Real Estate Appraisals, 23909-23917 [2020-08433]

Download as PDF 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: http:// 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]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 722

RIN 3133-AE98


Real Estate Appraisals

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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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\
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    \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).
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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.
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    \4\ 66 FR 58656 (Nov. 23, 2001). The rule was effective March 1, 
2002.
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    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\
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    \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.
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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.
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    \11\ Public Law 111-203, 124 Stat. 1376, codified at 12 U.S.C. 
3339(3).
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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\
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    \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.
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    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).
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    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).
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    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).
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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\
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    \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.
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    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\
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    \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\
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    \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).
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    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\
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    \31\ 12 CFR 722.3(d)(2).
    \32\ Id.
    \33\ 12 CFR 226.42(c).

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[[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\
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    \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\
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    \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).
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    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