate-related loan held by the FICU, without having to obtain an appraisal, if there is no advancement of new monies or if there is adequate collateral protection, even with the advancement of new monies. The proposal would also make a minor technical amendment to the definition of the term ‘‘application.’’ These changes will modernize NCUA’s regulations by better aligning them with the modern marketplace, while also reducing costs for FICUs and their members, and removing outdated regulatory requirements. DATES: Comments must be received on or before August 25, 2014. ADDRESSES: You may submit comments, identified by RIN 3133–AE36, by any of the following methods (Please send comments by one method only): • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. SUMMARY: E:\FR\FM\26JNP1.SGM 26JNP1 EP26JN14.005</GPH> 36248 Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Proposed Rules • NCUA Web site: http:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx. Follow the instructions for submitting comments. • Email: Address to regcomments@ ncua.gov. Include ‘‘[Your name]— Comments on Proposed Rule: Appraisals’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mail address. You can view all public comments on NCUA’s Web site at http:// www.ncua.gov/Legal/Regs/Pages/ PropRegs.aspx as submitted, except for those we cannot post for technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s law library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call (703) 518– 6546 or send an email to OGCMail@ ncua.gov. FOR FURTHER INFORMATION CONTACT: John H. Brolin, Staff Attorney, Office of General Counsel, at 1775 Duke Street, Alexandria, VA 22314 or telephone: (703) 518–6438. SUPPLEMENTARY INFORMATION: pmangrum on DSK3VPTVN1PROD with PROPOSALS I. Background II. Proposed Rule III. Regulatory Procedures I. Background NCUA is committed to regulatory modernization, including modifying, streamlining, refining, or repealing outdated rules that are not required by statute and would not jeopardize the safety and soundness of the credit union industry. Each year, NCUA reviews onethird of its regulations for substance and clarity, and provides notice to the public of those regulations under review so that the public may have an opportunity to provide comments. In 2013, NCUA reviewed part 722, along with several other parts of NCUA’s regulations.1 Part 722 sets forth the appraisal requirements for federallyrelated real estate transactions. The appraisal requirements in part 722 are generally equivalent to the appraisal requirements of the other federal 1 As part of the 2013 Regulatory Review process, NCUA also reviewed parts 711, 712, 713, 714, 715, 716, 717, 721, 723, 724, 725, 740, 741, 745, and 747 of NCUA’s regulations. VerDate Mar<15>2010 14:46 Jun 25, 2014 Jkt 232001 financial regulatory agencies (Other Banking Agencies).2 However, NCUA received numerous responses during the public comment period requesting a specific change to § 722.3(a)(5) to better align NCUA’s appraisal requirements with those of the Other Banking Agencies. Specifically, commenters requested that NCUA expand the current appraisal exemption for existing extensions of credit to allow FICUs to refinance or modify a real estate-related loan held by the credit union in a declining housing market without having to obtain an additional appraisal. In addition, a number of commenters requested that NCUA eliminate the duplicative portion of the requirements in § 701.31(c)(5) that mandate that FCUs make available, to any requesting member/applicant, a copy of the appraisal used in connection with that member’s application for a loan secured by a first lien on a dwelling. A recent amendment to § 1002.14 of Regulation B by the CFPB requires that all creditors, including FCUs, now automatically provide applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. As a result of this recent amendment to Regulation B, the requirements of § 701.31(c)(5) in NCUA’s regulations and § 1002.14 in Regulation B now overlap with respect to providing copies of appraisals used in connection with an application for a loan secured by a first lien on a dwelling. In response to the comments received and NCUA’s regulatory review, the Board proposes to broaden the scope of § 722.3(a)(5), which exempts certain transactions involving an existing extension of credit from the section’s requirement to obtain appraisals, and to narrow the scope of its requirements to provide copies of appraisals under § 701.31(c)(5). In addition, the Board is proposing to make a technical amendment to correct and bring up to date the definition of the term ‘‘application’’ in § 701.31(a)(1). * * * * * II. Proposed Rule A. What changes are being proposed to the requirement in § 701.31(c)(5) to provide copies of appraisals to any requesting member/applicants? The Board is proposing to amend § 701.31(c)(5), which requires an FCU to retain the appraisal used in connection 2 The Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of Currency (OCC). PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 36249 with a real estate-related loan application for a period of 25 months and to make a copy of the appraisal available to the applicant upon request. The proposed amendment is in response to recent changes by the CFPB to § 1002.14 of Regulation B.3 Under revised § 1002.14, all creditors,4 including FCUs, are now required to automatically provide applicants free copies of all appraisals and other written valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. In amending the requirements of § 1002.14, the CFPB eliminated a longstanding provision that exempted FCUs from the requirements of the section.5 As a result of that change, FCUs are now required to comply with the requirements of revised § 1002.14, to automatically provide a free copy of appraisals to applicants, and § 701.31(c)(5), to retain real estaterelated appraisals and make a copy available to applicants upon request. While the two sections differ slightly in scope and mechanism,6 the requirements in § 701.31(c)(5) relating to loans secured by a first lien on a 3 See 12 CFR 1002.14; and 78 FR 7216 (Jan. 31. 2013) (Amending Regulation B to implement an ECOA amendment concerning appraisals and other valuations that was enacted as part of the DoddFrank Wall Street Reform and Consumer Protection Act.); see also Public Law 111–203, 124 Stat. 1376, section 1474 (2010). 4 See 12 CFR 1002.2(l), providing in relevant part: Creditor means a person who, in the ordinary course of business, regularly participates in a credit decision, including setting the terms of the credit. The term creditor includes a creditor’s assignee, transferee, or subrogee who so participates. For purposes of §§ 1002.4(a) and (b), the term creditor also includes a person who, in the ordinary course of business, regularly refers applicants or prospective applicants to creditors, or selects or offers to select creditors to whom requests for credit may be made. 5 See 78 FR 7216, 7234–7235 (Jan. 31, 2013) (Explaining that the amendments to the appraisal requirements in section 701(e) of ECOA made by section 1474 of the Dodd-Frank Wall Street Reform and Consumer Protection Act broadened the scope of the original appraisal requirement and eliminated the prior justification for exempting credit unions from the requirements of the provision.); compare with 12 CFR 1002.14(b) (2013) (which previously provided: ‘‘A creditor that is subject to the regulations of the National Credit Union Administration on making copies of appraisal reports available is not subject to this section.’’). 6 Under § 701.31(c)(5) FCUs are only required to provide a copy of an appraisal to the application if the applicant requests a copy, while § 1002.14 requires that the creditor provide a copy of the appraisal regardless of whether or not a copy is requested by the applicant. In addition, § 701.31(c)(5) only requires FCUs to provide copies of the appraisal, while § 1002.14 requires that applicants provide free copies of all appraisals and other written valuations developed. Finally, § 701.31(c)(5) applies to all real estate-related loan applications, while § 1002.14 of Regulation B applies only to applications for loans to be secured by a first lien on a dwelling. E:\FR\FM\26JNP1.SGM 26JNP1 pmangrum on DSK3VPTVN1PROD with PROPOSALS 36250 Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Proposed Rules dwelling are largely duplicative of the requirements of revised § 1002.14. Section 701.31 of NCUA’s regulations sets forth nondiscrimination requirements that, among other things, assist FCUs in distinguishing legitimate reasons for denying a loan from those that are prohibited by the Fair Housing Act.7 NCUA amended its regulations in 1979 to add § 701.31(c), including the current version of paragraph (c)(5), to specifically prohibit an FCU from relying on an appraisal that the FCU knew or should have known was discriminatory.8 Although not expressly stated in the rulemaking, NCUA intended this requirement to provide the member/applicant with an opportunity to see whether the appraisal on which the FCU relied to approve or deny the loan application is discriminatory. The protections provided by current § 701.31(c)(5), with respect to applications for loans secured by a first lien on a dwelling, appear to be the same protections that are now also provided by the requirement to automatically provide a copy of appraisals in revised § 1002.14. Under both sections, FCU members applying for a loan secured by a first lien on a dwelling are provided an opportunity to see whether the appraisal relied on by the credit union to approve or deny their loan application is discriminatory. Moreover, the requirements of § 1002.14 of Regulation B, which require FCUs to provide copies of appraisals and other written valuations to the applicant without the member/applicant having to request a copy, go well beyond the limited requirement of § 701.31(c)(5) to provide a copy of only the appraisal and only upon the applicant’s request. The consumer protections provided by the two sections do not, however, overlap entirely. Under current § 701.31(c)(5), FCUs are required to provide copies of appraisals used in connection with an application for a real estate-related loan, which includes any loan to be secured by a first lien or a subordinate lien on a dwelling.9 The protections provided in revised § 1002.14 of Regulation B extend only to appraisals developed in connection with an application for a loan secured by a first lien on a dwelling. To avoid reducing protections for FCU members, the requirements of § 701.31(c)(5) relating to appraisals used in connection with an application for a loan to be 7 42 U.S.C. 3601 et seq. FR 51191. 9 See 12 CFR 701.31(a)(3) (‘‘Real estate-related loan means any loan for which application is made to finance or refinance the purchase, construction, improvement, repair, or maintenance of a dwelling.’’). 8 44 VerDate Mar<15>2010 14:46 Jun 25, 2014 Jkt 232001 secured by a subordinate lien on a dwelling must be retained. Accordingly, the Board proposes to amend current § 701.31(c)(5) to narrow the scope of the current requirement to cover only loans secured by a subordinate lien on a dwelling. Proposed § 701.31(c)(5) would require FCUs to make available, to any requesting member/applicant, a copy of the appraisal used in connection with the member’s application for a loan to be secured by a subordinate lien on a dwelling. Consistent with the amendment to the first sentence of that section, the second sentence in proposed § 701.31(c)(5) would also be amended to require that the appraisal be available for a period of 25 months after the applicant has received notice from the FCU of the action taken by the credit union on the application for a loan secured by a subordinate lien on a dwelling. By limiting the requirements to apply only to applications for loans secured by a subordinate lien on a dwelling, NCUA believes the proposed rule would eliminate the duplicative portion of the current requirement while maintaining the current protections provided under § 701.31(c)(5) for FCU member/ applicants not covered by new § 1002.14 of Regulation B. The Board requests comment on if there are other real estate-related loan transactions that are covered under current § 1002.14 or current § 701.31(c)(5) that would not be covered if the amendments being made in this proposed rule were finalized. If there are such transactions, the Board requests comment on if those types of transactions should continue to be covered under § 701.31(c)(5). Similarly, the Board requests comment on if there are additional real estate-related loan transactions that would be covered under current § 1002.14 and current § 701.31(c)(5) and that would continue to impose duplicative requirements on credit unions if the amendments being made in this proposed rule are finalized. B. What changes are being proposed to the exemption in § 722.3(a)(5) for transactions involving an existing extension of credit? Part 722 of NCUA’s regulations implements Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA),10 setting forth, among other things, minimum requirements for real estaterelated appraisals used in connection with ‘‘federally related transactions.’’ 11 10 Public Law 101–73, Title XI, 103 Stat. 511 (1989); 12 U.S.C. 3331 et seq. 11 12 U.S.C. 3339. PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 Section 722.3(a) requires FICUs to obtain an appraisal for all real estaterelated financial transactions unless the transaction meets one of nine specifically enumerated exemptions. Current § 722.3(a)(5) exempts from the appraisal requirement transactions that involve an existing extension of credit at the FICU, 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. Under NCUA’s current regulation, for a transaction involving an existing extension of credit to be exempt from the general requirement to obtain an appraisal, the transaction must satisfy both the criteria in paragraph (i) and the criteria in paragraph (ii) of current § 722.3(a)(5). Although much of the language is identical, the exemption in § 722.3(a)(5) differs significantly from the analogous appraisal exemption in the Other Banking Agencies’ regulations.12 The Other Banking Agencies’ regulations provide an appraisal exemption for an existing extension of credit at a lending institution, provided that: (1) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs, or (2) there has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the institution’s real estate collateral protection after the transaction, even with the advancement of new monies.13 Under the Other Banking Agencies’ exemptions for existing extensions of credit, a creditor is exempt from the general requirement to obtain an appraisal in a transaction involving an existing extension of credit if the transaction satisfies only one of the two criteria listed above. NCUA has received a number of comments regarding the lack of parity between NCUA’s and the Other Banking Agencies’ appraisal exemptions and the added burden of § 722.3(a)(5) on credit unions. Most of the commenters recommend amending § 722.3(a)(5) to match the Other Banking Agencies’ appraisal regulations, which they argue would help reduce costs and processing times for members seeking to refinance or modify loans already held by a FICU. 12 OCC: 12 CFR part 34, subpart C; FRB: 12 CFR part 208, subpart E and 12 CFR part 225, subpart G; and FDIC: 12 CFR part 323. 13 OCC: 12 CFR 34.43(a)(7); FRB: 12 CFR 225.63(a)(7); and FDIC: 12 CFR 323.3(a)(7). E:\FR\FM\26JNP1.SGM 26JNP1 pmangrum on DSK3VPTVN1PROD with PROPOSALS Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Proposed Rules Commenters have also suggested that amending current § 722.3(a)(5) to match the Other Banking Agencies’ regulations will give FICUs the ability to address appropriate residential mortgage loan modifications on a more timely basis, and help prevent potential credit union losses without increasing risks to the credit union or the National Credit Union Share Insurance Fund (NCUSIF). Section 722.3(a)(5) was originally issued in its current form in 1995 as part of a larger final rule making several amendments to NCUA’s appraisal regulations.14 In the preamble to that final rule, the Board specifically explained that it did not adopt an exemption in § 722.3(a)(5) that matched the exemption provided by the Other Banking Agencies’ appraisal regulations, citing general safety and soundness concerns.15 However, after reviewing the public comments received, comparing current § 722.3(a)(5) to the corresponding provisions of the Other Banking Agencies’ appraisal rules, and considering relevant loan performance data, the Board believes that amending the requirements of § 722.3(a)(5) to match the Other Banking Agencies’ appraisal regulations is appropriate. The financial crisis that began in 2008 left large numbers of financially distressed homeowners owing more on their mortgages than their homes were worth. During this same period, financial institutions across the nation experienced high levels of mortgage loan defaults and foreclosures. Many borrowers were unable to make their mortgage payments because of unemployment or a reduction in income. Others were unable to afford significant payment increases when their adjustable rate mortgages reset, and they were unable to refinance their loans because of declines in their properties’ values. Some borrowers who owed more on their mortgages than their homes were worth simply walked away from their homes because they lacked the incentive to keep their mortgage payments current. In response to the levels of mortgage loan defaults and foreclosures that occurred in the wake of the financial crisis, NCUA issued guidance to credit unions in 2009 regarding providing loan modifications to residential mortgage borrowers who were unable to meet 14 60 FR 51889 (Oct. 4, 1995). id. at 51891 (Providing in relevant part: One ‘‘commenter stated that banks . . . 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 effects on competition.’’). 15 See, VerDate Mar<15>2010 14:46 Jun 25, 2014 Jkt 232001 their contractual payment obligations by offering them loan modification options.16 The letter encouraged credit unions to take action to identify and potentially assist borrowers whose financial stress may lead to future impairment in mortgage loan performance. By proactively identifying ‘‘at risk’’ loans, credit unions could measure the potential impacts of borrower defaults on net worth, assess internal liquidity available to help borrowers through loan modifications, and closely monitor the performance of these loans. Moreover, by identifying and assisting ‘‘at risk’’ members before delinquency occurs, a credit union could improve chances for successful modifications and reduce potential losses. Consistent with the positions noted above, the Board believes that extending the appraisal exemption in § 722.3(a)(5) to cover loan modifications and refinancings in distressed housing markets will improve the timeliness and chances for successful modifications and refinancings that could reduce potential losses to FICUs in the future. Obtaining an appraisal can take a significant amount of time, weeks or months depending on demand and the location of the home. Further, the cost of the appraisal itself, which is almost always paid for by the borrower, can stand as a significant impediment to a distressed borrower being able to refinance or obtain a loan modification. Moreover, obtaining a new appraisal is of little value to a credit union when it was the originating lender and the ‘‘at risk’’ loan is still held by the credit union. Accordingly, the Board proposes to amend § 722.3(a)(5). Proposed § 722.3(a)(5) would exempt a transaction from the appraisal requirement in § 722.3(a), a transaction that involves an existing extension of credit at the lending FICU, provided that: (i) There is no advancement of new monies, other than funds necessary 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. The amendments would provide parity between NCUA and the Other Banking Agencies’ exemptions from the requirement to obtain an appraisal for certain transactions involving existing extensions of credit. Current § 722.3(d) would continue to require that transactions exempted from the appraisal requirement under 16 09–CU–19 PO 00000 Frm 00011 (Sept. 2009). Fmt 4702 Sfmt 4702 36251 proposed § 722.3(a)(5) be supported by a written estimate of market value.17 The Board believes these changes will reduce regulatory burdens on credit unions, and pose no increase in risk to the NCUSIF. C. What other changes would the proposed rule make? For clarity, the proposed rule would also make a technical amendment to the definition of the term ‘‘application’’ in § 701.31(a)(1). Current § 701.31(a)(1) defines the term ‘‘application’’ for purposes of part 701 as carrying the same ‘‘meaning of that term as defined in 12 CFR 1002.2(f) (Regulation B)’’ and then provides a parenthetical quoting the text of the Regulation B definition of application, which has since been revised.18 As a result, the definition of application in § 1002.2(f) no longer matches the quote in § 701.31(a)(1).19 Accordingly, the Board is now proposing to make a technical amendment to § 701.31(a)(1) to update the definition. To avoid the possibility of a similar situation arising in the future, NCUA proposes to remove the parenthetical quote in § 701.31(a)(1) and maintain just the cross citation to the definition of ‘‘application’’ in Regulation B. Proposed § 701.31(a)(1) would provide that for purposes of part 701 the term ‘‘application’’ carries the meaning of that term as defined in 12 CFR 1002.2(f) 17 § 722.3(d) providing: Valuation requirement. Secured transactions exempted from appraisal requirements pursuant to paragraphs (a)(1) and (a)(5) 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. 18 See § 701.31(a)(1) (Quoting regulation B as follows: ‘‘Application means an oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested.’’ (emphasis added).). 19 See § 1002.2(f) (Defining the term ‘‘application’’ as follows: Application means an oral or written request for an extension of credit that is made in accordance with procedures used by a creditor for the type of credit requested. The term application does not include the use of an account or line of credit to obtain an amount of credit that is within a previously established credit limit. A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information requested from the applicant, and any approvals or reports by governmental agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral). The creditor shall exercise reasonable diligence in obtaining such information. (emphasis added)). E:\FR\FM\26JNP1.SGM 26JNP1 36252 Federal Register / Vol. 79, No. 123 / Thursday, June 26, 2014 / Proposed Rules (Regulation B). This amendment would avoid the possibility, in the case of future amendments to the text of § 1002.2(f), of discrepancies between the text of the definition of ‘‘application’’ in Regulation B and the parenthetical in § 701.31(a)(1) which simply quotes the text of the Regulation B definition. This revision would not make any substantive changes to the requirements of NCUA’s regulations. III. Regulatory Procedures Regulatory Flexibility Act The Regulatory Flexibility Act (RFA) 20 requires NCUA to provide an initial regulatory flexibility analysis with a proposed rule to certify that the rule will not have a significant economic impact on a substantial number of small entities (defined for purposed of the RFA to include credit unions with assets less than or equal to $50 million) and publish its certification and a short explanatory statement in the Federal Register also with the proposed rule.21 The proposed amendments to parts 701 and 722 will only reduce regulatory impacts on credit unions by exempting credit unions from current regulatory requirements. Accordingly, the Board certifies the proposed rule will not have a significant economic impact on a substantial number of small credit unions. pmangrum on DSK3VPTVN1PROD with PROPOSALS Paperwork Reduction Act The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or increases an existing burden.22 For purposes of the PRA, a paperwork burden may take the form of a reporting or recordkeeping requirement, both referred to as information collections. This proposed rule would not impose or expand upon any existing reporting or recordkeeping requirements. Accordingly, this proposed rule would not create new paperwork burdens or increase any existing paperwork burdens. Executive Order 13132 Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. NCUA, an independent regulatory agency, as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. The proposed rule would not have substantial direct effects on the 20 5 U.S.C. 601 et seq. FR 4032 (Jan. 18, 2013). 22 44 U.S.C. 3507(d); 5 CFR part 1320. 21 78 VerDate Mar<15>2010 14:46 Jun 25, 2014 Jkt 232001 states, on the relationship between the national government and the states, or the distribution of power and responsibilities among the various levels of government. NCUA has, therefore, determined that this proposal does not constitute a policy that has federalism implications for purposes of the executive order. Assessment of Federal Regulations and Policies on Families NCUA has determined that this proposed rule will not affect family well-being within the meaning of § 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105–277, 112 Stat. 2681 (1998). List of Subjects the appraisal used in connection with that member’s real estate related loan application’’ and add in their place the words ‘‘a copy of the appraisal used in connection with that member’s application for a loan to be secured by a subordinate lien on a dwelling’’, and, in the second sentence, remove the words ‘‘real estate-related loan application’’ and add in their place the words ‘‘application for a loan to be secured by a subordinate lien on a dwelling’’. PART 722—APPRAISALS 4. The authority citation for part 722 continues to read as follows: ■ Authority: 12 U.S.C. 1766, 1789 and 3339. Section 722.3(f) is also issued under 15 U.S.C. 1639h. ■ 12 CFR Part 701 Advertising, Aged, Civil rights, Credit, Credit unions, Fair housing, Individuals with disabilities, Insurance, Marital status discrimination, Mortgages, Religious discrimination, Reporting and recordkeeping requirements, Sex discrimination. 12 CFR Part 722 Appraisals, Credit unions, Mortgages, Reporting and recordkeeping requirements. By the National Credit Union Administration Board on June 19, 2014. Gerard Poliquin, Secretary of the Board. For the reasons discussed above, the NCUA Board proposes to amend 12 CFR parts 701 and 722 as follows: 5. Amend § 722.3 as follows: § 722.3 [Amended] a. In paragraph (a)(5) add the word ‘‘lending’’ before the words ‘‘credit union’’; ■ b. In paragraph (a)(5)(i) remove the word ‘‘and’’ and add in its place the word ‘‘or’’; and ■ c. In paragraph (a)(5)(ii) add the words ‘‘, even with the advancement of new monies’’ to the end of the paragraph. ■ [FR Doc. 2014–14889 Filed 6–25–14; 8:45 am] BILLING CODE 7535–01–P NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Part 709 RIN 3133–AE41 Safe Harbor PART 701—ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS AGENCY: 1. The authority citation for part 701 continues to read as follows: SUMMARY: ■ Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601–3610. Section 701.35 is also authorized by 42 U.S.C. 4311–4312. ■ 2. Amend § 701.31 as follows: § 701.31 [Amended] a. In paragraph (a)(1) delete the words ‘‘, which is as follows:’’ and delete the parenthetical ‘‘an oral or written request for an extension of credit that is made in accordance with procedures established by a creditor for the type of credit requested’’; ■ b. In paragraph (c)(5) in the first sentence, remove the words ‘‘a copy of ■ PO 00000 Frm 00012 Fmt 4702 Sfmt 4702 National Credit Union Administration (NCUA). ACTION: Proposed rule. The NCUA Board (‘‘Board’’) proposes to amend its regulations regarding the treatment by the Board, as liquidating agent or conservator (the ‘‘liquidating agent’’ or ‘‘conservator,’’ respectively) of a federally insured credit union (‘‘FICU’’) of financial assets transferred by the credit union in connection with a securitization or a participation. The proposed rule continues the safe harbor for financial assets transferred in connection with securitizations and participations in which the financial assets were transferred in compliance with the existing regulation and defines the conditions for safe harbor protection for securitizations and participations for which transfers of financial assets would be made after the effective date of this proposed rule. E:\FR\FM\26JNP1.SGM 26JNP1

Agencies

[Federal Register Volume 79, Number 123 (Thursday, June 26, 2014)]
[Proposed Rules]
[Pages 36248-36252]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14889]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 722

RIN 3133-AE36


Appraisals--Availability to Applicants and Requirements for 
Transactions Involving an Existing Extension of Credit

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: As part of NCUA's Regulatory Modernization Initiative, the 
NCUA Board (Board) is proposing to revise two of NCUA's regulations 
regarding appraisals. Firstly, the Board is proposing to amend NCUA's 
regulations to eliminate the now duplicative requirement that federal 
credit unions (FCUs) make available, to any requesting member/
applicant, a copy of the appraisal used in connection with that 
member's application for a loan secured by a first lien on a dwelling. 
A recent amendment to the Consumer Financial Protection Bureau's (CFPB) 
Regulation B requires that all creditors, including FCUs, now 
automatically provide applicants with free copies of all appraisals and 
other written valuations developed in connection with an application 
for a loan to be secured by a first lien on a dwelling. Secondly, the 
proposed rule would amend NCUA's appraisal regulations by expanding the 
current exemption for certain transactions involving an existing 
extension of credit. Under the expanded exemption, federally insured 
credit unions (FICUs) would be able to refinance or modify a real 
estate-related loan held by the FICU, without having to obtain an 
appraisal, if there is no advancement of new monies or if there is 
adequate collateral protection, even with the advancement of new 
monies.
    The proposal would also make a minor technical amendment to the 
definition of the term ``application.'' These changes will modernize 
NCUA's regulations by better aligning them with the modern marketplace, 
while also reducing costs for FICUs and their members, and removing 
outdated regulatory requirements.

DATES: Comments must be received on or before August 25, 2014.

ADDRESSES: You may submit comments, identified by RIN 3133-AE36, by any 
of the following methods (Please send comments by one method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.

[[Page 36249]]

     NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
     Email: Address to regcomments@ncua.gov. Include ``[Your 
name]--Comments on Proposed Rule: Appraisals'' in the email subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    You can view all public comments on NCUA's Web site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as submitted, except for 
those we cannot post for technical reasons. NCUA will not edit or 
remove any identifying or contact information from the public comments 
submitted. You may inspect paper copies of comments in NCUA's law 
library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment 
weekdays between 9:00 a.m. and 3:00 p.m. To make an appointment, call 
(703) 518-6546 or send an email to OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT: John H. Brolin, Staff Attorney, Office 
of General Counsel, at 1775 Duke Street, Alexandria, VA 22314 or 
telephone: (703) 518-6438.

SUPPLEMENTARY INFORMATION:

I. Background
II. Proposed Rule
III. Regulatory Procedures

I. Background

    NCUA is committed to regulatory modernization, including modifying, 
streamlining, refining, or repealing outdated rules that are not 
required by statute and would not jeopardize the safety and soundness 
of the credit union industry. Each year, NCUA reviews one-third of its 
regulations for substance and clarity, and provides notice to the 
public of those regulations under review so that the public may have an 
opportunity to provide comments. In 2013, NCUA reviewed part 722, along 
with several other parts of NCUA's regulations.\1\ Part 722 sets forth 
the appraisal requirements for federally-related real estate 
transactions. The appraisal requirements in part 722 are generally 
equivalent to the appraisal requirements of the other federal financial 
regulatory agencies (Other Banking Agencies).\2\ However, NCUA received 
numerous responses during the public comment period requesting a 
specific change to Sec.  722.3(a)(5) to better align NCUA's appraisal 
requirements with those of the Other Banking Agencies. Specifically, 
commenters requested that NCUA expand the current appraisal exemption 
for existing extensions of credit to allow FICUs to refinance or modify 
a real estate-related loan held by the credit union in a declining 
housing market without having to obtain an additional appraisal.
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    \1\ As part of the 2013 Regulatory Review process, NCUA also 
reviewed parts 711, 712, 713, 714, 715, 716, 717, 721, 723, 724, 
725, 740, 741, 745, and 747 of NCUA's regulations.
    \2\ The Board of Governors of the Federal Reserve System (FRB), 
Federal Deposit Insurance Corporation (FDIC), and Office of the 
Comptroller of Currency (OCC).
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    In addition, a number of commenters requested that NCUA eliminate 
the duplicative portion of the requirements in Sec.  701.31(c)(5) that 
mandate that FCUs make available, to any requesting member/applicant, a 
copy of the appraisal used in connection with that member's application 
for a loan secured by a first lien on a dwelling. A recent amendment to 
Sec.  1002.14 of Regulation B by the CFPB requires that all creditors, 
including FCUs, now automatically provide applicants free copies of all 
appraisals and other written valuations developed in connection with an 
application for a loan to be secured by a first lien on a dwelling. As 
a result of this recent amendment to Regulation B, the requirements of 
Sec.  701.31(c)(5) in NCUA's regulations and Sec.  1002.14 in 
Regulation B now overlap with respect to providing copies of appraisals 
used in connection with an application for a loan secured by a first 
lien on a dwelling.
    In response to the comments received and NCUA's regulatory review, 
the Board proposes to broaden the scope of Sec.  722.3(a)(5), which 
exempts certain transactions involving an existing extension of credit 
from the section's requirement to obtain appraisals, and to narrow the 
scope of its requirements to provide copies of appraisals under Sec.  
701.31(c)(5). In addition, the Board is proposing to make a technical 
amendment to correct and bring up to date the definition of the term 
``application'' in Sec.  701.31(a)(1).
* * * * *

II. Proposed Rule

A. What changes are being proposed to the requirement in Sec.  
701.31(c)(5) to provide copies of appraisals to any requesting member/
applicants?

    The Board is proposing to amend Sec.  701.31(c)(5), which requires 
an FCU to retain the appraisal used in connection with a real estate-
related loan application for a period of 25 months and to make a copy 
of the appraisal available to the applicant upon request. The proposed 
amendment is in response to recent changes by the CFPB to Sec.  1002.14 
of Regulation B.\3\ Under revised Sec.  1002.14, all creditors,\4\ 
including FCUs, are now required to automatically provide applicants 
free copies of all appraisals and other written valuations developed in 
connection with an application for a loan to be secured by a first lien 
on a dwelling. In amending the requirements of Sec.  1002.14, the CFPB 
eliminated a longstanding provision that exempted FCUs from the 
requirements of the section.\5\ As a result of that change, FCUs are 
now required to comply with the requirements of revised Sec.  1002.14, 
to automatically provide a free copy of appraisals to applicants, and 
Sec.  701.31(c)(5), to retain real estate-related appraisals and make a 
copy available to applicants upon request.
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    \3\ See 12 CFR 1002.14; and 78 FR 7216 (Jan. 31. 2013) (Amending 
Regulation B to implement an ECOA amendment concerning appraisals 
and other valuations that was enacted as part of the Dodd-Frank Wall 
Street Reform and Consumer Protection Act.); see also Public Law 
111-203, 124 Stat. 1376, section 1474 (2010).
    \4\ See 12 CFR 1002.2(l), providing in relevant part:
    Creditor means a person who, in the ordinary course of business, 
regularly participates in a credit decision, including setting the 
terms of the credit. The term creditor includes a creditor's 
assignee, transferee, or subrogee who so participates. For purposes 
of Sec. Sec.  1002.4(a) and (b), the term creditor also includes a 
person who, in the ordinary course of business, regularly refers 
applicants or prospective applicants to creditors, or selects or 
offers to select creditors to whom requests for credit may be made.
    \5\ See 78 FR 7216, 7234-7235 (Jan. 31, 2013) (Explaining that 
the amendments to the appraisal requirements in section 701(e) of 
ECOA made by section 1474 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act broadened the scope of the original 
appraisal requirement and eliminated the prior justification for 
exempting credit unions from the requirements of the provision.); 
compare with 12 CFR 1002.14(b) (2013) (which previously provided: 
``A creditor that is subject to the regulations of the National 
Credit Union Administration on making copies of appraisal reports 
available is not subject to this section.'').
---------------------------------------------------------------------------

    While the two sections differ slightly in scope and mechanism,\6\ 
the requirements in Sec.  701.31(c)(5) relating to loans secured by a 
first lien on a

[[Page 36250]]

dwelling are largely duplicative of the requirements of revised Sec.  
1002.14. Section 701.31 of NCUA's regulations sets forth 
nondiscrimination requirements that, among other things, assist FCUs in 
distinguishing legitimate reasons for denying a loan from those that 
are prohibited by the Fair Housing Act.\7\ NCUA amended its regulations 
in 1979 to add Sec.  701.31(c), including the current version of 
paragraph (c)(5), to specifically prohibit an FCU from relying on an 
appraisal that the FCU knew or should have known was discriminatory.\8\ 
Although not expressly stated in the rulemaking, NCUA intended this 
requirement to provide the member/applicant with an opportunity to see 
whether the appraisal on which the FCU relied to approve or deny the 
loan application is discriminatory. The protections provided by current 
Sec.  701.31(c)(5), with respect to applications for loans secured by a 
first lien on a dwelling, appear to be the same protections that are 
now also provided by the requirement to automatically provide a copy of 
appraisals in revised Sec.  1002.14. Under both sections, FCU members 
applying for a loan secured by a first lien on a dwelling are provided 
an opportunity to see whether the appraisal relied on by the credit 
union to approve or deny their loan application is discriminatory. 
Moreover, the requirements of Sec.  1002.14 of Regulation B, which 
require FCUs to provide copies of appraisals and other written 
valuations to the applicant without the member/applicant having to 
request a copy, go well beyond the limited requirement of Sec.  
701.31(c)(5) to provide a copy of only the appraisal and only upon the 
applicant's request.
---------------------------------------------------------------------------

    \6\ Under Sec.  701.31(c)(5) FCUs are only required to provide a 
copy of an appraisal to the application if the applicant requests a 
copy, while Sec.  1002.14 requires that the creditor provide a copy 
of the appraisal regardless of whether or not a copy is requested by 
the applicant. In addition, Sec.  701.31(c)(5) only requires FCUs to 
provide copies of the appraisal, while Sec.  1002.14 requires that 
applicants provide free copies of all appraisals and other written 
valuations developed. Finally, Sec.  701.31(c)(5) applies to all 
real estate-related loan applications, while Sec.  1002.14 of 
Regulation B applies only to applications for loans to be secured by 
a first lien on a dwelling.
    \7\ 42 U.S.C. 3601 et seq.
    \8\ 44 FR 51191.
---------------------------------------------------------------------------

    The consumer protections provided by the two sections do not, 
however, overlap entirely. Under current Sec.  701.31(c)(5), FCUs are 
required to provide copies of appraisals used in connection with an 
application for a real estate-related loan, which includes any loan to 
be secured by a first lien or a subordinate lien on a dwelling.\9\ The 
protections provided in revised Sec.  1002.14 of Regulation B extend 
only to appraisals developed in connection with an application for a 
loan secured by a first lien on a dwelling. To avoid reducing 
protections for FCU members, the requirements of Sec.  701.31(c)(5) 
relating to appraisals used in connection with an application for a 
loan to be secured by a subordinate lien on a dwelling must be 
retained. Accordingly, the Board proposes to amend current Sec.  
701.31(c)(5) to narrow the scope of the current requirement to cover 
only loans secured by a subordinate lien on a dwelling.
---------------------------------------------------------------------------

    \9\ See 12 CFR 701.31(a)(3) (``Real estate-related loan means 
any loan for which application is made to finance or refinance the 
purchase, construction, improvement, repair, or maintenance of a 
dwelling.'').
---------------------------------------------------------------------------

    Proposed Sec.  701.31(c)(5) would require FCUs to make available, 
to any requesting member/applicant, a copy of the appraisal used in 
connection with the member's application for a loan to be secured by a 
subordinate lien on a dwelling. Consistent with the amendment to the 
first sentence of that section, the second sentence in proposed Sec.  
701.31(c)(5) would also be amended to require that the appraisal be 
available for a period of 25 months after the applicant has received 
notice from the FCU of the action taken by the credit union on the 
application for a loan secured by a subordinate lien on a dwelling.
    By limiting the requirements to apply only to applications for 
loans secured by a subordinate lien on a dwelling, NCUA believes the 
proposed rule would eliminate the duplicative portion of the current 
requirement while maintaining the current protections provided under 
Sec.  701.31(c)(5) for FCU member/applicants not covered by new Sec.  
1002.14 of Regulation B. The Board requests comment on if there are 
other real estate-related loan transactions that are covered under 
current Sec.  1002.14 or current Sec.  701.31(c)(5) that would not be 
covered if the amendments being made in this proposed rule were 
finalized. If there are such transactions, the Board requests comment 
on if those types of transactions should continue to be covered under 
Sec.  701.31(c)(5). Similarly, the Board requests comment on if there 
are additional real estate-related loan transactions that would be 
covered under current Sec.  1002.14 and current Sec.  701.31(c)(5) and 
that would continue to impose duplicative requirements on credit unions 
if the amendments being made in this proposed rule are finalized.

B. What changes are being proposed to the exemption in Sec.  
722.3(a)(5) for transactions involving an existing extension of credit?

    Part 722 of NCUA's regulations implements Title XI of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 
(FIRREA),\10\ setting forth, among other things, minimum requirements 
for real estate-related appraisals used in connection with ``federally 
related transactions.'' \11\ Section 722.3(a) requires FICUs to obtain 
an appraisal for all real estate-related financial transactions unless 
the transaction meets one of nine specifically enumerated exemptions. 
Current Sec.  722.3(a)(5) exempts from the appraisal requirement 
transactions that involve an existing extension of credit at the FICU, 
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. Under 
NCUA's current regulation, for a transaction involving an existing 
extension of credit to be exempt from the general requirement to obtain 
an appraisal, the transaction must satisfy both the criteria in 
paragraph (i) and the criteria in paragraph (ii) of current Sec.  
722.3(a)(5).
---------------------------------------------------------------------------

    \10\ Public Law 101-73, Title XI, 103 Stat. 511 (1989); 12 
U.S.C. 3331 et seq.
    \11\ 12 U.S.C. 3339.
---------------------------------------------------------------------------

    Although much of the language is identical, the exemption in Sec.  
722.3(a)(5) differs significantly from the analogous appraisal 
exemption in the Other Banking Agencies' regulations.\12\ The Other 
Banking Agencies' regulations provide an appraisal exemption for an 
existing extension of credit at a lending institution, provided that: 
(1) There is no advancement of new monies, other than funds necessary 
to cover reasonable closing costs, or (2) there has been no obvious and 
material change in market conditions or physical aspects of the 
property that threatens the adequacy of the institution's real estate 
collateral protection after the transaction, even with the advancement 
of new monies.\13\ Under the Other Banking Agencies' exemptions for 
existing extensions of credit, a creditor is exempt from the general 
requirement to obtain an appraisal in a transaction involving an 
existing extension of credit if the transaction satisfies only one of 
the two criteria listed above.
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    \12\ OCC: 12 CFR part 34, subpart C; FRB: 12 CFR part 208, 
subpart E and 12 CFR part 225, subpart G; and FDIC: 12 CFR part 323.
    \13\ OCC: 12 CFR 34.43(a)(7); FRB: 12 CFR 225.63(a)(7); and 
FDIC: 12 CFR 323.3(a)(7).
---------------------------------------------------------------------------

    NCUA has received a number of comments regarding the lack of parity 
between NCUA's and the Other Banking Agencies' appraisal exemptions and 
the added burden of Sec.  722.3(a)(5) on credit unions. Most of the 
commenters recommend amending Sec.  722.3(a)(5) to match the Other 
Banking Agencies' appraisal regulations, which they argue would help 
reduce costs and processing times for members seeking to refinance or 
modify loans already held by a FICU.

[[Page 36251]]

Commenters have also suggested that amending current Sec.  722.3(a)(5) 
to match the Other Banking Agencies' regulations will give FICUs the 
ability to address appropriate residential mortgage loan modifications 
on a more timely basis, and help prevent potential credit union losses 
without increasing risks to the credit union or the National Credit 
Union Share Insurance Fund (NCUSIF).
    Section 722.3(a)(5) was originally issued in its current form in 
1995 as part of a larger final rule making several amendments to NCUA's 
appraisal regulations.\14\ In the preamble to that final rule, the 
Board specifically explained that it did not adopt an exemption in 
Sec.  722.3(a)(5) that matched the exemption provided by the Other 
Banking Agencies' appraisal regulations, citing general safety and 
soundness concerns.\15\ However, after reviewing the public comments 
received, comparing current Sec.  722.3(a)(5) to the corresponding 
provisions of the Other Banking Agencies' appraisal rules, and 
considering relevant loan performance data, the Board believes that 
amending the requirements of Sec.  722.3(a)(5) to match the Other 
Banking Agencies' appraisal regulations is appropriate.
---------------------------------------------------------------------------

    \14\ 60 FR 51889 (Oct. 4, 1995).
    \15\ See, id. at 51891 (Providing in relevant part: One 
``commenter stated that banks . . . 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 effects on competition.'').
---------------------------------------------------------------------------

    The financial crisis that began in 2008 left large numbers of 
financially distressed homeowners owing more on their mortgages than 
their homes were worth. During this same period, financial institutions 
across the nation experienced high levels of mortgage loan defaults and 
foreclosures. Many borrowers were unable to make their mortgage 
payments because of unemployment or a reduction in income. Others were 
unable to afford significant payment increases when their adjustable 
rate mortgages reset, and they were unable to refinance their loans 
because of declines in their properties' values. Some borrowers who 
owed more on their mortgages than their homes were worth simply walked 
away from their homes because they lacked the incentive to keep their 
mortgage payments current.
    In response to the levels of mortgage loan defaults and 
foreclosures that occurred in the wake of the financial crisis, NCUA 
issued guidance to credit unions in 2009 regarding providing loan 
modifications to residential mortgage borrowers who were unable to meet 
their contractual payment obligations by offering them loan 
modification options.\16\ The letter encouraged credit unions to take 
action to identify and potentially assist borrowers whose financial 
stress may lead to future impairment in mortgage loan performance. By 
proactively identifying ``at risk'' loans, credit unions could measure 
the potential impacts of borrower defaults on net worth, assess 
internal liquidity available to help borrowers through loan 
modifications, and closely monitor the performance of these loans. 
Moreover, by identifying and assisting ``at risk'' members before 
delinquency occurs, a credit union could improve chances for successful 
modifications and reduce potential losses.
---------------------------------------------------------------------------

    \16\ 09-CU-19 (Sept. 2009).
---------------------------------------------------------------------------

    Consistent with the positions noted above, the Board believes that 
extending the appraisal exemption in Sec.  722.3(a)(5) to cover loan 
modifications and refinancings in distressed housing markets will 
improve the timeliness and chances for successful modifications and 
refinancings that could reduce potential losses to FICUs in the future. 
Obtaining an appraisal can take a significant amount of time, weeks or 
months depending on demand and the location of the home. Further, the 
cost of the appraisal itself, which is almost always paid for by the 
borrower, can stand as a significant impediment to a distressed 
borrower being able to refinance or obtain a loan modification. 
Moreover, obtaining a new appraisal is of little value to a credit 
union when it was the originating lender and the ``at risk'' loan is 
still held by the credit union. Accordingly, the Board proposes to 
amend Sec.  722.3(a)(5).
    Proposed Sec.  722.3(a)(5) would exempt a transaction from the 
appraisal requirement in Sec.  722.3(a), a transaction that involves an 
existing extension of credit at the lending FICU, provided that: (i) 
There is no advancement of new monies, other than funds necessary 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. The amendments would provide parity between NCUA and the 
Other Banking Agencies' exemptions from the requirement to obtain an 
appraisal for certain transactions involving existing extensions of 
credit. Current Sec.  722.3(d) would continue to require that 
transactions exempted from the appraisal requirement under proposed 
Sec.  722.3(a)(5) be supported by a written estimate of market 
value.\17\ The Board believes these changes will reduce regulatory 
burdens on credit unions, and pose no increase in risk to the NCUSIF.
---------------------------------------------------------------------------

    \17\ Sec.  722.3(d) providing:
    Valuation requirement. Secured transactions exempted from 
appraisal requirements pursuant to paragraphs (a)(1) and (a)(5) 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.
---------------------------------------------------------------------------

C. What other changes would the proposed rule make?

    For clarity, the proposed rule would also make a technical 
amendment to the definition of the term ``application'' in Sec.  
701.31(a)(1). Current Sec.  701.31(a)(1) defines the term 
``application'' for purposes of part 701 as carrying the same ``meaning 
of that term as defined in 12 CFR 1002.2(f) (Regulation B)'' and then 
provides a parenthetical quoting the text of the Regulation B 
definition of application, which has since been revised.\18\ As a 
result, the definition of application in Sec.  1002.2(f) no longer 
matches the quote in Sec.  701.31(a)(1).\19\ Accordingly, the Board is 
now proposing to make a technical amendment to Sec.  701.31(a)(1) to 
update the definition.
---------------------------------------------------------------------------

    \18\ See Sec.  701.31(a)(1) (Quoting regulation B as follows: 
``Application means an oral or written request for an extension of 
credit that is made in accordance with procedures established by a 
creditor for the type of credit requested.'' (emphasis added).).
    \19\ See Sec.  1002.2(f) (Defining the term ``application'' as 
follows: Application means an oral or written request for an 
extension of credit that is made in accordance with procedures used 
by a creditor for the type of credit requested. The term application 
does not include the use of an account or line of credit to obtain 
an amount of credit that is within a previously established credit 
limit. A completed application means an application in connection 
with which a creditor has received all the information that the 
creditor regularly obtains and considers in evaluating applications 
for the amount and type of credit requested (including, but not 
limited to, credit reports, any additional information requested 
from the applicant, and any approvals or reports by governmental 
agencies or other persons that are necessary to guarantee, insure, 
or provide security for the credit or collateral). The creditor 
shall exercise reasonable diligence in obtaining such information. 
(emphasis added)).
---------------------------------------------------------------------------

    To avoid the possibility of a similar situation arising in the 
future, NCUA proposes to remove the parenthetical quote in Sec.  
701.31(a)(1) and maintain just the cross citation to the definition of 
``application'' in Regulation B. Proposed Sec.  701.31(a)(1) would 
provide that for purposes of part 701 the term ``application'' carries 
the meaning of that term as defined in 12 CFR 1002.2(f)

[[Page 36252]]

(Regulation B). This amendment would avoid the possibility, in the case 
of future amendments to the text of Sec.  1002.2(f), of discrepancies 
between the text of the definition of ``application'' in Regulation B 
and the parenthetical in Sec.  701.31(a)(1) which simply quotes the 
text of the Regulation B definition. This revision would not make any 
substantive changes to the requirements of NCUA's regulations.

III. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \20\ requires NCUA to provide 
an initial regulatory flexibility analysis with a proposed rule to 
certify that the rule will not have a significant economic impact on a 
substantial number of small entities (defined for purposed of the RFA 
to include credit unions with assets less than or equal to $50 million) 
and publish its certification and a short explanatory statement in the 
Federal Register also with the proposed rule.\21\ The proposed 
amendments to parts 701 and 722 will only reduce regulatory impacts on 
credit unions by exempting credit unions from current regulatory 
requirements. Accordingly, the Board certifies the proposed rule will 
not have a significant economic impact on a substantial number of small 
credit unions.
---------------------------------------------------------------------------

    \20\ 5 U.S.C. 601 et seq.
    \21\ 78 FR 4032 (Jan. 18, 2013).
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Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or increases an existing burden.\22\ For purposes of the PRA, 
a paperwork burden may take the form of a reporting or recordkeeping 
requirement, both referred to as information collections. This proposed 
rule would not impose or expand upon any existing reporting or 
recordkeeping requirements. Accordingly, this proposed rule would not 
create new paperwork burdens or increase any existing paperwork 
burdens.
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    \22\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. 
NCUA, an independent regulatory agency, as defined in 44 U.S.C. 
3502(5), voluntarily complies with the executive order to adhere to 
fundamental federalism principles. The proposed rule would not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or the distribution of power 
and responsibilities among the various levels of government. NCUA has, 
therefore, determined that this proposal does not constitute a policy 
that has federalism implications for purposes of the executive order.

Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this proposed rule will not affect family 
well-being within the meaning of Sec.  654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

List of Subjects

12 CFR Part 701

    Advertising, Aged, Civil rights, Credit, Credit unions, Fair 
housing, Individuals with disabilities, Insurance, Marital status 
discrimination, Mortgages, Religious discrimination, Reporting and 
recordkeeping requirements, Sex discrimination.

12 CFR Part 722

    Appraisals, Credit unions, Mortgages, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on June 19, 
2014.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the NCUA Board proposes to amend 
12 CFR parts 701 and 722 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority citation for part 701 continues to read as follows:

    Authority:  12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also 
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.

0
2. Amend Sec.  701.31 as follows:


Sec.  701.31  [Amended]

0
a. In paragraph (a)(1) delete the words ``, which is as follows:'' and 
delete the parenthetical ``an oral or written request for an extension 
of credit that is made in accordance with procedures established by a 
creditor for the type of credit requested'';
0
b. In paragraph (c)(5) in the first sentence, remove the words ``a copy 
of the appraisal used in connection with that member's real estate 
related loan application'' and add in their place the words ``a copy of 
the appraisal used in connection with that member's application for a 
loan to be secured by a subordinate lien on a dwelling'', and, in the 
second sentence, remove the words ``real estate-related loan 
application'' and add in their place the words ``application for a loan 
to be secured by a subordinate lien on a dwelling''.

PART 722--APPRAISALS

0
4. The authority citation for part 722 continues to read as follows:

    Authority:  12 U.S.C. 1766, 1789 and 3339. Section 722.3(f) is 
also issued under 15 U.S.C. 1639h.

0
5. Amend Sec.  722.3 as follows:


Sec.  722.3  [Amended]

0
a. In paragraph (a)(5) add the word ``lending'' before the words 
``credit union'';
0
b. In paragraph (a)(5)(i) remove the word ``and'' and add in its place 
the word ``or''; and
0
c. In paragraph (a)(5)(ii) add the words ``, even with the advancement 
of new monies'' to the end of the paragraph.

[FR Doc. 2014-14889 Filed 6-25-14; 8:45 am]
BILLING CODE 7535-01-P