Real Estate Appraisals, 23909-23917 [2020-08433]
Download as PDF
<![CDATA[
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
Intergovernmental relations, Nuclear
energy, Penalties, Radiation protection,
Reporting and recordkeeping
requirements, Security measures, Spent
fuel, Whistleblowing.
For the reasons set out in the
preamble and under the authority of the
Atomic Energy Act of 1954, as amended;
the Energy Reorganization Act of 1974,
as amended; the Nuclear Waste Policy
Act of 1982, as amended; and 5 U.S.C.
552 and 553; the NRC is adopting the
following amendments to 10 CFR part
72:
Dated this 7th day of April, 2020.
For the Nuclear Regulatory Commission.
Margaret M. Doane,
Executive Director for Operations.
[FR Doc. 2020–08349 Filed 4–29–20; 8:45 am]
Uduak Essien, Director—Credit Markets,
(703) 518–6399, Office of Examination
and Insurance
Legal information:
Gira Bose, Staff Attorney, (703) 518–
6562, Office of General Counsel
National Credit Union Administration,
1775 Duke Street, Alexandria, VA
22314.
SUPPLEMENTARY INFORMATION:
PART 72—LICENSING
REQUIREMENTS FOR THE
INDEPENDENT STORAGE OF SPENT
NUCLEAR FUEL, HIGH-LEVEL
RADIOACTIVE WASTE, AND
REACTOR-RELATED GREATER THAN
CLASS C WASTE
NATIONAL CREDIT UNION
ADMINISTRATION
I. Introduction
II. Final Rule
III. Legal Authority
IV. Discussion of Public Comments Received
on the Proposed Rule
V. Effective Date
VI. Regulatory Procedures
12 CFR Part 722
I. Introduction
1. The authority citation for part 72
continues to read as follows:
AGENCY:
■
Authority: Atomic Energy Act of 1954,
secs. 51, 53, 57, 62, 63, 65, 69, 81, 161, 182,
183, 184, 186, 187, 189, 223, 234, 274 (42
U.S.C. 2071, 2073, 2077, 2092, 2093, 2095,
2099, 2111, 2201, 2210e, 2232, 2233, 2234,
2236, 2237, 2238, 2273, 2282, 2021); Energy
Reorganization Act of 1974, secs. 201, 202,
206, 211 (42 U.S.C. 5841, 5842, 5846, 5851);
National Environmental Policy Act of 1969
(42 U.S.C. 4332); Nuclear Waste Policy Act
of 1982, secs. 117(a), 132, 133, 134, 135, 137,
141, 145(g), 148, 218(a) (42 U.S.C. 10137(a),
10152, 10153, 10154, 10155, 10157, 10161,
10165(g), 10168, 10198(a)); 44 U.S.C. 3504
note.
2. In § 72.214, Certificate of
Compliance No. 1032 is revised to read
as follows:
■
§ 72.214 List of approved spent fuel
storage casks.
*
jbell on DSKJLSW7X2PROD with RULES
Docket Number: 72–1032.
Certificate Expiration Date: June 12,
2031.
Model Number: HI–STORM FW
MPC–37, MPC–89.
23909
*
*
*
*
Certificate Number: 1032.
Initial Certificate Effective Date: June
13, 2011, superseded by Amendment
Number 0, Revision 1, on April 25,
2016.
Amendment Number 0, Revision 1,
Effective Date: April 25, 2016.
Amendment Number 1 Effective Date:
December 17, 2014, superseded by
Amendment Number 1, Revision 1, on
June 2, 2015.
Amendment Number 1, Revision 1,
Effective Date: June 2, 2015.
Amendment Number 2 Effective Date:
November 7, 2016.
Amendment Number 3 Effective Date:
September 11, 2017.
Amendment Number 4 Effective Date:
July 14, 2020.
SAR Submitted by: Holtec
International, Inc.
SAR Title: Final Safety Analysis
Report for the Holtec International HI–
STORM FW System.
VerDate Sep<11>2014
16:15 Apr 29, 2020
Jkt 250001
BILLING CODE 7590–01–P
A. Background
RIN 3133–AE98
Real Estate Appraisals
National Credit Union
Administration (NCUA).
ACTION: Final rule.
SUMMARY: The NCUA Board (Board) is
amending the agency’s regulation
requiring appraisals for certain
residential real-estate related
transactions. The final rule increases the
threshold level below which appraisals
are not required for residential realestate related transactions from
$250,000 to $400,000. Instead of an
appraisal, and consistent with the
requirement for other transactions that
fall below applicable appraisal
thresholds, federally insured credit
unions (FICUs) are required to obtain
written estimates of market value of the
real estate collateral consistent with safe
and sound practices. For ease of
reference, this final rule explicitly
incorporates the existing statutory
requirement that appraisals be subject to
appropriate review for compliance with
the Uniform Standards of Professional
Appraisal Practice (USPAP). This final
rule is consistent with the final rule,
effective October 9, 2019, issued by the
Board of Governors of the Federal
Reserve System, the Federal Deposit
Insurance Corporation, and the Office of
the Comptroller of the Currency (federal
banking agencies) that increases the
threshold level at or below which
appraisals are not required for
residential real estate transactions from
$250,000 to $400,000.
DATES: The final rule is effective April
30, 2020.
FOR FURTHER INFORMATION CONTACT:
Technical information:
Kenneth Acun˜a, Senior Credit
Specialist, (703) 518–6613, Office of
Examination and Insurance
PO 00000
Frm 00017
Fmt 4700
Sfmt 4700
In November 2019, the Board invited
comment on a notice of proposed
rulemaking 1 (proposal or proposed rule)
that would amend the NCUA’s appraisal
regulation promulgated pursuant to
Title XI of the Financial Institutions
Reform, Recovery, and Enforcement Act
of 1989 (Title XI).2 Specifically, the
proposed rule would increase the
monetary threshold below which FICUs
would not be required to obtain
appraisals in connection with
residential real estate transactions from
$250,000 to $400,000. Instead of an
appraisal, and consistent with the
requirement for other transactions that
fall below applicable appraisal
thresholds, the proposal would require
FICUs to obtain written estimates of
market value of the real estate collateral
consistent with safe and sound
practices. In addition, the proposed rule
would amend the agency’s appraisal
regulation to explicitly incorporate the
existing statutory requirement that
appraisals be subject to appropriate
review for compliance with the Uniform
Standards of Professional Appraisal
Practice (USPAP), as required by section
1473(e) of the Dodd Frank Wall Street
Reform and Consumer Protection Act
(the Dodd Frank Act).3
B. Summary of Proposed Rule
As noted in the proposed rule, the
price of residential real estate has
increased over time, but the residential
appraisal threshold has not been
adjusted since 2001.4 Further, the Board
estimated under the proposal, the
percentage of transactions exempted
from the appraisal requirement would
1 84
FR 65707 (Nov. 29, 2019).
U.S.C. 3331 et seq.
3 Public Law 111–203, 124 Stat. 1376, codified at
12 U.S.C. 3339(3).
4 66 FR 58656 (Nov. 23, 2001). The rule was
effective March 1, 2002.
2 12
E:\FR\FM\30APR1.SGM
30APR1
23910
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES
be restored to the level it was following
the last threshold increase in 2001. The
proposed residential appraisal threshold
level of $400,000 would exempt a
similar number of transactions and
dollar volume of transactions as did the
current threshold of $250,000 when it
was set in 2001 thereby restoring the
level of exempted transactions. The
Board stated it believes increasing the
appraisal threshold for residential real
estate transactions will provide
meaningful burden reduction for FICUs,
while maintaining federal public policy
interests in real-estate related
transactions and the safety and
soundness of FICUs.
Based on the NCUA’s data analysis
and supervisory experience, as set forth
in the proposed rule, the increase in the
appraisal threshold in the 2001
residential appraisal final rule did not
result in a material increase in risk to
safety and soundness. The Board
estimated that the proposed rule would
exempt from appraisal requirements
approximately 46,000 residential real
estate transactions, worth a combined
$14 billion, equating to approximately
0.9 percent of FICU assets.5 The Board
estimated that approximately 77 percent
of transactions, for a total of 55 percent
of the dollar amount of transactions, are
currently not subject to the NCUA’s
residential appraisal requirement. This
is estimated to increase to 94 percent of
transactions and 83 percent of the dollar
amount with the increased threshold. In
the proposed rule, the Board noted that
in 2001, an estimated 95 percent of
residential transactions and 80 percent
of the dollar amount of residential
transactions were exempt when the
current $250,000 threshold was set.6
The NCUA’s current appraisal
regulation requires FICUs to obtain
written estimates of market value for all
real-estate related transactions that do
not require an appraisal pursuant to
Title XI (Title XI appraisal), unless
explicitly exempted from written
estimates of market value
requirements.7 As an important
prudential safeguard, written estimates
of market value must be prepared by
qualified, experienced, and independent
individuals.8 In addition, through the
Interagency Appraisal and Evaluation
Guidelines (Interagency Guidelines),9
the NCUA has provided guidance to
FICUs on its expectations regarding
5 Supra note 1, at 65712. Assets as of December
2019 Call Report.
6 Supra note 4, at 65711.
7 See 12 CFR 722.3(d).
8 Id.
9 Interagency Appraisal and Evaluations
Guidelines at 75 FR 77458 (Dec. 10, 2010).
VerDate Sep<11>2014
16:15 Apr 29, 2020
Jkt 250001
conduct will be subject to effective
supervision.14
Title XI defines a ‘‘federally related
II. Final Rule
transaction’’ as a real estate-related
financial transaction that is regulated or
This final rule follows publication of
engaged in by a federal financial
the November 29, 2019, proposed rule.
institutions regulatory agency and
After carefully considering the
requires the services of an appraiser.15
comments and conducting further
The NCUA has authority to determine
analysis, the Board is adopting the final
those real estate-related financial
rule as proposed, and is increasing the
transactions that do not require the
residential real estate appraisal
services of a state-certified or statethreshold from $250,000 to $400,000. As licensed appraiser and are therefore
discussed in the proposal, and further
exempt from the Title XI appraisal
detailed below in response to
requirements. Such exempt real estatecomments, increasing the residential
related financial transactions are not
real estate appraisal threshold will
federally related transactions under the
provide meaningful regulatory relief for statutory or regulatory definitions
FICUs while maintaining their safety
because they are not required to have
and soundness and providing
Title XI appraisals.16
reasonable protection for consumers.
The NCUA has exercised this
This final rule also adopts without
authority by exempting several
change the proposed conforming
categories of real estate-related financial
amendment to the NCUA’s appraisal
transactions from the Title XI appraisal
regulations explicitly incorporating the
requirements, including transactions at
Dodd Frank Act amendment to Title XI
or below certain designated dollar
that appraisals be subject to appropriate thresholds.17 The NCUA has
review for compliance with USPAP,11 as determined that these categories of
well as a conforming amendment to
transactions do not require appraisals by
remove additional requirements for the
state-certified or state-licensed
appraisal exemption for certain
appraisers in order to protect federal
residential real estate transactions in
financial and public policy interests or
rural areas.
to satisfy principles of safety and
soundness.
III. Legal Authority
Title XI expressly authorizes the
NCUA to establish dollar threshold
Title XI directs each federal financial
levels at or below which Title XI
institutions regulatory agency 12 to
appraisals are not required if: (1) The
require regulated institutions to obtain
NCUA determines, in writing, that the
appraisals meeting minimum standards
threshold does not represent a threat to
for certain real estate-related
the safety and soundness of financial
transactions. The purpose of Title XI is
institutions; and (2) the NCUA receives
to protect federal financial and public
concurrence from the Consumer
policy interests 13 in real estate-related
transactions by requiring that real estate Financial Protection Bureau (CFPB) that
appraisals used in connection with Title such threshold level provides
reasonable protection for consumers
XI appraisals be performed in
who purchase ‘‘1–4 unit single-family
accordance with uniform standards, by
18
individuals whose competency has been residences.’’ As noted above,
transactions
below
the threshold level
demonstrated, and whose professional
are exempt from the Title XI appraisal
requirements and thus are not deemed
10 Interagency Guidelines at 77460.
‘‘federally related transactions.’’
11 Public Law 111–203, 124 Stat. 1376, codified
when and how written estimates of
market value should be used.10
at 12 U.S.C. 3339(3).
12 ‘‘Federal financial institutions regulatory
agencies’’ mean the Board of Governors of the
Federal Reserve System; the Federal Deposit
Insurance Corporation (FDIC); the Office of the
Comptroller of the Currency (OCC); the NCUA, and
formerly the Office of Thrift Supervision (OTS). 12
U.S.C. 3350(6).
13 These interests include those stemming from
the federal government’s role as regulator and
deposit insurer of financial institutions that engage
in real estate lending and investment, guarantor or
lender on mortgage loans, and as a direct party in
real estate-related financial transactions. These
federal financial and public policy interests have
been described in predecessor legislation and
accompanying congressional reports. See Real
Estate Appraisal Reform Act of 1988, H.R. Rep. No.
100–10001, pt. 1, at 19 (1988); 133 Cong. Rec.
33047–33048 (1987).
PO 00000
Frm 00018
Fmt 4700
Sfmt 4700
IV. Discussion of Public Comments
Received on the Proposed Rule
A. The Public Comments, Generally
The NCUA received 27 comments
following publication of the November
29, 2019 proposed rule. Of the 27
comments received, 22 were in support
of and five were in opposition to the
proposed increase to the appraisal
14 12
U.S.C. 1331.
U.S.C. 3350(4) (defining ‘‘federally related
transaction’’).
16 See 59 FR 29482 (June 7, 1994).
17 See 12 CFR 722.3(a).
18 12 U.S.C. 3341(b).
15 12
E:\FR\FM\30APR1.SGM
30APR1
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
threshold for residential real estate
transactions.19
The five comments received in
opposition to the proposed rule came
from appraisal companies, appraisal
trade organizations, and one individual.
They expressed concern that the
proposal would reduce the safety and
soundness of credit unions and would
not provide adequate consumer
protections.
In contrast, comments received from
credit unions, credit union trade
associations, state credit union leagues,
state credit union regulators and others
supported the proposal, stating that it
would reduce regulatory burden, reduce
member costs, increase access to credit,
and would provide reasonable
protection for consumers.
jbell on DSKJLSW7X2PROD with RULES
B. Discussion of Specific Comments on
the Proposed Rule
The Board requested comment on all
aspects of the proposed rule and posed
a number of specific questions related to
the consumer protection aspect of
appraisals and the analysis for the
proposed rule and written estimates of
market value. All comments received
were in response to the proposed
increase in the monetary threshold for
residential real estate transactions. No
comments were received regarding the
proposed conforming amendment to the
NCUA’s appraisal regulations explicitly
incorporating the Dodd Frank Act
amendment to Title XI that appraisals
be subject to appropriate review for
compliance with USPAP. Commenters’
rationale for opposing or supporting the
$400,000 threshold are discussed below.
1. Threshold Level.
a. ‘‘At or below’’ Standard. The final
rule adopted by the federal banking
agencies sets a threshold level at or
below $400,000. One credit union trade
association encouraged the NCUA to
adopt the same ‘‘at or below’’ language
to maintain consistency with the federal
banking agencies. Upon consideration,
the Board has determined to keep the
rule as proposed in order to be
consistent with the NCUA’s appraisal
threshold for non-residential real estate
transactions.20
b. Accounting for regional variations.
Three commenters, two from the
19 One commenter opposed to the rule did not
provide a comment letter in response to the Board’s
proposed rule, but provided instead their response
to the federal banking agencies’ December 2018
proposal to increase the residential real estate
threshold for their regulated financial institutions.
Where relevant, their comments have been
discussed in this preamble to the final rule.
20 12 CFR 722.3(b)(1) (requiring appraisals for
non-residential transactions at or above $1,000,000,
which thus exempts such transactions below
$1,000,000).
VerDate Sep<11>2014
17:05 Apr 29, 2020
Jkt 250001
perspective of communities with house
prices significantly lower than the
proposed increased threshold and one
from the perspective of a community
with sales prices that largely exceed it,
suggested the Board should consider an
approach that takes into account
regional home price variations rather
than adopt a single figure nationwide.
The Board believes that adopting such
a regional approach would only add
unnecessary regulatory burden and
complexity by introducing numerous
threshold levels across the country. In
addition, FICUs and borrowers retain
the option to obtain appraisals on
exempt transactions, and some credit
union commenters indicated that they
would continue using appraisals for
transactions below the threshold.
c. General support and concerns.
Commenters supporting the proposed
increase generally stated that written
estimates of market value are adequate
substitutes for appraisals for
transactions below the proposed
$400,000 threshold. Nevertheless, one
credit union league stated that many of
its members would continue to use
appraisals even on loans eligible for
written estimates of market value. A
credit union trade association noted
favorably that the rule is flexible enough
that consumers and FICUs would still
have the option of ordering an appraisal.
Two state appraiser coalitions expressed
concern that raising the threshold
would exempt most transactions in their
service area and lead to almost all real
estate-related transactions being exempt
from appraisal requirements in some
regions or metropolitan statistical areas.
2. Safety and soundness. The majority
of commenters opposed to the $400,000
threshold expressed concern that the
proposal increases risk for residential
real estate transactions and would
negatively affect safety and soundness.
These commenters generally posited
that appraisals offer an important safety
and soundness tool because appraisals
provide an unbiased opinion on the
value of collateral, and without this
valuation, credit unions are exposed to
increased risk. One commenter stated
that by focusing on the total dollar
volume of loans originated, rather than
the total volume of transactional
activity, the proposal interprets safety
and soundness as only a monetary
safeguard and not as a safeguard on the
volume of lending activity.
In contrast, commenters supportive of
the proposed rule did not foresee an
increased risk to FICUs or individual
transactions. Most individual credit
union commenters noted that their
policies and procedures are designed to
mitigate risk, and in those instances
PO 00000
Frm 00019
Fmt 4700
Sfmt 4700
23911
where they currently use written
estimates of market value, such
estimates are performed by individuals
who are independent from the loan
process and are qualified and
experienced in home valuation. A few
commenters noted that while they
support the proposed threshold
increase, they would continue to
prioritize sound underwriting practices,
guide their decisions by the best
interests of their members, and use
business judgment in deciding when,
and if, appraisals are necessary for
transactions below the threshold. One
commenter stated that the historically
sound valuation practices of the credit
union industry warrant the increased
appraisal threshold. Several
commenters expressly agreed with the
safety and soundness considerations
discussed in the proposed rule. Many
commenters stated that the increased
threshold would eliminate the
competitive disadvantage that FICUs
now face since the federal banking
agencies raised the residential real
estate transaction threshold for banks.
After taking into account the
comments discussed above, the Board
maintains that the threshold level of
$400,000 for residential real estate
transactions does not pose a threat to
the safety and soundness of FICUs.
First, the $400,000 threshold would
exempt a similar number of transactions
and dollar volume of transactions as did
the current threshold of $250,000 when
it was set in 2001.21 Raising the
threshold in 2001 did not result in a
material increase in risk to safety and
soundness. Second, the new threshold
would not introduce significant
additional risk to the credit union
system. Based on 2018 Home Mortgage
Disclosure Act (HMDA) data, the new
21 The NCUA conducted analyses using 2018 data
reported under the Home Mortgage Disclosure Act
(HMDA), which requires a variety of financial
institutions to maintain, report, and publicly
disclose loan-level information about residential
mortgage originations. Information reported under
HMDA includes various data points relevant to the
NCUA’s analysis, including loan size, loan type,
property type, property location, and secondary
market purchaser. While the HMDA data has
limitations, including that certain low-volume
originators and originators located in rural areas are
not required to report, the Board believes it
provides a representative sample of the universe of
mortgage originations, including transactions
subject to the NCUA’s appraisal requirement. The
NCUA used 2018 HMDA data to estimate the effect
of the residential threshold increase. The NCUA
used HMDA data to determine the number of
transactions and dollar volume of transactions that
would be affected relative to: (1) Total FICU
originations reported in the HMDA data; and (2)
transactions originated by NCUA-insured
institutions that were not sold to a governmentsponsored enterprise (GSE) or otherwise insured or
guaranteed by a U.S. government agency (regulated
transactions).
E:\FR\FM\30APR1.SGM
30APR1
23912
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES
threshold would only incrementally
exempt real estate-secured loans granted
each year, worth approximately $14
billion, which equates to approximately
0.9 percent of FICU assets as of the
December 31, 2019 Statement of
Financial Condition (referred to as the
Call Report). Third, FICUs’ residential
real estate-secured loans have
performed well with relatively low
delinquencies and net charge-off rates in
an analysis of performance from 1994 to
2018. This period, which included two
major recessionary periods, shows the
prior threshold changes in 1995 and
2001 did not have a negative impact on
loan performance.22 Furthermore, based
on supervisory experience and analysis
of material loss reviews conducted by
the NCUA’s Inspector General,
appraisals have not been a substantial
factor in any material FICU failures. The
Board has also taken into consideration
that $400,000 is a reasonable limit that
is consistent with the general
appreciation in home prices since the
last threshold increase.23 Finally, the
NCUA’s appraisal regulations require
FICUs to obtain written estimates of
market value for all real estate-related
financial transactions that do not
require a Title XI appraisal, unless the
real estate-related financial transaction
is explicitly exempt from written
estimates of market value
requirements.24
Written estimates of market value
performed in accordance with the
NCUA’s regulations provide FICUs with
suitable alternatives to appraisals.25 In
the agency’s supervisory experience,
written estimates of market value have
provided sufficient information to
enable FICUs to make prudent lending
decisions.
For all these reasons, the Board
concludes that past threshold increases
did not adversely impact safety and
soundness, and the current increase of
the residential appraisal threshold to
$400,000 does not represent a threat to
the safety and soundness of FICUs.26
3. Consumer protection.
a. Consumer protections, in general.
All five commenters that opposed the
increased threshold raised consumer
protection concerns. One stated that the
proposal contradicts the position taken
by the federal banking agencies and the
22 Net charge-offs are charge-offs minus
recoveries. Net charge-offs represent losses to
financial institutions.
23 Based on analysis of residential home prices
using the S&P Case-Shiller Home Price Index,
FHFA Index, as well as the Bureau of Labor
Statistics Consumer Price Index.
24 See 12 CFR 722.3(d).
25 12 CFR 722.3(d)(2).
26 12 U.S.C. 3341(b).
VerDate Sep<11>2014
16:15 Apr 29, 2020
Jkt 250001
NCUA in their 2017 Economic Growth
and Regulatory Paperwork Reduction
Act 27 (EGRPRA) report to Congress, at
which time the federal financial
regulators opted not to change the
threshold based on considerations of
safety and soundness and consumer
protection. The same commenter stated
that the proposed rule ignores
congressional intent as reflected in the
Economic Growth, Regulatory Relief,
and Consumer Protection Act,28
(EGRRCPA) in which Congress chose
only to raise the threshold for rural
areas on a case-by-case basis for
individual transactions in which the
lender was unable to secure the services
of an appraiser. One commenter noted
that lower-income and first-time
homebuyers would be particularly
impacted by not having an unbiased
party value the purchase price.
In proposing the increase in the
appraisal threshold, the Board stated
that while appraisals can provide
protection to consumers by facilitating
the informed use of credit and helping
to ensure that the estimated value of the
property supports the loan amount,
written estimates of market value have
also provided these benefits for FICUs
and borrowers for transactions below
the current $250,000 threshold. FICUs
have used written estimates of market
value for transactions below the
applicable appraisal thresholds since
the issuance of the first rule
implementing Title XI.
With this final rule, the percentage of
transactions exempted from the
appraisal requirement would be restored
to the same level following the last
threshold increase in 2001. As an
additional safeguard, under Title XI, the
NCUA must receive CFPB concurrence
that the residential appraisal threshold
level provides reasonable protection for
consumers who purchase ‘‘1–4 unit
single-family residences.’’ 29 By letter
dated April 8, 2020, the CFPB Director
provided this concurrence.
The NCUA recognizes that it decided
against proposing a residential appraisal
threshold increase during the EGRPRA
process due to safety and soundness and
consumer protection concerns. The
NCUA has reconsidered this decision
based on comments received to date
from FICUs and state credit union
regulators, and in light of the recent
action by the federal banking agencies to
increase the residential real estate
appraisal threshold for banks. The
Board believes that consumer protection
and safety and soundness concerns are
addressed and supported by the
rationale as put forth in the proposed
rule and in this preamble to the final
rule.
The NCUA also recognizes that
Congress recently amended Title XI to
provide a narrow, self-effectuating
appraisal exemption for rural
transactions meeting certain
requirements. However, the Board also
observes that Congress did not amend
the NCUA’s long-standing authority in
Title XI to establish a threshold level at
or below which a certified or licensed
appraiser is not required to perform an
appraisal in connection with federally
related transactions. Through the
EGRRCPA amendment, Congress
mandated that rural transactions
meeting specific statutory criteria be
exempted from the appraisal
regulations; however, there is no
indication that Congress intended to
restrict the NCUA’s authority to provide
additional exemptions pursuant to its
existing authority. Notably, unlike the
analysis conducted pursuant to this
rulemaking, the EGRRCPA amendment
did not require a safety and soundness
determination or CFPB concurrence.30
With regard to the comment that an
appraiser is the only unbiased party to
a residential real estate transaction, this
is not reflective of the agency’s
supervisory experience or regulatory
expectations. As is the case currently for
transactions under the threshold
exemptions, written estimates of market
value generally must be performed by
individuals who are independent of the
loan production and collection
processes, with no direct, indirect, or
prospective interest, financial or
otherwise, in the property or the
transaction.31 Written estimates of
market value must also be conducted by
individuals qualified and experienced
to perform such estimates for the type
and amount of credit being
considered.32 Furthermore, the
Valuation Independence Rule, which
implements the Dodd Frank Act
independence provisions, requires a
valuation to be based on the
independent judgment of the person
preparing the valuation. The use of
coercion, extortion, inducement,
bribery, or intimidation of,
compensation or instruction to, or
collusion with a person that either
prepares valuations or perform
valuation management functions is
prohibited.33
27 12
30 12
28 Public
31 12
U.S.C. 3311.
Law 115–174, Title I, Section 103,
codified at 12 U.S.C. 3356 (effective May 24, 2018).
29 12 U.S.C. 3341(b).
PO 00000
Frm 00020
Fmt 4700
Sfmt 4700
U.S.C. 3341(b).
CFR 722.3(d)(2).
32 Id.
33 12
E:\FR\FM\30APR1.SGM
CFR 226.42(c).
30APR1
jbell on DSKJLSW7X2PROD with RULES
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
The Valuation Independence Rule
applies to both appraisals and written
estimates of market value. During the
supervisory review of a FICU’s real
estate lending activities, the NCUA’s
examiners assess the adequacy of risk
management practices, including the
independence of the collateral valuation
function.
b. Specific requests for consumer
protection comments. In addition to
requesting comment on all aspects of
the rule, the Board asked particularly
about specific aspects of consumer
protection raised by the proposal. The
Board asked commenters how often
FICUs use internal staff to prepare
written estimates of market value and
what valuation information, if any,
would be lost if more written estimates
of market value were performed rather
than appraisals. The Board also
requested comment on the extent to
which appraisals and written estimates
of market value provide benefits or
protections for borrowers that are
purchasing 1-to-4 family residential
property and the nature and magnitude
of the differences, if any, in consumer
protection. The Board was also
interested in knowing how well
consumers have understood written
estimates of market value and whether
there are any concerns in this area that
the Board should take into account.
Finally, the Board asked for input on the
extent to which useful and accurate
property valuation information is
readily available to borrowers through
public sources.
Several credit union commenters
stated that all of their written estimates
of market value are performed by
individuals who are independent of the
loan or production process and have the
necessary qualifications and experience.
One credit union commenter stated
specifically that it does not use internal
staff to prepare written estimates of
market value, as did one credit union
trade association based on a survey of
its members. In terms of the valuation
information that would be lost if more
written estimates of market value were
performed rather than appraisals, two
commenters, one supportive of the rule
and one opposed, noted that the
physical inspection of a property is the
primary benefit of an appraisal to
consumers. One commenter stated that
appraisers conduct rigorous analysis of
property features, such as number of
bedrooms and proximity to open space,
which may have an impact on a
property’s future marketability. On the
other hand, one commenter noted that
buyers conduct their own visual
inspections and professional home
inspections are a typical part of most
VerDate Sep<11>2014
16:15 Apr 29, 2020
Jkt 250001
transactions. One credit union
association, while supportive of the
rule, stated that its members anticipated
the loss of valuable information, such as
the composition of a property’s interior
and data on comparable properties, with
the use of written estimates of market
value instead of appraisals. This
commenter stated that many of its credit
union members would continue using
appraisals on properties for which
written estimates of market value would
be allowed.
In response to the comments
concerning on-site inspections of real
estate, the Board notes that USPAP does
not require an on-site inspection of the
subject property.34 However, USPAP
states that inspections are often
conducted and that some appraisers use
third parties to conduct inspections.35
Property valuations, whether appraisals
or written estimates of market value,
should contain sufficient information
and analysis to support the FICU’s
decision to engage in a particular
transaction, including information
relating to the actual physical condition
and characteristics of the property. The
appraiser’s physical inspection of a
property can provide additional
information on the features of the
property to the buyer, however, the
primary purpose of the appraisal is to
value the collateral behind the loan. As
USPAP states, ‘‘the appraiser’s
inspection commonly is limited to those
things readily observable without the
use of special testing or equipment.’’ 36
Furthermore, ‘‘an inspection conducted
by an appraiser is usually not the
equivalent of an inspection by an
inspection professional (e.g. a structural
engineer, [or] home inspector).’’ 37
While there is no requirement for a
physical inspection with either an
appraisal or a written estimate of market
value, the Interagency Guidelines state
that safe and sound written estimates of
market value should be supported by a
physical inspection of the property or
any alternative method to confirm the
property’s condition, depending on
transaction risks.38 In the event a
borrower requires further information
34 2020–21
USPAP, Advisory Opinion 2 at 69.
35 Id.
36 Id.
37 Id.
38 Interagency Guidelines at 77461. In addition,
the Dodd Frank Act requires each creditor to
furnish to an applicant a copy of any and all written
appraisals and valuations developed in connection
with the applicant’s application for a loan that is
secured or would have been secured by a first lien
on a dwelling promptly upon completion, but in no
case later than 3 days prior to the closing of the
loan, whether the creditor grants or denies the
applicant’s request for credit or the application is
incomplete or withdrawn. 15 U.S.C. 1691.
PO 00000
Frm 00021
Fmt 4700
Sfmt 4700
23913
about the physical condition of a
property, the borrower always retains
the option of engaging a licensed
property or building inspector.
One appraisal organization stated that
the proposal would lead more
consumers to lose out on the benefits of
an appraisal that has been conducted in
accordance with the USPAP. This
commenter pointed out that there are
other benefits reflected in an appraisal
as a result of the appraiser acting in an
ethical manner informed by the
education, competency, qualifications
and training that are required of USPAP
compliant appraisers.
One commenter noted that lenders are
increasingly willing to rely on
automated valuation models (AVM) for
which the federal financial regulators
have not yet promulgated regulations
despite the Dodd Frank Act requirement
to do so. As a result, the commenter
posits that the AVM represents a ‘‘black
box’’ approach that may not be fully
understood by lenders or
comprehensible to prospective
homeowners.
While USPAP itself does not apply to
written estimates of market value, the
Board believes that the regulatory
framework requiring independence,
qualifications, and experience,
combined with the agency’s
longstanding supervisory experience
with written estimates of market value,
provides sufficient basis for raising the
residential real estate appraisal
threshold while maintaining reasonable
consumer protection. In fact, the
NCUA’s supervisory experience shows
that many FICUs still use appraisals for
situations when only a written estimate
of market value was required. These
reasons include institutional preference,
underwriting to secondary market
standards for flexibility, ease of
valuation policy implementation and, as
the Interagency Guidelines recommend,
for transactions with elevated risk.39 As
additional independent analysis, the
NCUA reviewed the current residential
real estate underwriting practices of
over 120 FICUs 40 to confirm whether
FICUs will continue to obtain appraisals
for transactions under the threshold.
The review found that 60 percent of
these FICUs obtained appraisals in a
majority of their residential real estate
transactions below the current threshold
of $250,000. Similar reasons as listed
39 Interagency
Guidelines, Appendix A.
NCUA reviewed a sample of open
examinations across all of its regional offices for a
defined, limited period to gather feedback on
typical FICU practices for real estate appraisals
under the $250,000 threshold.
40 The
E:\FR\FM\30APR1.SGM
30APR1
23914
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
above were cited for obtaining
appraisals when not required.
Moreover, although limited in scope,
the higher priced mortgage loan rule
(HPML rule), requires lenders for certain
HPMLs secured by a consumer’s
principal dwelling to obtain an
appraisal—and in some cases, two
appraisals—that include an interior
property visit, and provide free copies
to the consumer.41 The HPML Rule
applies to certain higher-risk
transactions. Thus, for a select group of
loans, the HPML Rule requires that the
information in an appraisal will be
available for some first time or lowincome borrowers mentioned by some
commenters as being most affected by
the threshold increase.
With regard to the increasing use of
AVMs in the valuation industry, the
Board believes that technology and data
present an opportunity to improve and
expand upon current property valuation
methods. AVMs cannot be the sole
source of collateral valuation, but may
be used in the process of generating an
appraisal, written estimate of market
value, or even for credit union portfolio
management purposes. The federal
banking agencies and the NCUA have
issued a public notice regarding the
AVM rulemaking required by the Dodd
Frank Act.42 As long as AVMs are
subject to quality controls, such as
testing for accuracy and rigorous
analysis of the algorithms that drive
them, there are many advancements that
computer-based applications can make.
As these automated models become
more sophisticated and widespread in
the market, it is important that they be
used to promote fair lending and greater
and more equitable access to credit.43
41 15
U.S.C. 1639h.
federal banking agencies, the NCUA, the
Federal Housing Finance Agency and the Consumer
Financial Protection Bureau, in consultation with
the Appraisal Subcommittee and the Appraisal
Standards Board of the Appraisal Foundation, are
required to promulgate regulations to enumerate
quality control standards for automated valuation
models. Section 1473(q) of the Dodd-Frank Act
requires that automated valuation models used to
estimate collateral value for mortgage lending
comply with quality control standards designed to
ensure a high level of confidence in the estimates
produced by automated valuation models; protect
against manipulation of data; seek to avoid conflicts
of interest; require random sample testing and
reviews; and account for other factors the agencies
deem appropriate. Public notice available at https://
www.reginfo.gov/public/do/eAgendaView
Rule?pubId=201910&RIN=3133–AE23.
43 This is consistent with the NCUA’s
longstanding regulatory requirement that federal
credit unions may not consider lending policies
which have the effect of discriminating on the basis
of certain characteristics of the borrower, or rely on
appraisals that they know or should know are based
upon criteria, as enumerated in the NCUA’s
regulations, that have a discriminatory effect. 12
CFR 701.31.
jbell on DSKJLSW7X2PROD with RULES
42 The
VerDate Sep<11>2014
16:15 Apr 29, 2020
Jkt 250001
On the extent to which appraisals and
written estimates of market value
provide benefits or protections to
borrowers who are purchasing 1-to-4
family residential property, a
commenter stated that appraisals protect
against an inaccurate valuation of a
property and requested that the Board
provide another valuation option to
protect the consumer. This commenter
did not reference written estimates of
market value, but, as noted above, both
appraisals and written estimates of
market value provide a reliable estimate
of the market value of a property and
must be performed by qualified
individuals. As set forth in the
Interagency Guidelines, written
estimates of market value should
contain sufficient information and
analysis to support the valuation of the
property.44 In addition, lenders must
provide borrowers with a copy of all
appraisals and written estimates of
market value developed in connection
with an application for a first-lien loan
secured by a dwelling.45 Both
consumers and lenders may always
order an appraisal in the event of a
dispute arising out of a written estimate
of market value.
Some commenters stated the nature
and magnitude of the differences in
consumer protection between appraisals
and written estimates of market value
revolve largely around the physical
inspections and USPAP protections
discussed above. Commenters also
noted that, with appraisals consumers
have a direct mechanism for lodging a
complaint for a faulty appraisal.
With respect to consumer recourse,
lenders can order appraisals when
disputes arise with written estimates of
market value. In addition, the failure to
comply with the independence
requirements of the Valuation
Independence Rule can result in civil
liability.46 From a supervisory
standpoint, the NCUA can address
deficiencies in a credit union’s
valuation process through informal or
formal enforcement actions. Borrowers
may also file a complaint through the
NCUA’s complaint process as well as
through the CFPB’s process. Therefore,
the Board does not expect the increased
threshold to materially affect options for
consumer recourse.
With regard to how well consumers
have understood written estimates of
market value and any related concerns
44 Interagency
Guidelines at 77461.
CFR 1002.14, 78 FR 7216 (January 31, 2013)
(implementing amendment to the Equal Credit
Opportunity Act (ECOA)), 15 U.S.C. 1691 et seq.,
by the Dodd Frank Act section 1474. 15 U.S.C.
1691(e).
46 15 U.S.C. 1639e(k); 15 U.S.C. 1640.
45 12
PO 00000
Frm 00022
Fmt 4700
Sfmt 4700
the Board should take into account, two
appraisal organizations stated that
appraisals are more standardized than
written estimates of market value, thus,
making it easier for consumers to
understand and compare appraisals. On
the other hand, one credit union stated
that appraisals are not user-friendly and
have led to consumers disputing
appraised values due to a
misunderstanding of the contents of
appraisals. The same commenter
suggested that written estimates of
market value could be drafted in such
a way as to be more helpful to
borrowers. One commenter asked the
Board to provide additional guidance
for credit unions on what constitutes an
adequate written estimate of market
value. One commenter stated that they
would strongly support the NCUA
creating a model form with a safe harbor
from liability for unintentional and
nonmaterial errors.
Based on the agency’s supervisory
experience and observations on the use
of written estimates of market value, the
Board does not believe that it is
necessary to provide a model form for
written estimates of market value at this
time. The Interagency Guidelines
encourage regulated institutions to
establish policies and procedures for
determining an appropriate collateral
valuation method for a given transaction
considering associated risks.47 The
Interagency Guidelines also set forth the
information that a sufficient written
estimate of market value should contain
to support a credit decision, including,
at a minimum, the location and
description of the property, an estimate
of the property’s market value, the
methods used to confirm the property’s
physical condition, the analysis that
was performed along with the
supporting information used to value
the property, any supplemental
information that was considered when
using an analytical method or
technological tool, and all sources of
information used to arrive at the
property valuation.48 The Board
reiterates that FICUs have been utilizing
written estimates of market value under
the $250,000 threshold since 2001. It
has not been the agency’s experience
that the existing Interagency Guidelines
are insufficient or that written estimates
of market value for transactions under
the $250,000 threshold harm consumers
because they are not standardized.
Although the Board recognizes that
written estimates of market value are
not subject to the same uniform
47 Interagency
48 Id.
E:\FR\FM\30APR1.SGM
30APR1
Guidelines at 77461.
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES
standards as appraisals,49 in terms of
structure and content or the preparer’s
training and credentialing requirements,
written estimates of market value
provide sufficient consumer protections
for transactions under $400,000.50
All commenters who discussed the
extent to which useful and accurate
property valuation information is
readily available to borrowers through
public sources acknowledged the broad
availability of consumer-facing property
valuation information through public
sources, including websites such as
Zillow, Trulia, and Realtor.com and the
Multiple Listing Service. However, one
appraisal organization commented that
many of these consumer-facing tools are
not necessarily useful to consumers or
lenders in determining property
values—rather they are designed for
marketing purposes. Some individual
credit union commenters specifically
referenced the usefulness of publicly
available tax assessed valuations
(known as TAVs) in helping them
determine property valuations and in
making relatively conservative lending
decisions. The Board finds that,
although all sources of publicly
available valuation information might
not always accurately reflect the market
value of a particular property,
consumers can use a variety of available
information to learn more about the
availability of and the potential range of
values for properties in a particular area
or market.
4. Time and cost of appraisals.
The Board asked for comments on
whether the proposed rule would lead
to cost savings for FICUs and/or
borrowers as well as reduce the time to
close loans. Responses to this point
were mixed. Many commenters who
supported the proposed threshold noted
that it would increase access to credit,
reduce the regulatory burden on credit
unions, and lead to cost savings for
members. Some commenters who
opposed the rule mentioned the cost
savings do not outweigh consumer
considerations and those commenters
disputed the materiality of time savings.
Lenders generally require consumers
to pay for costs associated with
obtaining appraisals, which can include
fees paid to appraisers and appraisal
firms and fees charged by the Appraisal
Management Companies (AMC) that
lenders often use to administer the
appraisal process. A few credit union
commenters provided time and cost
49 USPAP does not prescribe a model form, but
institutions often use template forms, such as
Fannie Mae Form 1004/Freddie Mac Form 70,
known as the Uniform Residential Appraisal
Report.
50 12 U.S.C. 3341(b).
VerDate Sep<11>2014
17:05 Apr 29, 2020
Jkt 250001
estimates of appraisals as evidence of
borrowers’ potential savings. These
commenters stated that appraisals
generally cost between $500 and $1,000
and take up to four weeks to receive.
One credit union commenter stated that
in its rural area, appraisals could take
up to eight weeks and range from $600
to $1,100.
In contrast, one commenter opposed
to the proposed rule stated that the
average cost of an appraisal is $446 with
an average turnaround time of 9 days, or
18 days if a lender orders an appraisal
through an AMC. Another commenter
stated that the average price of an
appraisal is $331 with an average
turnaround time of 5 days. Some
appraiser organizations commented
that, regarding time and cost savings,
the fee structure between appraisers and
AMCs is not transparent to the
consumer. They also noted that it is
unfair to blame appraisers for the time
that elapses before an appraisal is even
requested, and, to the extent that
appraisers affect timeliness of closing,
this is often because of issues with the
property that are not discovered until
the inspection phase. One commenter
noted that complaints about appraiser
access in recent years have more to do
with increased loan demand due to
falling interest rates rather than
appraiser supply issues. Some
commenters noted that accurate data is
not available on the cost and turnaround
time for written estimates of market
value, so it is not clear how much
consumers and credit unions save.
The Board considered the comments
relating to the amount of time it takes
credit unions to receive a completed
appraisal and the appraisal’s related
cost. The time it takes to complete a
written estimate of market value may
often be shorter than the time it takes to
receive a Title XI appraisal, particularly
in rural areas. In addition, written
estimates of market value generally cost
less than Title XI appraisals for the same
properties. The Board believes, based on
information available on the cost of
written estimates of market value and
appraisals, that there are likely to be
time and cost savings for FICUs and
borrowers where a written estimate of
market value, as opposed to an
appraisal, is obtained.
A few commenters supporting the
proposed threshold increase specifically
discussed the impact of the proposal on
FICUs serving rural communities. These
commenters stated that it is difficult to
get an appraisal for a reasonable cost
and in a reasonable time in rural areas.
One commenter noted that it serves a
community in which there is no
appraiser within 100 miles, and thus
PO 00000
Frm 00023
Fmt 4700
Sfmt 4700
23915
appraisers will often wait for enough
transactions to justify the travel
necessary to conduct a physical
inspection of the property. Feedback
from commenters is consistent with the
Board’s experience as appraisals for
properties in high cost of living areas
and rural areas tend to be more
expensive than in low cost of living and
urban areas. The Department of
Veterans Affairs’ (DVA) appraiser fee
schedule by state ranges from a low of
$425 in South Carolina to a high of $875
in Montana. In addition, based on DVA
schedules and feedback from
commenters, turnaround time and costs
for appraisals is higher for rural areas
than urban areas. The Board estimates
the $400,000 threshold would provide
burden relief in terms of transaction
volume and dollar amount to rural areas
at a proportional rate to the burden
reduction overall. However, the Board
estimates the proportional amount of
relief in terms of time and cost savings
to credit unions and borrowers would
exceed the burden relief in urban areas.
5. Other comments.
Hearing request. One group of state
appraiser organizations submitted a
copy of the comment letter that it sent
to the federal banking agencies in
response to their proposed rule to
increase the residential real estate
appraisal threshold. The letter to the
federal banking agencies included a
request for a hearing to more fully
explore these issues. Separately, an
appraisal organization strongly
suggested that the Board conduct
hearings to solicit more views. The
Board declines to hold a hearing on this
rulemaking. The Board does not believe
that a hearing would elicit information
that could not have been submitted
through the notice and comment
process. The Board has thoroughly
considered all comment letters,
including those submitted by these two
organizations.
6. Comments beyond the scope of the
rule.
One commenter noted that many
residential real estate contracts include
appraisal contingency clauses, which
would not be available to consumers
without an appraisal. Another
commenter, however, raised the
possibility of a valuation contingency
clause in future residential contracts.51
51 The CFPB, in its concurrence to the federal
banking agencies’ final residential real estate
appraisal rule, acknowledged the potential benefit
of appraisal contingency clauses in the context of
the few appraisals that come in below the contract
price, but did not find them to be a significant
enough consumer protection to outweigh the
benefit of raising the threshold. Available at https://
E:\FR\FM\30APR1.SGM
Continued
30APR1
23916
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
jbell on DSKJLSW7X2PROD with RULES
An appraisal contingency is an
agreement confirming property
valuation between the seller and the
buyer not the financing institution.
Furthermore, the appraisal contingency
referenced by the commenter is outside
the scope of this rulemaking.
Two commenters requested that the
NCUA add a de minimis threshold to
the requirement that transactions that
are partially insured or guaranteed by a
U.S. government agency or sponsored
agency have written estimates of market
value. The proposed rule did not make
any changes to the provision regarding
transactions partially insured or
guaranteed by a U.S. government agency
or a U.S. government sponsored agency.
Accordingly, the Board declines to make
any changes to this provision in this
final rule.
One commenter requested the agency
clarify the definition of ‘‘complex.’’
Under the NCUA’s current appraisal
regulation, a residential real estate
transaction at or above the $250,000
threshold (not including any amount of
the transaction that is guaranteed or
insured by a U.S. government agency or
government sponsored agency) that is
deemed ‘‘complex,’’ must be
accompanied by an appraisal from a
state-certified appraiser, as opposed to a
state-licensed appraiser who is not
certified. The current regulation also
provides that a FICU may presume that
appraisals of 1-to-4 family residential
properties are not complex unless the
credit union has readily available
information that a given appraisal will
be complex. The commenter requested
further clarity on what is considered
‘‘readily available information.’’ The
proposed rule did not make any changes
to this presumption or to the definition
of ‘‘complex.’’
The Board declines to consider these
suggested changes to the regulation at
this time as they are beyond the scope
of the rule.
C. Final Rule
Based on the above analysis and
consideration of the comments, the
Board determines it is appropriate to
adopt the proposed increase in the
threshold below which appraisals for
residential real estate transactions are
not required from $250,000 to $400,000.
In addition, the Board adopts the
proposed conforming changes regarding
review of appraisals for compliance
with USPAP and the removal of
additional requirements for the
appraisal exemption for certain
transactions in rural areas for the
files.consumerfinance.gov/f/documents/cfpb_firreaconcurrence_2019_08.pdf.
VerDate Sep<11>2014
16:15 Apr 29, 2020
Jkt 250001
reasons stated in the proposed rule. As
discussed in the proposed rule, the
additional requirements associated with
the appraisal exemption for certain
residential real estate transactions will
be unnecessary once the threshold for
all residential appraisals is raised to
$400,000.52 Removing these
requirements from the regulation will
reduce confusion for FICUs but does not
affect the validity of this authority
under the 2018 legislation. Neither
provision substantively alters the rights
or obligations of FICUs or other parties,
which are addressed in the relevant
statutes.
V. Effective Date
All provisions of the rule are effective
upon publication of the final rule in the
Federal Register. The 30-day delayed
effective date required under the
Administrative Procedure Act is waived
pursuant to 5 U.S.C. 553(d)(1) and (3),
which provides an exception to the 30day delayed effective date requirement
when a substantive rule grants or
recognizes an exemption or relieves a
restriction. The amendment to increase
the residential appraisal threshold
exempts additional transactions from
the agency’s appraisal requirement,
which would have the effect of relieving
restrictions, and the final rule
incorporates the existing statutory
requirement that appraisals be subject to
appropriate review for compliance with
USPAP for ease of reference and
removes additional requirements
relating to residential real estate
transactions in rural areas.
VI. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
generally requires that, in connection
with a final rule, an agency prepare a
final regulatory flexibility analysis that
describes the impact of a rule on small
entities. A regulatory flexibility analysis
is not required, however, if the agency
certifies that the rule will not have a
significant economic impact on a
substantial number of small entities
(defined for purposes of the RFA to
include credit unions with assets less
than $100 million) and publishes its
certification and a short, explanatory
statement in the Federal Register
together with the rule.
Data currently available to the NCUA
are not sufficient to estimate how many
small credit unions make residential
real estate loans in amounts that fall
between the current and amended
thresholds. Therefore, the NCUA cannot
52 84
PO 00000
FR at 65709.
Frm 00024
Fmt 4700
Sfmt 4700
estimate how many small entities may
be affected by the increased threshold
and how significant the reduction in
burden may be for such small entities.
The NCUA believes, however, that the
threshold increase will meaningfully
reduce burden for small credit unions.
Accordingly, the NCUA certifies that the
final rule will not have a significant
economic impact on a substantial
number of small credit unions.
B. 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 modifies an existing burden (44
U.S.C. 3507(d)). For purposes of the
PRA, a paperwork burden may take the
form of a reporting, recordkeeping, or
third-party disclosure requirement,
referred to as an information collection.
The NCUA may not conduct or sponsor,
and the respondent is not required to
respond to, an information collection
unless it displays a valid Office of
Management and Budget (OMB) control
number.
This final rule increases the threshold
from $250,000 to $400,000 for a
residential real estate transaction on
which an appraisal is required.
Transaction values of less than $400,000
do not require an appraisal, but a
written estimate of market value. The
information collection requirement of
this part is that the FICU retain a record
of either the appraisal or written
estimate of market value, whichever
applies. Even though the threshold has
increased, the proposal will not result in
a change in burden. This recordkeeping
requirement is cleared under OMB
control number 3133–0125. There are
no new information collection
requirements associated with this final
rule.
C. Executive Order 13132
Executive Order 13132 encourages
independent regulatory agencies to
consider the impact of their actions on
state and local interests. In adherence to
fundamental federalism principles, the
NCUA, an independent regulatory
agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive
order. This rulemaking will not have a
substantial direct effect on the states, on
the connection between the national
government and the states, or on the
distribution of power and
responsibilities among the various
levels of government. The NCUA has
determined that this final rule does not
constitute a policy that has federalism
implications for purposes of the
executive order.
E:\FR\FM\30APR1.SGM
30APR1
Federal Register / Vol. 85, No. 84 / Thursday, April 30, 2020 / Rules and Regulations
D. Assessment of Federal Regulations
and Policies on Families
The NCUA has determined that this
final rule will not affect family wellbeing within the meaning of Section 54
of the Treasury and General
Government Appropriations Act of
1999.
E. Small Business Regulatory
Enforcement Fairness Act
The Small Business Regulatory
Enforcement Fairness Act of 1996
(SBREFA) generally provides for
congressional review of agency rules. A
reporting requirement is triggered in
instances where the NCUA issues a final
rule as defined by section 551 of the
Administrative Procedure Act. An
agency rule, in addition to being subject
to congressional oversight, may also be
subject to a delayed effective date if the
rule is a ‘‘major rule.’’ The NCUA does
not believe this rule is a ‘‘major rule’’
within the meaning of the relevant
sections of SBREFA. As required by
SBREFA, the NCUA has submitted this
final rule to the OMB for it to determine
if the final rule is a ‘‘major rule’’ for
purposes of SBREFA. The NCUA also
will file appropriate reports with
Congress and the Government
Accountability Office so this rule may
be reviewed.
List of Subjects in 12 CFR Part 722
Appraisal, Appraiser, Credit unions,
Mortgages, Reporting and recordkeeping
requirements, Truth in lending.
By the National Credit Union
Administration Board on April 16, 2020.
Gerard Poliquin,
Secretary of the Board.
2. Amend § 722.3 by:
a. Revising paragraphs (b)(2) and
(c)(1); and
■ b. Removing paragraph (f).
The revisions read as follows:
■
■
jbell on DSKJLSW7X2PROD with RULES
[FR Doc. 2020–08433 Filed 4–29–20; 8:45 am]
BILLING CODE 7535–01–P
DEPARTMENT OF THE TREASURY
13 CFR Part 120
Small Business Administration
Business Loan Program Temporary
Changes; Paycheck Protection
Program—Additional Criterion for
Seasonal Employers
U.S. Department of the
Treasury.
ACTION: Interim final rule.
Authority: 12 U.S.C. 1766, 1789, and 3331
et seq. Section 722.3(a) is also issued under
15 U.S.C. 1639h.
§ 722.3 Appraisals and written estimates
of market value requirements for real
estate-related financial transactions.
*
*
*
*
(b) * * *
(2) The transaction is complex,
involves a residential real estate
transaction, and $400,000 or more of the
Jkt 250001
*
*
*
*
(c) Be subject to appropriate review
for compliance with the Uniform
Standards of Professional Appraisal
Practice.
*
*
*
*
*
AGENCY:
1. The authority citation for part 722
continues to read as follows:
■
16:15 Apr 29, 2020
Minimum appraisal standards.
*
RIN 1505–AC67
PART 722—APPRAISALS
VerDate Sep<11>2014
§ 722.4
[Docket Number TREAS–DO–2020–0009]
For the reasons discussed above, the
NCUA Board amends 12 CFR part 722
as follows:
*
transaction value is not insured or
guaranteed by a United States
government agency or United States
government sponsored agency.
(c) * * * (1) An appraisal performed
by a state-certified appraiser or a statelicensed appraiser is required for any
real estate-related financial transaction
not exempt under paragraph (a) of this
section in which the transaction is not
complex, involves a residential real
estate transaction, and $400,000 or more
of the transaction value is not insured
or guaranteed by a United States
government agency or United States
government sponsored agency.
*
*
*
*
*
■ 3. Amend § 722.4 by:
■ a. Redesignating paragraphs (c), (d),
and (e) as (d), (e), and (f), respectively;
■ b. Adding a new paragraph (c); and
■ c. In newly designated paragraph (e)
removing the text ‘‘§ 722.2(f)’’ and
adding in its place the text ‘‘§ 722.2’’.
The addition reads as follows:
SUMMARY: The Coronavirus Aid, Relief,
and Economic Security Act (the CARES
Act or the Act) authorizes the U.S.
Department of the Treasury (Treasury)
to issue regulations for the Paycheck
Protection Program (PPP) administered
by the Small Business Administration
(SBA), including regulations that allow
additional lenders to originate loans and
establish terms and conditions. In this
interim final rule, Treasury authorizes
all lenders eligible to originate loans
under the PPP to use an alternative
criterion for calculating the maximum
loan amount for PPP loans issued to
seasonal employers.
PO 00000
Frm 00025
Fmt 4700
Sfmt 4700
23917
DATES:
Effective Date: This rule is effective
April 30, 2020.
Comment Date: Comments must be
received on or before June 1, 2020.
ADDRESSES: You may submit comments,
identified by number TREAS–DO–
2020–0009 through the Federal
eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
Treasury will post all comments on
www.regulations.gov. If you wish to
submit confidential business
information (CBI) as defined in the User
Notice at www.regulations.gov, please
highlight the information that you
consider to be CBI and explain why you
believe Treasury should hold this
information as confidential. Treasury
will review the information and make
the final determination whether it will
publish the information.
FOR FURTHER INFORMATION CONTACT:
Jonathan Greenstein, Office of Domestic
Finance, 202–622–1408;
Jonathan.Greenstein@Treasury.gov.
SUPPLEMENTARY INFORMATION:
I. Background Information
On March 27, 2020, the President
signed the CARES Act, Public Law 116–
136, to provide emergency assistance
and health care response for
individuals, families, and businesses
affected by the coronavirus pandemic.
Section 1102 of the Act establishes the
PPP as a temporary addition to the
SBA’s 7(a) loan program. The PPP is
designed to assist small businesses
nationwide adversely impacted by the
coronavirus pandemic. SBA has
published information about the PPP in
interim final rules available at 85 FR
20811 (April 15, 2020); 85 FR 20817
(April 15, 2020); 85 FR 21747 (April 20,
2020); and 85 FR 23450 (April 28, 2020).
Section 1109(b) of the Act authorizes
Treasury to establish criteria for insured
depository institutions, insured credit
unions, institutions of the Farm Credit
System chartered under the Farm Credit
Act of 1971 (12 U.S.C. 2001 et seq.), and
other lenders to participate in the PPP.
The SBA is required to administer the
program that Treasury establishes under
section 1109 of the Act, with guidance
from Treasury.
The Act authorizes Treasury to issue
regulations and guidance to implement
section 1109, including regulations that
establish ‘‘terms and conditions’’ for
PPP loans. See Section 1109(d)(2). The
terms and conditions established by
Treasury under section 1109 are not
required to be identical to those set forth
in section 1102. However, the Act
requires that terms and conditions that
E:\FR\FM\30APR1.SGM
30APR1
]]>Agencies
[Federal Register Volume 85, Number 84 (Thursday, April 30, 2020)]
[Rules and Regulations]
[Pages 23909-23917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08433]
=======================================================================
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 722
RIN 3133-AE98
Real Estate Appraisals
AGENCY: National Credit Union Administration (NCUA).
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The NCUA Board (Board) is amending the agency's regulation
requiring appraisals for certain residential real-estate related
transactions. The final rule increases the threshold level below which
appraisals are not required for residential real-estate related
transactions from $250,000 to $400,000. Instead of an appraisal, and
consistent with the requirement for other transactions that fall below
applicable appraisal thresholds, federally insured credit unions
(FICUs) are required to obtain written estimates of market value of the
real estate collateral consistent with safe and sound practices. For
ease of reference, this final rule explicitly incorporates the existing
statutory requirement that appraisals be subject to appropriate review
for compliance with the Uniform Standards of Professional Appraisal
Practice (USPAP). This final rule is consistent with the final rule,
effective October 9, 2019, issued by the Board of Governors of the
Federal Reserve System, the Federal Deposit Insurance Corporation, and
the Office of the Comptroller of the Currency (federal banking
agencies) that increases the threshold level at or below which
appraisals are not required for residential real estate transactions
from $250,000 to $400,000.
DATES: The final rule is effective April 30, 2020.
FOR FURTHER INFORMATION CONTACT:
Technical information:
Kenneth Acu[ntilde]a, Senior Credit Specialist, (703) 518-6613, Office
of Examination and Insurance
Uduak Essien, Director--Credit Markets, (703) 518-6399, Office of
Examination and Insurance
Legal information:
Gira Bose, Staff Attorney, (703) 518-6562, Office of General
Counsel National Credit Union Administration, 1775 Duke Street,
Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Introduction
II. Final Rule
III. Legal Authority
IV. Discussion of Public Comments Received on the Proposed Rule
V. Effective Date
VI. Regulatory Procedures
I. Introduction
A. Background
In November 2019, the Board invited comment on a notice of proposed
rulemaking \1\ (proposal or proposed rule) that would amend the NCUA's
appraisal regulation promulgated pursuant to Title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (Title
XI).\2\ Specifically, the proposed rule would increase the monetary
threshold below which FICUs would not be required to obtain appraisals
in connection with residential real estate transactions from $250,000
to $400,000. Instead of an appraisal, and consistent with the
requirement for other transactions that fall below applicable appraisal
thresholds, the proposal would require FICUs to obtain written
estimates of market value of the real estate collateral consistent with
safe and sound practices. In addition, the proposed rule would amend
the agency's appraisal regulation to explicitly incorporate the
existing statutory requirement that appraisals be subject to
appropriate review for compliance with the Uniform Standards of
Professional Appraisal Practice (USPAP), as required by section 1473(e)
of the Dodd Frank Wall Street Reform and Consumer Protection Act (the
Dodd Frank Act).\3\
---------------------------------------------------------------------------
\1\ 84 FR 65707 (Nov. 29, 2019).
\2\ 12 U.S.C. 3331 et seq.
\3\ Public Law 111-203, 124 Stat. 1376, codified at 12 U.S.C.
3339(3).
---------------------------------------------------------------------------
B. Summary of Proposed Rule
As noted in the proposed rule, the price of residential real estate
has increased over time, but the residential appraisal threshold has
not been adjusted since 2001.\4\ Further, the Board estimated under the
proposal, the percentage of transactions exempted from the appraisal
requirement would
[[Page 23910]]
be restored to the level it was following the last threshold increase
in 2001. The proposed residential appraisal threshold level of $400,000
would exempt a similar number of transactions and dollar volume of
transactions as did the current threshold of $250,000 when it was set
in 2001 thereby restoring the level of exempted transactions. The Board
stated it believes increasing the appraisal threshold for residential
real estate transactions will provide meaningful burden reduction for
FICUs, while maintaining federal public policy interests in real-estate
related transactions and the safety and soundness of FICUs.
---------------------------------------------------------------------------
\4\ 66 FR 58656 (Nov. 23, 2001). The rule was effective March 1,
2002.
---------------------------------------------------------------------------
Based on the NCUA's data analysis and supervisory experience, as
set forth in the proposed rule, the increase in the appraisal threshold
in the 2001 residential appraisal final rule did not result in a
material increase in risk to safety and soundness. The Board estimated
that the proposed rule would exempt from appraisal requirements
approximately 46,000 residential real estate transactions, worth a
combined $14 billion, equating to approximately 0.9 percent of FICU
assets.\5\ The Board estimated that approximately 77 percent of
transactions, for a total of 55 percent of the dollar amount of
transactions, are currently not subject to the NCUA's residential
appraisal requirement. This is estimated to increase to 94 percent of
transactions and 83 percent of the dollar amount with the increased
threshold. In the proposed rule, the Board noted that in 2001, an
estimated 95 percent of residential transactions and 80 percent of the
dollar amount of residential transactions were exempt when the current
$250,000 threshold was set.\6\ The NCUA's current appraisal regulation
requires FICUs to obtain written estimates of market value for all
real-estate related transactions that do not require an appraisal
pursuant to Title XI (Title XI appraisal), unless explicitly exempted
from written estimates of market value requirements.\7\ As an important
prudential safeguard, written estimates of market value must be
prepared by qualified, experienced, and independent individuals.\8\ In
addition, through the Interagency Appraisal and Evaluation Guidelines
(Interagency Guidelines),\9\ the NCUA has provided guidance to FICUs on
its expectations regarding when and how written estimates of market
value should be used.\10\
---------------------------------------------------------------------------
\5\ Supra note 1, at 65712. Assets as of December 2019 Call
Report.
\6\ Supra note 4, at 65711.
\7\ See 12 CFR 722.3(d).
\8\ Id.
\9\ Interagency Appraisal and Evaluations Guidelines at 75 FR
77458 (Dec. 10, 2010).
\10\ Interagency Guidelines at 77460.
---------------------------------------------------------------------------
II. Final Rule
This final rule follows publication of the November 29, 2019,
proposed rule. After carefully considering the comments and conducting
further analysis, the Board is adopting the final rule as proposed, and
is increasing the residential real estate appraisal threshold from
$250,000 to $400,000. As discussed in the proposal, and further
detailed below in response to comments, increasing the residential real
estate appraisal threshold will provide meaningful regulatory relief
for FICUs while maintaining their safety and soundness and providing
reasonable protection for consumers. This final rule also adopts
without change the proposed conforming amendment to the NCUA's
appraisal regulations explicitly incorporating the Dodd Frank Act
amendment to Title XI that appraisals be subject to appropriate review
for compliance with USPAP,\11\ as well as a conforming amendment to
remove additional requirements for the appraisal exemption for certain
residential real estate transactions in rural areas.
---------------------------------------------------------------------------
\11\ Public Law 111-203, 124 Stat. 1376, codified at 12 U.S.C.
3339(3).
---------------------------------------------------------------------------
III. Legal Authority
Title XI directs each federal financial institutions regulatory
agency \12\ to require regulated institutions to obtain appraisals
meeting minimum standards for certain real estate-related transactions.
The purpose of Title XI is to protect federal financial and public
policy interests \13\ in real estate-related transactions by requiring
that real estate appraisals used in connection with Title XI appraisals
be performed in accordance with uniform standards, by individuals whose
competency has been demonstrated, and whose professional conduct will
be subject to effective supervision.\14\
---------------------------------------------------------------------------
\12\ ``Federal financial institutions regulatory agencies'' mean
the Board of Governors of the Federal Reserve System; the Federal
Deposit Insurance Corporation (FDIC); the Office of the Comptroller
of the Currency (OCC); the NCUA, and formerly the Office of Thrift
Supervision (OTS). 12 U.S.C. 3350(6).
\13\ These interests include those stemming from the federal
government's role as regulator and deposit insurer of financial
institutions that engage in real estate lending and investment,
guarantor or lender on mortgage loans, and as a direct party in real
estate-related financial transactions. These federal financial and
public policy interests have been described in predecessor
legislation and accompanying congressional reports. See Real Estate
Appraisal Reform Act of 1988, H.R. Rep. No. 100-10001, pt. 1, at 19
(1988); 133 Cong. Rec. 33047-33048 (1987).
\14\ 12 U.S.C. 1331.
---------------------------------------------------------------------------
Title XI defines a ``federally related transaction'' as a real
estate-related financial transaction that is regulated or engaged in by
a federal financial institutions regulatory agency and requires the
services of an appraiser.\15\ The NCUA has authority to determine those
real estate-related financial transactions that do not require the
services of a state-certified or state-licensed appraiser and are
therefore exempt from the Title XI appraisal requirements. Such exempt
real estate-related financial transactions are not federally related
transactions under the statutory or regulatory definitions because they
are not required to have Title XI appraisals.\16\
---------------------------------------------------------------------------
\15\ 12 U.S.C. 3350(4) (defining ``federally related
transaction'').
\16\ See 59 FR 29482 (June 7, 1994).
---------------------------------------------------------------------------
The NCUA has exercised this authority by exempting several
categories of real estate-related financial transactions from the Title
XI appraisal requirements, including transactions at or below certain
designated dollar thresholds.\17\ The NCUA has determined that these
categories of transactions do not require appraisals by state-certified
or state-licensed appraisers in order to protect federal financial and
public policy interests or to satisfy principles of safety and
soundness.
---------------------------------------------------------------------------
\17\ See 12 CFR 722.3(a).
---------------------------------------------------------------------------
Title XI expressly authorizes the NCUA to establish dollar
threshold levels at or below which Title XI appraisals are not required
if: (1) The NCUA determines, in writing, that the threshold does not
represent a threat to the safety and soundness of financial
institutions; and (2) the NCUA receives concurrence from the Consumer
Financial Protection Bureau (CFPB) that such threshold level provides
reasonable protection for consumers who purchase ``1-4 unit single-
family residences.'' \18\ As noted above, transactions below the
threshold level are exempt from the Title XI appraisal requirements and
thus are not deemed ``federally related transactions.''
---------------------------------------------------------------------------
\18\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------
IV. Discussion of Public Comments Received on the Proposed Rule
A. The Public Comments, Generally
The NCUA received 27 comments following publication of the November
29, 2019 proposed rule. Of the 27 comments received, 22 were in support
of and five were in opposition to the proposed increase to the
appraisal
[[Page 23911]]
threshold for residential real estate transactions.\19\
---------------------------------------------------------------------------
\19\ One commenter opposed to the rule did not provide a comment
letter in response to the Board's proposed rule, but provided
instead their response to the federal banking agencies' December
2018 proposal to increase the residential real estate threshold for
their regulated financial institutions. Where relevant, their
comments have been discussed in this preamble to the final rule.
---------------------------------------------------------------------------
The five comments received in opposition to the proposed rule came
from appraisal companies, appraisal trade organizations, and one
individual. They expressed concern that the proposal would reduce the
safety and soundness of credit unions and would not provide adequate
consumer protections.
In contrast, comments received from credit unions, credit union
trade associations, state credit union leagues, state credit union
regulators and others supported the proposal, stating that it would
reduce regulatory burden, reduce member costs, increase access to
credit, and would provide reasonable protection for consumers.
B. Discussion of Specific Comments on the Proposed Rule
The Board requested comment on all aspects of the proposed rule and
posed a number of specific questions related to the consumer protection
aspect of appraisals and the analysis for the proposed rule and written
estimates of market value. All comments received were in response to
the proposed increase in the monetary threshold for residential real
estate transactions. No comments were received regarding the proposed
conforming amendment to the NCUA's appraisal regulations explicitly
incorporating the Dodd Frank Act amendment to Title XI that appraisals
be subject to appropriate review for compliance with USPAP. Commenters'
rationale for opposing or supporting the $400,000 threshold are
discussed below.
1. Threshold Level.
a. ``At or below'' Standard. The final rule adopted by the federal
banking agencies sets a threshold level at or below $400,000. One
credit union trade association encouraged the NCUA to adopt the same
``at or below'' language to maintain consistency with the federal
banking agencies. Upon consideration, the Board has determined to keep
the rule as proposed in order to be consistent with the NCUA's
appraisal threshold for non-residential real estate transactions.\20\
---------------------------------------------------------------------------
\20\ 12 CFR 722.3(b)(1) (requiring appraisals for non-
residential transactions at or above $1,000,000, which thus exempts
such transactions below $1,000,000).
---------------------------------------------------------------------------
b. Accounting for regional variations. Three commenters, two from
the perspective of communities with house prices significantly lower
than the proposed increased threshold and one from the perspective of a
community with sales prices that largely exceed it, suggested the Board
should consider an approach that takes into account regional home price
variations rather than adopt a single figure nationwide. The Board
believes that adopting such a regional approach would only add
unnecessary regulatory burden and complexity by introducing numerous
threshold levels across the country. In addition, FICUs and borrowers
retain the option to obtain appraisals on exempt transactions, and some
credit union commenters indicated that they would continue using
appraisals for transactions below the threshold.
c. General support and concerns. Commenters supporting the proposed
increase generally stated that written estimates of market value are
adequate substitutes for appraisals for transactions below the proposed
$400,000 threshold. Nevertheless, one credit union league stated that
many of its members would continue to use appraisals even on loans
eligible for written estimates of market value. A credit union trade
association noted favorably that the rule is flexible enough that
consumers and FICUs would still have the option of ordering an
appraisal. Two state appraiser coalitions expressed concern that
raising the threshold would exempt most transactions in their service
area and lead to almost all real estate-related transactions being
exempt from appraisal requirements in some regions or metropolitan
statistical areas.
2. Safety and soundness. The majority of commenters opposed to the
$400,000 threshold expressed concern that the proposal increases risk
for residential real estate transactions and would negatively affect
safety and soundness. These commenters generally posited that
appraisals offer an important safety and soundness tool because
appraisals provide an unbiased opinion on the value of collateral, and
without this valuation, credit unions are exposed to increased risk.
One commenter stated that by focusing on the total dollar volume of
loans originated, rather than the total volume of transactional
activity, the proposal interprets safety and soundness as only a
monetary safeguard and not as a safeguard on the volume of lending
activity.
In contrast, commenters supportive of the proposed rule did not
foresee an increased risk to FICUs or individual transactions. Most
individual credit union commenters noted that their policies and
procedures are designed to mitigate risk, and in those instances where
they currently use written estimates of market value, such estimates
are performed by individuals who are independent from the loan process
and are qualified and experienced in home valuation. A few commenters
noted that while they support the proposed threshold increase, they
would continue to prioritize sound underwriting practices, guide their
decisions by the best interests of their members, and use business
judgment in deciding when, and if, appraisals are necessary for
transactions below the threshold. One commenter stated that the
historically sound valuation practices of the credit union industry
warrant the increased appraisal threshold. Several commenters expressly
agreed with the safety and soundness considerations discussed in the
proposed rule. Many commenters stated that the increased threshold
would eliminate the competitive disadvantage that FICUs now face since
the federal banking agencies raised the residential real estate
transaction threshold for banks.
After taking into account the comments discussed above, the Board
maintains that the threshold level of $400,000 for residential real
estate transactions does not pose a threat to the safety and soundness
of FICUs. First, the $400,000 threshold would exempt a similar number
of transactions and dollar volume of transactions as did the current
threshold of $250,000 when it was set in 2001.\21\ Raising the
threshold in 2001 did not result in a material increase in risk to
safety and soundness. Second, the new threshold would not introduce
significant additional risk to the credit union system. Based on 2018
Home Mortgage Disclosure Act (HMDA) data, the new
[[Page 23912]]
threshold would only incrementally exempt real estate-secured loans
granted each year, worth approximately $14 billion, which equates to
approximately 0.9 percent of FICU assets as of the December 31, 2019
Statement of Financial Condition (referred to as the Call Report).
Third, FICUs' residential real estate-secured loans have performed well
with relatively low delinquencies and net charge-off rates in an
analysis of performance from 1994 to 2018. This period, which included
two major recessionary periods, shows the prior threshold changes in
1995 and 2001 did not have a negative impact on loan performance.\22\
Furthermore, based on supervisory experience and analysis of material
loss reviews conducted by the NCUA's Inspector General, appraisals have
not been a substantial factor in any material FICU failures. The Board
has also taken into consideration that $400,000 is a reasonable limit
that is consistent with the general appreciation in home prices since
the last threshold increase.\23\ Finally, the NCUA's appraisal
regulations require FICUs to obtain written estimates of market value
for all real estate-related financial transactions that do not require
a Title XI appraisal, unless the real estate-related financial
transaction is explicitly exempt from written estimates of market value
requirements.\24\
---------------------------------------------------------------------------
\21\ The NCUA conducted analyses using 2018 data reported under
the Home Mortgage Disclosure Act (HMDA), which requires a variety of
financial institutions to maintain, report, and publicly disclose
loan-level information about residential mortgage originations.
Information reported under HMDA includes various data points
relevant to the NCUA's analysis, including loan size, loan type,
property type, property location, and secondary market purchaser.
While the HMDA data has limitations, including that certain low-
volume originators and originators located in rural areas are not
required to report, the Board believes it provides a representative
sample of the universe of mortgage originations, including
transactions subject to the NCUA's appraisal requirement. The NCUA
used 2018 HMDA data to estimate the effect of the residential
threshold increase. The NCUA used HMDA data to determine the number
of transactions and dollar volume of transactions that would be
affected relative to: (1) Total FICU originations reported in the
HMDA data; and (2) transactions originated by NCUA-insured
institutions that were not sold to a government-sponsored enterprise
(GSE) or otherwise insured or guaranteed by a U.S. government agency
(regulated transactions).
\22\ Net charge-offs are charge-offs minus recoveries. Net
charge-offs represent losses to financial institutions.
\23\ Based on analysis of residential home prices using the S&P
Case-Shiller Home Price Index, FHFA Index, as well as the Bureau of
Labor Statistics Consumer Price Index.
\24\ See 12 CFR 722.3(d).
---------------------------------------------------------------------------
Written estimates of market value performed in accordance with the
NCUA's regulations provide FICUs with suitable alternatives to
appraisals.\25\ In the agency's supervisory experience, written
estimates of market value have provided sufficient information to
enable FICUs to make prudent lending decisions.
---------------------------------------------------------------------------
\25\ 12 CFR 722.3(d)(2).
---------------------------------------------------------------------------
For all these reasons, the Board concludes that past threshold
increases did not adversely impact safety and soundness, and the
current increase of the residential appraisal threshold to $400,000
does not represent a threat to the safety and soundness of FICUs.\26\
---------------------------------------------------------------------------
\26\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------
3. Consumer protection.
a. Consumer protections, in general. All five commenters that
opposed the increased threshold raised consumer protection concerns.
One stated that the proposal contradicts the position taken by the
federal banking agencies and the NCUA in their 2017 Economic Growth and
Regulatory Paperwork Reduction Act \27\ (EGRPRA) report to Congress, at
which time the federal financial regulators opted not to change the
threshold based on considerations of safety and soundness and consumer
protection. The same commenter stated that the proposed rule ignores
congressional intent as reflected in the Economic Growth, Regulatory
Relief, and Consumer Protection Act,\28\ (EGRRCPA) in which Congress
chose only to raise the threshold for rural areas on a case-by-case
basis for individual transactions in which the lender was unable to
secure the services of an appraiser. One commenter noted that lower-
income and first-time homebuyers would be particularly impacted by not
having an unbiased party value the purchase price.
---------------------------------------------------------------------------
\27\ 12 U.S.C. 3311.
\28\ Public Law 115-174, Title I, Section 103, codified at 12
U.S.C. 3356 (effective May 24, 2018).
---------------------------------------------------------------------------
In proposing the increase in the appraisal threshold, the Board
stated that while appraisals can provide protection to consumers by
facilitating the informed use of credit and helping to ensure that the
estimated value of the property supports the loan amount, written
estimates of market value have also provided these benefits for FICUs
and borrowers for transactions below the current $250,000 threshold.
FICUs have used written estimates of market value for transactions
below the applicable appraisal thresholds since the issuance of the
first rule implementing Title XI.
With this final rule, the percentage of transactions exempted from
the appraisal requirement would be restored to the same level following
the last threshold increase in 2001. As an additional safeguard, under
Title XI, the NCUA must receive CFPB concurrence that the residential
appraisal threshold level provides reasonable protection for consumers
who purchase ``1-4 unit single-family residences.'' \29\ By letter
dated April 8, 2020, the CFPB Director provided this concurrence.
---------------------------------------------------------------------------
\29\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------
The NCUA recognizes that it decided against proposing a residential
appraisal threshold increase during the EGRPRA process due to safety
and soundness and consumer protection concerns. The NCUA has
reconsidered this decision based on comments received to date from
FICUs and state credit union regulators, and in light of the recent
action by the federal banking agencies to increase the residential real
estate appraisal threshold for banks. The Board believes that consumer
protection and safety and soundness concerns are addressed and
supported by the rationale as put forth in the proposed rule and in
this preamble to the final rule.
The NCUA also recognizes that Congress recently amended Title XI to
provide a narrow, self-effectuating appraisal exemption for rural
transactions meeting certain requirements. However, the Board also
observes that Congress did not amend the NCUA's long-standing authority
in Title XI to establish a threshold level at or below which a
certified or licensed appraiser is not required to perform an appraisal
in connection with federally related transactions. Through the EGRRCPA
amendment, Congress mandated that rural transactions meeting specific
statutory criteria be exempted from the appraisal regulations; however,
there is no indication that Congress intended to restrict the NCUA's
authority to provide additional exemptions pursuant to its existing
authority. Notably, unlike the analysis conducted pursuant to this
rulemaking, the EGRRCPA amendment did not require a safety and
soundness determination or CFPB concurrence.\30\
---------------------------------------------------------------------------
\30\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------
With regard to the comment that an appraiser is the only unbiased
party to a residential real estate transaction, this is not reflective
of the agency's supervisory experience or regulatory expectations. As
is the case currently for transactions under the threshold exemptions,
written estimates of market value generally must be performed by
individuals who are independent of the loan production and collection
processes, with no direct, indirect, or prospective interest, financial
or otherwise, in the property or the transaction.\31\ Written estimates
of market value must also be conducted by individuals qualified and
experienced to perform such estimates for the type and amount of credit
being considered.\32\ Furthermore, the Valuation Independence Rule,
which implements the Dodd Frank Act independence provisions, requires a
valuation to be based on the independent judgment of the person
preparing the valuation. The use of coercion, extortion, inducement,
bribery, or intimidation of, compensation or instruction to, or
collusion with a person that either prepares valuations or perform
valuation management functions is prohibited.\33\
---------------------------------------------------------------------------
\31\ 12 CFR 722.3(d)(2).
\32\ Id.
\33\ 12 CFR 226.42(c).
---------------------------------------------------------------------------
[[Page 23913]]
The Valuation Independence Rule applies to both appraisals and
written estimates of market value. During the supervisory review of a
FICU's real estate lending activities, the NCUA's examiners assess the
adequacy of risk management practices, including the independence of
the collateral valuation function.
b. Specific requests for consumer protection comments. In addition
to requesting comment on all aspects of the rule, the Board asked
particularly about specific aspects of consumer protection raised by
the proposal. The Board asked commenters how often FICUs use internal
staff to prepare written estimates of market value and what valuation
information, if any, would be lost if more written estimates of market
value were performed rather than appraisals. The Board also requested
comment on the extent to which appraisals and written estimates of
market value provide benefits or protections for borrowers that are
purchasing 1-to-4 family residential property and the nature and
magnitude of the differences, if any, in consumer protection. The Board
was also interested in knowing how well consumers have understood
written estimates of market value and whether there are any concerns in
this area that the Board should take into account. Finally, the Board
asked for input on the extent to which useful and accurate property
valuation information is readily available to borrowers through public
sources.
Several credit union commenters stated that all of their written
estimates of market value are performed by individuals who are
independent of the loan or production process and have the necessary
qualifications and experience. One credit union commenter stated
specifically that it does not use internal staff to prepare written
estimates of market value, as did one credit union trade association
based on a survey of its members. In terms of the valuation information
that would be lost if more written estimates of market value were
performed rather than appraisals, two commenters, one supportive of the
rule and one opposed, noted that the physical inspection of a property
is the primary benefit of an appraisal to consumers. One commenter
stated that appraisers conduct rigorous analysis of property features,
such as number of bedrooms and proximity to open space, which may have
an impact on a property's future marketability. On the other hand, one
commenter noted that buyers conduct their own visual inspections and
professional home inspections are a typical part of most transactions.
One credit union association, while supportive of the rule, stated that
its members anticipated the loss of valuable information, such as the
composition of a property's interior and data on comparable properties,
with the use of written estimates of market value instead of
appraisals. This commenter stated that many of its credit union members
would continue using appraisals on properties for which written
estimates of market value would be allowed.
In response to the comments concerning on-site inspections of real
estate, the Board notes that USPAP does not require an on-site
inspection of the subject property.\34\ However, USPAP states that
inspections are often conducted and that some appraisers use third
parties to conduct inspections.\35\ Property valuations, whether
appraisals or written estimates of market value, should contain
sufficient information and analysis to support the FICU's decision to
engage in a particular transaction, including information relating to
the actual physical condition and characteristics of the property. The
appraiser's physical inspection of a property can provide additional
information on the features of the property to the buyer, however, the
primary purpose of the appraisal is to value the collateral behind the
loan. As USPAP states, ``the appraiser's inspection commonly is limited
to those things readily observable without the use of special testing
or equipment.'' \36\ Furthermore, ``an inspection conducted by an
appraiser is usually not the equivalent of an inspection by an
inspection professional (e.g. a structural engineer, [or] home
inspector).'' \37\
---------------------------------------------------------------------------
\34\ 2020-21 USPAP, Advisory Opinion 2 at 69.
\35\ Id.
\36\ Id.
\37\ Id.
---------------------------------------------------------------------------
While there is no requirement for a physical inspection with either
an appraisal or a written estimate of market value, the Interagency
Guidelines state that safe and sound written estimates of market value
should be supported by a physical inspection of the property or any
alternative method to confirm the property's condition, depending on
transaction risks.\38\ In the event a borrower requires further
information about the physical condition of a property, the borrower
always retains the option of engaging a licensed property or building
inspector.
---------------------------------------------------------------------------
\38\ Interagency Guidelines at 77461. In addition, the Dodd
Frank Act requires each creditor to furnish to an applicant a copy
of any and all written appraisals and valuations developed in
connection with the applicant's application for a loan that is
secured or would have been secured by a first lien on a dwelling
promptly upon completion, but in no case later than 3 days prior to
the closing of the loan, whether the creditor grants or denies the
applicant's request for credit or the application is incomplete or
withdrawn. 15 U.S.C. 1691.
---------------------------------------------------------------------------
One appraisal organization stated that the proposal would lead more
consumers to lose out on the benefits of an appraisal that has been
conducted in accordance with the USPAP. This commenter pointed out that
there are other benefits reflected in an appraisal as a result of the
appraiser acting in an ethical manner informed by the education,
competency, qualifications and training that are required of USPAP
compliant appraisers.
One commenter noted that lenders are increasingly willing to rely
on automated valuation models (AVM) for which the federal financial
regulators have not yet promulgated regulations despite the Dodd Frank
Act requirement to do so. As a result, the commenter posits that the
AVM represents a ``black box'' approach that may not be fully
understood by lenders or comprehensible to prospective homeowners.
While USPAP itself does not apply to written estimates of market
value, the Board believes that the regulatory framework requiring
independence, qualifications, and experience, combined with the
agency's longstanding supervisory experience with written estimates of
market value, provides sufficient basis for raising the residential
real estate appraisal threshold while maintaining reasonable consumer
protection. In fact, the NCUA's supervisory experience shows that many
FICUs still use appraisals for situations when only a written estimate
of market value was required. These reasons include institutional
preference, underwriting to secondary market standards for flexibility,
ease of valuation policy implementation and, as the Interagency
Guidelines recommend, for transactions with elevated risk.\39\ As
additional independent analysis, the NCUA reviewed the current
residential real estate underwriting practices of over 120 FICUs \40\
to confirm whether FICUs will continue to obtain appraisals for
transactions under the threshold. The review found that 60 percent of
these FICUs obtained appraisals in a majority of their residential real
estate transactions below the current threshold of $250,000. Similar
reasons as listed
[[Page 23914]]
above were cited for obtaining appraisals when not required.
---------------------------------------------------------------------------
\39\ Interagency Guidelines, Appendix A.
\40\ The NCUA reviewed a sample of open examinations across all
of its regional offices for a defined, limited period to gather
feedback on typical FICU practices for real estate appraisals under
the $250,000 threshold.
---------------------------------------------------------------------------
Moreover, although limited in scope, the higher priced mortgage
loan rule (HPML rule), requires lenders for certain HPMLs secured by a
consumer's principal dwelling to obtain an appraisal--and in some
cases, two appraisals--that include an interior property visit, and
provide free copies to the consumer.\41\ The HPML Rule applies to
certain higher-risk transactions. Thus, for a select group of loans,
the HPML Rule requires that the information in an appraisal will be
available for some first time or low-income borrowers mentioned by some
commenters as being most affected by the threshold increase.
---------------------------------------------------------------------------
\41\ 15 U.S.C. 1639h.
---------------------------------------------------------------------------
With regard to the increasing use of AVMs in the valuation
industry, the Board believes that technology and data present an
opportunity to improve and expand upon current property valuation
methods. AVMs cannot be the sole source of collateral valuation, but
may be used in the process of generating an appraisal, written estimate
of market value, or even for credit union portfolio management
purposes. The federal banking agencies and the NCUA have issued a
public notice regarding the AVM rulemaking required by the Dodd Frank
Act.\42\ As long as AVMs are subject to quality controls, such as
testing for accuracy and rigorous analysis of the algorithms that drive
them, there are many advancements that computer-based applications can
make. As these automated models become more sophisticated and
widespread in the market, it is important that they be used to promote
fair lending and greater and more equitable access to credit.\43\
---------------------------------------------------------------------------
\42\ The federal banking agencies, the NCUA, the Federal Housing
Finance Agency and the Consumer Financial Protection Bureau, in
consultation with the Appraisal Subcommittee and the Appraisal
Standards Board of the Appraisal Foundation, are required to
promulgate regulations to enumerate quality control standards for
automated valuation models. Section 1473(q) of the Dodd-Frank Act
requires that automated valuation models used to estimate collateral
value for mortgage lending comply with quality control standards
designed to ensure a high level of confidence in the estimates
produced by automated valuation models; protect against manipulation
of data; seek to avoid conflicts of interest; require random sample
testing and reviews; and account for other factors the agencies deem
appropriate. Public notice available at https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201910&RIN=3133-AE23.
\43\ This is consistent with the NCUA's longstanding regulatory
requirement that federal credit unions may not consider lending
policies which have the effect of discriminating on the basis of
certain characteristics of the borrower, or rely on appraisals that
they know or should know are based upon criteria, as enumerated in
the NCUA's regulations, that have a discriminatory effect. 12 CFR
701.31.
---------------------------------------------------------------------------
On the extent to which appraisals and written estimates of market
value provide benefits or protections to borrowers who are purchasing
1-to-4 family residential property, a commenter stated that appraisals
protect against an inaccurate valuation of a property and requested
that the Board provide another valuation option to protect the
consumer. This commenter did not reference written estimates of market
value, but, as noted above, both appraisals and written estimates of
market value provide a reliable estimate of the market value of a
property and must be performed by qualified individuals. As set forth
in the Interagency Guidelines, written estimates of market value should
contain sufficient information and analysis to support the valuation of
the property.\44\ In addition, lenders must provide borrowers with a
copy of all appraisals and written estimates of market value developed
in connection with an application for a first-lien loan secured by a
dwelling.\45\ Both consumers and lenders may always order an appraisal
in the event of a dispute arising out of a written estimate of market
value.
---------------------------------------------------------------------------
\44\ Interagency Guidelines at 77461.
\45\ 12 CFR 1002.14, 78 FR 7216 (January 31, 2013) (implementing
amendment to the Equal Credit Opportunity Act (ECOA)), 15 U.S.C.
1691 et seq., by the Dodd Frank Act section 1474. 15 U.S.C. 1691(e).
---------------------------------------------------------------------------
Some commenters stated the nature and magnitude of the differences
in consumer protection between appraisals and written estimates of
market value revolve largely around the physical inspections and USPAP
protections discussed above. Commenters also noted that, with
appraisals consumers have a direct mechanism for lodging a complaint
for a faulty appraisal.
With respect to consumer recourse, lenders can order appraisals
when disputes arise with written estimates of market value. In
addition, the failure to comply with the independence requirements of
the Valuation Independence Rule can result in civil liability.\46\ From
a supervisory standpoint, the NCUA can address deficiencies in a credit
union's valuation process through informal or formal enforcement
actions. Borrowers may also file a complaint through the NCUA's
complaint process as well as through the CFPB's process. Therefore, the
Board does not expect the increased threshold to materially affect
options for consumer recourse.
---------------------------------------------------------------------------
\46\ 15 U.S.C. 1639e(k); 15 U.S.C. 1640.
---------------------------------------------------------------------------
With regard to how well consumers have understood written estimates
of market value and any related concerns the Board should take into
account, two appraisal organizations stated that appraisals are more
standardized than written estimates of market value, thus, making it
easier for consumers to understand and compare appraisals. On the other
hand, one credit union stated that appraisals are not user-friendly and
have led to consumers disputing appraised values due to a
misunderstanding of the contents of appraisals. The same commenter
suggested that written estimates of market value could be drafted in
such a way as to be more helpful to borrowers. One commenter asked the
Board to provide additional guidance for credit unions on what
constitutes an adequate written estimate of market value. One commenter
stated that they would strongly support the NCUA creating a model form
with a safe harbor from liability for unintentional and nonmaterial
errors.
Based on the agency's supervisory experience and observations on
the use of written estimates of market value, the Board does not
believe that it is necessary to provide a model form for written
estimates of market value at this time. The Interagency Guidelines
encourage regulated institutions to establish policies and procedures
for determining an appropriate collateral valuation method for a given
transaction considering associated risks.\47\ The Interagency
Guidelines also set forth the information that a sufficient written
estimate of market value should contain to support a credit decision,
including, at a minimum, the location and description of the property,
an estimate of the property's market value, the methods used to confirm
the property's physical condition, the analysis that was performed
along with the supporting information used to value the property, any
supplemental information that was considered when using an analytical
method or technological tool, and all sources of information used to
arrive at the property valuation.\48\ The Board reiterates that FICUs
have been utilizing written estimates of market value under the
$250,000 threshold since 2001. It has not been the agency's experience
that the existing Interagency Guidelines are insufficient or that
written estimates of market value for transactions under the $250,000
threshold harm consumers because they are not standardized. Although
the Board recognizes that written estimates of market value are not
subject to the same uniform
[[Page 23915]]
standards as appraisals,\49\ in terms of structure and content or the
preparer's training and credentialing requirements, written estimates
of market value provide sufficient consumer protections for
transactions under $400,000.\50\
---------------------------------------------------------------------------
\47\ Interagency Guidelines at 77461.
\48\ Id.
\49\ USPAP does not prescribe a model form, but institutions
often use template forms, such as Fannie Mae Form 1004/Freddie Mac
Form 70, known as the Uniform Residential Appraisal Report.
\50\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------
All commenters who discussed the extent to which useful and
accurate property valuation information is readily available to
borrowers through public sources acknowledged the broad availability of
consumer-facing property valuation information through public sources,
including websites such as Zillow, Trulia, and Realtor.com and the
Multiple Listing Service. However, one appraisal organization commented
that many of these consumer-facing tools are not necessarily useful to
consumers or lenders in determining property values--rather they are
designed for marketing purposes. Some individual credit union
commenters specifically referenced the usefulness of publicly available
tax assessed valuations (known as TAVs) in helping them determine
property valuations and in making relatively conservative lending
decisions. The Board finds that, although all sources of publicly
available valuation information might not always accurately reflect the
market value of a particular property, consumers can use a variety of
available information to learn more about the availability of and the
potential range of values for properties in a particular area or
market.
4. Time and cost of appraisals.
The Board asked for comments on whether the proposed rule would
lead to cost savings for FICUs and/or borrowers as well as reduce the
time to close loans. Responses to this point were mixed. Many
commenters who supported the proposed threshold noted that it would
increase access to credit, reduce the regulatory burden on credit
unions, and lead to cost savings for members. Some commenters who
opposed the rule mentioned the cost savings do not outweigh consumer
considerations and those commenters disputed the materiality of time
savings.
Lenders generally require consumers to pay for costs associated
with obtaining appraisals, which can include fees paid to appraisers
and appraisal firms and fees charged by the Appraisal Management
Companies (AMC) that lenders often use to administer the appraisal
process. A few credit union commenters provided time and cost estimates
of appraisals as evidence of borrowers' potential savings. These
commenters stated that appraisals generally cost between $500 and
$1,000 and take up to four weeks to receive. One credit union commenter
stated that in its rural area, appraisals could take up to eight weeks
and range from $600 to $1,100.
In contrast, one commenter opposed to the proposed rule stated that
the average cost of an appraisal is $446 with an average turnaround
time of 9 days, or 18 days if a lender orders an appraisal through an
AMC. Another commenter stated that the average price of an appraisal is
$331 with an average turnaround time of 5 days. Some appraiser
organizations commented that, regarding time and cost savings, the fee
structure between appraisers and AMCs is not transparent to the
consumer. They also noted that it is unfair to blame appraisers for the
time that elapses before an appraisal is even requested, and, to the
extent that appraisers affect timeliness of closing, this is often
because of issues with the property that are not discovered until the
inspection phase. One commenter noted that complaints about appraiser
access in recent years have more to do with increased loan demand due
to falling interest rates rather than appraiser supply issues. Some
commenters noted that accurate data is not available on the cost and
turnaround time for written estimates of market value, so it is not
clear how much consumers and credit unions save.
The Board considered the comments relating to the amount of time it
takes credit unions to receive a completed appraisal and the
appraisal's related cost. The time it takes to complete a written
estimate of market value may often be shorter than the time it takes to
receive a Title XI appraisal, particularly in rural areas. In addition,
written estimates of market value generally cost less than Title XI
appraisals for the same properties. The Board believes, based on
information available on the cost of written estimates of market value
and appraisals, that there are likely to be time and cost savings for
FICUs and borrowers where a written estimate of market value, as
opposed to an appraisal, is obtained.
A few commenters supporting the proposed threshold increase
specifically discussed the impact of the proposal on FICUs serving
rural communities. These commenters stated that it is difficult to get
an appraisal for a reasonable cost and in a reasonable time in rural
areas. One commenter noted that it serves a community in which there is
no appraiser within 100 miles, and thus appraisers will often wait for
enough transactions to justify the travel necessary to conduct a
physical inspection of the property. Feedback from commenters is
consistent with the Board's experience as appraisals for properties in
high cost of living areas and rural areas tend to be more expensive
than in low cost of living and urban areas. The Department of Veterans
Affairs' (DVA) appraiser fee schedule by state ranges from a low of
$425 in South Carolina to a high of $875 in Montana. In addition, based
on DVA schedules and feedback from commenters, turnaround time and
costs for appraisals is higher for rural areas than urban areas. The
Board estimates the $400,000 threshold would provide burden relief in
terms of transaction volume and dollar amount to rural areas at a
proportional rate to the burden reduction overall. However, the Board
estimates the proportional amount of relief in terms of time and cost
savings to credit unions and borrowers would exceed the burden relief
in urban areas.
5. Other comments.
Hearing request. One group of state appraiser organizations
submitted a copy of the comment letter that it sent to the federal
banking agencies in response to their proposed rule to increase the
residential real estate appraisal threshold. The letter to the federal
banking agencies included a request for a hearing to more fully explore
these issues. Separately, an appraisal organization strongly suggested
that the Board conduct hearings to solicit more views. The Board
declines to hold a hearing on this rulemaking. The Board does not
believe that a hearing would elicit information that could not have
been submitted through the notice and comment process. The Board has
thoroughly considered all comment letters, including those submitted by
these two organizations.
6. Comments beyond the scope of the rule.
One commenter noted that many residential real estate contracts
include appraisal contingency clauses, which would not be available to
consumers without an appraisal. Another commenter, however, raised the
possibility of a valuation contingency clause in future residential
contracts.\51\
[[Page 23916]]
An appraisal contingency is an agreement confirming property valuation
between the seller and the buyer not the financing institution.
Furthermore, the appraisal contingency referenced by the commenter is
outside the scope of this rulemaking.
---------------------------------------------------------------------------
\51\ The CFPB, in its concurrence to the federal banking
agencies' final residential real estate appraisal rule, acknowledged
the potential benefit of appraisal contingency clauses in the
context of the few appraisals that come in below the contract price,
but did not find them to be a significant enough consumer protection
to outweigh the benefit of raising the threshold. Available at
https://files.consumerfinance.gov/f/documents/cfpb_firrea-concurrence_2019_08.pdf.
---------------------------------------------------------------------------
Two commenters requested that the NCUA add a de minimis threshold
to the requirement that transactions that are partially insured or
guaranteed by a U.S. government agency or sponsored agency have written
estimates of market value. The proposed rule did not make any changes
to the provision regarding transactions partially insured or guaranteed
by a U.S. government agency or a U.S. government sponsored agency.
Accordingly, the Board declines to make any changes to this provision
in this final rule.
One commenter requested the agency clarify the definition of
``complex.'' Under the NCUA's current appraisal regulation, a
residential real estate transaction at or above the $250,000 threshold
(not including any amount of the transaction that is guaranteed or
insured by a U.S. government agency or government sponsored agency)
that is deemed ``complex,'' must be accompanied by an appraisal from a
state-certified appraiser, as opposed to a state-licensed appraiser who
is not certified. The current regulation also provides that a FICU may
presume that appraisals of 1-to-4 family residential properties are not
complex unless the credit union has readily available information that
a given appraisal will be complex. The commenter requested further
clarity on what is considered ``readily available information.'' The
proposed rule did not make any changes to this presumption or to the
definition of ``complex.''
The Board declines to consider these suggested changes to the
regulation at this time as they are beyond the scope of the rule.
C. Final Rule
Based on the above analysis and consideration of the comments, the
Board determines it is appropriate to adopt the proposed increase in
the threshold below which appraisals for residential real estate
transactions are not required from $250,000 to $400,000. In addition,
the Board adopts the proposed conforming changes regarding review of
appraisals for compliance with USPAP and the removal of additional
requirements for the appraisal exemption for certain transactions in
rural areas for the reasons stated in the proposed rule. As discussed
in the proposed rule, the additional requirements associated with the
appraisal exemption for certain residential real estate transactions
will be unnecessary once the threshold for all residential appraisals
is raised to $400,000.\52\ Removing these requirements from the
regulation will reduce confusion for FICUs but does not affect the
validity of this authority under the 2018 legislation. Neither
provision substantively alters the rights or obligations of FICUs or
other parties, which are addressed in the relevant statutes.
---------------------------------------------------------------------------
\52\ 84 FR at 65709.
---------------------------------------------------------------------------
V. Effective Date
All provisions of the rule are effective upon publication of the
final rule in the Federal Register. The 30-day delayed effective date
required under the Administrative Procedure Act is waived pursuant to 5
U.S.C. 553(d)(1) and (3), which provides an exception to the 30-day
delayed effective date requirement when a substantive rule grants or
recognizes an exemption or relieves a restriction. The amendment to
increase the residential appraisal threshold exempts additional
transactions from the agency's appraisal requirement, which would have
the effect of relieving restrictions, and the final rule incorporates
the existing statutory requirement that appraisals be subject to
appropriate review for compliance with USPAP for ease of reference and
removes additional requirements relating to residential real estate
transactions in rural areas.
VI. Regulatory Procedures
A. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) generally requires that, in
connection with a final rule, an agency prepare a final regulatory
flexibility analysis that describes the impact of a rule on small
entities. A regulatory flexibility analysis is not required, however,
if the agency certifies that the rule will not have a significant
economic impact on a substantial number of small entities (defined for
purposes of the RFA to include credit unions with assets less than $100
million) and publishes its certification and a short, explanatory
statement in the Federal Register together with the rule.
Data currently available to the NCUA are not sufficient to estimate
how many small credit unions make residential real estate loans in
amounts that fall between the current and amended thresholds.
Therefore, the NCUA cannot estimate how many small entities may be
affected by the increased threshold and how significant the reduction
in burden may be for such small entities. The NCUA believes, however,
that the threshold increase will meaningfully reduce burden for small
credit unions. Accordingly, the NCUA certifies that the final rule will
not have a significant economic impact on a substantial number of small
credit unions.
B. 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 modifies an existing burden (44 U.S.C. 3507(d)). For
purposes of the PRA, a paperwork burden may take the form of a
reporting, recordkeeping, or third-party disclosure requirement,
referred to as an information collection. The NCUA may not conduct or
sponsor, and the respondent is not required to respond to, an
information collection unless it displays a valid Office of Management
and Budget (OMB) control number.
This final rule increases the threshold from $250,000 to $400,000
for a residential real estate transaction on which an appraisal is
required. Transaction values of less than $400,000 do not require an
appraisal, but a written estimate of market value. The information
collection requirement of this part is that the FICU retain a record of
either the appraisal or written estimate of market value, whichever
applies. Even though the threshold has increased, the proposal will not
result in a change in burden. This recordkeeping requirement is cleared
under OMB control number 3133-0125. There are no new information
collection requirements associated with this final rule.
C. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests. In
adherence to fundamental federalism principles, the NCUA, an
independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order. This rulemaking will not
have a substantial direct effect on the states, on the connection
between the national government and the states, or on the distribution
of power and responsibilities among the various levels of government.
The NCUA has determined that this final rule does not constitute a
policy that has federalism implications for purposes of the executive
order.
[[Page 23917]]
D. Assessment of Federal Regulations and Policies on Families
The NCUA has determined that this final rule will not affect family
well-being within the meaning of Section 54 of the Treasury and General
Government Appropriations Act of 1999.
E. Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) generally provides for congressional review of agency rules. A
reporting requirement is triggered in instances where the NCUA issues a
final rule as defined by section 551 of the Administrative Procedure
Act. An agency rule, in addition to being subject to congressional
oversight, may also be subject to a delayed effective date if the rule
is a ``major rule.'' The NCUA does not believe this rule is a ``major
rule'' within the meaning of the relevant sections of SBREFA. As
required by SBREFA, the NCUA has submitted this final rule to the OMB
for it to determine if the final rule is a ``major rule'' for purposes
of SBREFA. The NCUA also will file appropriate reports with Congress
and the Government Accountability Office so this rule may be reviewed.
List of Subjects in 12 CFR Part 722
Appraisal, Appraiser, Credit unions, Mortgages, Reporting and
recordkeeping requirements, Truth in lending.
By the National Credit Union Administration Board on April 16,
2020.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the NCUA Board amends 12 CFR part
722 as follows:
PART 722--APPRAISALS
0
1. The authority citation for part 722 continues to read as follows:
Authority: 12 U.S.C. 1766, 1789, and 3331 et seq. Section
722.3(a) is also issued under 15 U.S.C. 1639h.
0
2. Amend Sec. 722.3 by:
0
a. Revising paragraphs (b)(2) and (c)(1); and
0
b. Removing paragraph (f).
The revisions read as follows:
Sec. 722.3 Appraisals and written estimates of market value
requirements for real estate-related financial transactions.
* * * * *
(b) * * *
(2) The transaction is complex, involves a residential real estate
transaction, and $400,000 or more of the transaction value is not
insured or guaranteed by a United States government agency or United
States government sponsored agency.
(c) * * * (1) An appraisal performed by a state-certified appraiser
or a state-licensed appraiser is required for any real estate-related
financial transaction not exempt under paragraph (a) of this section in
which the transaction is not complex, involves a residential real
estate transaction, and $400,000 or more of the transaction value is
not insured or guaranteed by a United States government agency or
United States government sponsored agency.
* * * * *
0
3. Amend Sec. 722.4 by:
0
a. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f),
respectively;
0
b. Adding a new paragraph (c); and
0
c. In newly designated paragraph (e) removing the text ``Sec.
722.2(f)'' and adding in its place the text ``Sec. 722.2''.
The addition reads as follows:
Sec. 722.4 Minimum appraisal standards.
* * * * *
(c) Be subject to appropriate review for compliance with the
Uniform Standards of Professional Appraisal Practice.
* * * * *
[FR Doc. 2020-08433 Filed 4-29-20; 8:45 am]
BILLING CODE 7535-01-P
