Appraisals

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 722

Appraisals

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final amendments.

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SUMMARY: The NCUA Board is issuing final amendments to its regulation

regarding the appraisal of real estate, adopted pursuant to Title XI of

the Financial Institutions Reform, Recovery and Enforcement Act of

1989. The final amendments simplify compliance with regulatory

requirements for credit unions by changing provisions of the appraisal

regulation that govern: the publication of the Uniform Standards of

Professional Appraisal Practice (USPAP); minimum appraisal standards;

appraisals to address safety and soundness concerns; unavailable

information; additional appraisal standards developed by credit unions;

and appraiser independence. The final amendments should reduce costs

without affecting the reliability of appraisals used in connection with

federally related transactions.

EFFECTIVE DATE: October 1, 1995.

FOR FURTHER INFORMATION CONTACT: Herbert Yolles, Director, Department

of Risk Management, Office of Examination and Insurance, (703) 518-6360

or Michael McKenna, Staff

[[Page 51890]]

Attorney, Office of General Counsel, (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

Title XI of the Financial Institutions Reform, Recovery and

Enforcement Act of 1989 (FIRREA) directed NCUA and the other financial

institution regulatory agencies to publish appraisal rules for

federally related real estate transactions within the jurisdiction of

each agency. In accordance with statutory requirements, NCUA's final

rule sets minimum standards for appraisals used in connection with

federally related real estate transactions and identified those

transactions that require a state certified appraiser and those that

require either a state certified or licensed appraiser.

While in most cases an appraisal is an essential part of a sound

underwriting decision, the Board believes that NCUA should not require

Title XI appraisals where they impose costs without significantly

promoting the safety and soundness of credit unions or furthering the

purpose of Title XI of FIRREA. Furthermore, it has been the Board's

experience that some requirements are no longer necessary. Accordingly,

on March 1, 1995, the Board issued proposed amendments to part 722, the

appraisal regulation. See 60 FR 13388 (March 13, 1995). The proposed

amendments were intended to simplify compliance for credit unions by

changing provisions in the appraisal regulation that govern: (i) The

publication of the USPAP; (ii) minimum appraisal standards; (iii)

appraisals to address safety and soundness concerns; (iv) unavailable

information; (v) additional appraisal standards developed by credit

unions; and (vi) appraiser independence.

B. Comments

Twenty-nine comments were received. Two commenters fully supported

the amendments. The remaining twenty-seven comments were generally

positive and consistently supported most of the proposed amendments.

The issues that generated the most comments were the de minimus amount

and appraiser independence.

Dollar Threshold for Obtaining an Appraisal (the De Minimus Amount)

The current appraisal regulation requires a credit union to obtain

an appraisal by a certified and licensed appraiser if the transaction

value is in excess of $100,000 for residential real estate and $50,000

for commercial property. See 12 CFR 722.3(a). The other federal

financial institution regulatory agencies \1\ have increased the

threshold to $250,000. See 59 FR 29482, June 7, 1994. The Board

considered whether the de minimus level should be increased for

federally-insured credit unions. Although credit unions are well

capitalized, they are generally much smaller than other financial

institutions. As a result, the relative size of an average real estate

loan in comparison to capital is generally much higher for a credit

union, which translates to much greater relative risk. A major portion

of the losses to the National Credit Union Share Insurance Fund in the

past ten years were associated with real estate lending. Consequently,

the Board did not propose to increase either threshold.

\1\ The Board of Governors of the Federal Reserve System, the

Federal Deposit Insurance Corporation, the Office of the Comptroller

of the Currency and the Office of Thrift Supervision.

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Twelve commenters supported the Board's position. One commenter

specifically concurred with NCUA's rationale for not increasing the de

minimus level. Two commenters believed that increasing the dollar

threshold may cause safety and soundness problems. Eight commenters

recommended increasing the de minimus level to $250,000 for residential

real estate. Most of these commenters believed that retaining the

current threshold will make credit union loans more expensive and place

credit unions at a competitive disadvantage. Two commenters recommended

increasing the de minimus level to $150,000. One commenter suggested

increasing the de minimus level to $250,000 for business loans. The

Board does not believe the minimal effects on competition outweigh

safety and soundness concerns. For credit unions that engage in real

estate lending, their greatest single risk protection is to obtain a

licensed or certified appraisal to support the loan-to-value ratio. The

current thresholds of $100,000 for residential real estate and $50,000

for commercial property are sufficiently high to preclude most home

equity or second trust lending from the appraisal requirement, but are

low enough to ensure that appraisals are obtained for higher dollar

value real estate lending.

Valuation Requirement

The Board did not propose any change to the requirement that any

real estate transaction under the de minimus level, and not otherwise

exempt, receive a valuation. Three commenters recommended eliminating

the valuation requirement if the value of the loan was below a certain

dollar threshold. Two commenters would set the dollar threshold for a

valuation at $20,000 and one commenter would set the dollar threshold

at $50,000.

The Board continues to believe that there should be no de minimus

level on the valuation requirement. Loans which are secured by real

estate are often made at substantially lower interest rates than

noncollateralized loans. The value of the real estate secured as

collateral reduces the potential risk of the loan, thereby enabling the

credit union to lend at a lower interest rate or smaller spread. Unless

a valuation is performed that meets the requirements of part 722, the

credit union has no assurance that the real estate offered as

collateral is of sufficient value to provide the necessary risk

protection to justify the reduced interest rate. However, the Board is

exempting from the valuation requirement those real estate loans that

are insured by a third party. In this case, there is virtually no risk

to the credit union and the valuation requirement serves no practical

purpose.

One commenter recommended that the agency define the term

``valuation'' in the preamble of the final regulation. The term was

defined in the preamble to the original final rule. See 55 FR 30199

(July 25, 1990). The term was broadly defined to allow credit unions

the flexibility to use various methods to measure market value. Any

further refinement of the definition would reduce that flexibility. The

Board does not believe that would be in the best interests of credit

unions.

Some credit unions have established programs in which minimal

valuation procedures are used for real estate loans which are below

certain dollar thresholds and/or are below certain loan-to-value

ratios. These minimal procedures do not involve a physical inspection

of the property or ``drive by'', but instead may rely on other written

evidence such as a recent tax assessment. The Board has no objection to

such alternative valuation procedures, as long as the credit union has

fully documented how the alternate procedures will work and

demonstrated that the procedures do not impose an unacceptable risk by

not performing a physical inspection. The credit union must also

demonstrate how the other written evidence correlates to the value of

the collateral. What constitutes an unacceptable level of risk will

vary for each credit union and each loan based on such factors as the

credit union's size, capital level and experience with real estate

lending, and the borrower's debt level and credit history. For this

reason, the Board believes that it would be inappropriate for it to

attempt to set

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specific parameters on the valuation procedures that credit unions may

employ.

1. Exemptions

The Board proposed amendments to clarify and expand the

circumstances in which a Title XI appraisal is not required. The Board

addressed the following areas: (1) The ``abundance of caution''

provision; (2) liens for purposes other than the real estate's value;

(3) requirements for renewals, refinancings and other subsequent

transactions; (4) transactions involving real estate notes; (5)

transactions insured or guaranteed by a United States Government Agency

or United States Government Sponsored Agency; and (6) transactions that

meet the qualification for sale to a United States Government Agency or

United States Government Sponsored Agency.

The ``Abundance of Caution'' Provision

NCUA's appraisal regulation currently provides that an appraisal is

not required when a lien on real estate has been taken as collateral

``solely'' through an abundance of caution and where the terms of the

transaction as a consequence have not been made more favorable than

they would have been in the absence of a lien. See 12 CFR 722.3(a)(2).

To emphasize the broader scope of the abundance of caution exemption,

the Board proposed to delete the word ``solely'' from the current

exemption. Seven commenters supported and one opposed this amendment.

The supporters believed it would add flexibility to credit union's

lending policies. One of these commenters suggested that the final

regulation also eliminate the requirement that ``the terms of the

transaction have not been made more favorable than they would have been

in the absence of the lien.'' This commenter stated that if this

requirement is not eliminated credit unions would be at a competitive

disadvantage with banks and thrifts.

The Board is unwilling to further expand the abundance of caution

provision. When the terms of a loan are more favorable than they would

have been in the absence of a lien, the more favorable terms are

warranted because of the value of the collateral. Without a certified

or licensed appraisal (or a valuation if the transaction is below the

de minimus level) the credit union has no assurance that the collateral

is of sufficient value to provide the necessary risk protection.

The opposing commenter believes this amendment may lead to

unwarranted risk. However, this amendment will only affect a small

number of transactions and cannot be used when the terms of the

transaction have been made more favorable than they would have been in

the absence of the lien. A loan falling into this category will not

carry any additional risk. Therefore, the Board is adopting this

amendment as proposed.

Liens for Purposes Other Than the Real Estate's Value

The Board proposed a new exemption for transactions in which a

credit union takes a lien on real estate for purposes other than the

value of the real estate, such as when it takes a lien on real estate

to protect the legal rights to other collateral. In such cases an

appraisal would not be required. Seven commenters supported this

amendment. One of these commenters stated that this new exemption would

benefit credit unions since it would allow them to take additional

security without adding the burden of obtaining an appraisal.

Accordingly, the Board is adopting the amendment as proposed.

Requirements for Renewals, Refinancing and Other Subsequent

Transactions

The Board proposed exempting from the appraisal requirement

subsequent transactions provided no new monies were advanced other than

funds necessary to cover reasonable closing costs and where there has

been no obvious and material change in the market conditions or

physical aspects of the property which would threaten the credit

union's collateral protection. Fifteen commenters supported this

proposal. One of these commenters stated that this amendment would be

beneficial to credit unions and members who wish to refinance an

existing mortgage with the same credit union, in order to take

advantage of a lower interest rate, but not incur the added expenses of

another appraisal.

One commenter recommended even greater flexibility to situations in

which an appraisal is not required for renewals, refinancings, and

other subsequent transactions. This commenter would exempt a

transaction which involves an existing extension of credit provided it

meets one of two criteria: (i) There is no advancement of new money

except to cover reasonable closing costs or (ii) there has been no

obvious and material change in market conditions or physical aspects of

the property that threatens the adequacy of the credit union's real

estate collateral protection after the transaction, even with the

advancement of new monies. This commenter stated that banks and thrifts

have this exemption and credit unions would be at a competitive

disadvantage without it. The Board believes that an appraisal is

necessary if new funds are advanced. The Board believes that safety and

soundness concerns outweigh the possible minimal affects on

competition.

One commenter supports the proposal but would also require a drive-

by appraisal to confirm there had been no material change in the

collateral. The Board believes that credit unions should retain the

flexibility on how best to determine whether there has been any

material change in the collateral. Three commenters objected to this

amendment believing an appraisal is necessary because market conditions

may have changed since the loan was originally granted. The Board

disagrees. If the credit union has made the loan being refinanced and

no additional funds are advanced, the risk is only associated with the

extension of the repayment period. The Board believes that in most

cases this risk will be minimal. In addition, the Board believes that

the credit unions will be aware of the deteriorating market trends and

will seek a new appraisal if they believe it is necessary. The Board is

adopting in final the amendment as proposed. This exemption is not

applicable if a member refinances a mortgage with a new lender.

Transactions Involving Real Estate Notes

The Board proposed to allow credit unions to purchase, sell, invest

in, exchange, or extend credit secured by real estate notes or

interests in real estate notes or interests in real estate without

obtaining a new Title XI appraisal if each note or real estate interest

is supported by an appraisal that meets the regulatory appraisal

requirements for the institution at the time the real estate-secured

note was originated. (The transaction would, of course, have to meet

other statutory and regulatory requirements applicable to federally-

insured credit unions.) The Board believes that this amendment will

serve federal public policy interests by helping to ensure that the

appraisal regulation does not unnecessarily inhibit secondary mortgage

market transactions that involve real estate-secured loans and real

estate interests. Six commenters supported this proposal. Most of these

commenters believe that this change would permit credit unions to buy

or sell loans more easily on the secondary market. Consequently, the

Board is adopting this amendment as proposed.

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Transactions Insured or Guaranteed by a United States Government Agency

or United States Government Sponsored Agency

NCUA's appraisal regulation currently provides that loans insured

or guaranteed by an agency of the United States government are exempt

from NCUA's appraisal requirements. The Board proposed to delete the

requirement that the transaction be supported by an appraisal that

conforms to the requirements of the insuring or guaranteeing agency.

Five commenters supported this amendment. One commenter objected to it

on safety and soundness grounds. The Board believes that loan program

standards sufficiently protect credit unions since in order to receive

the insurance or guarantee, the transaction must meet all underwriting

requirements of the insurer or guarantor, including real estate

appraisal or valuation requirements. It is unnecessary to require these

transactions to also meet the overlapping requirements of NCUA.

Moreover, this exemption will eliminate the confusion among credit

unions that two separate appraisals are required; one meeting NCUA's

Regulations and another meeting the federal loan program standards.

Accordingly, the Board is adopting the proposed amendment in final.

Transactions That Meet the Qualifications for Sale to a United States

Government Agency or Government Sponsored Agency

NCUA proposed to permit credit unions to originate, hold, buy or

sell transactions that meet the qualifications for sale to any U.S.

government agency and certain government sponsored agencies without

obtaining a separate appraisal conforming to NCUA's Regulations. The

Board believes that permitting credit unions to follow these

standardized appraisal requirements, without the necessity of obtaining

an appraisal or appraisal supplement will increase a credit union's

ability to buy and sell these loans. Also, it may help a credit union

with liquidity problems. Four commenters supported this amendment. One

commenter suggested that the list of the government sponsored agencies

that was in the proposed rule's preamble be included in the preamble of

the final regulation so that credit unions would be able to identify

those agencies more easily. The Board agrees. These government

sponsored agencies are:

* Banks for Cooperatives.

* Federal Agricultural Mortgage Corporation (Farmer Mac).

* Federal Farm Credit Banks.

* Federal Home Loan Banks (FHLBs).

* Federal Home Loan Mortgage Corporation (Freddie Mac).

* Federal National Mortgage Association (Fannie Mae).

* Student Loan Marketing Association (Sallie Mae).

* Tennessee Valley Authority (TVA).

The Board believes the appraisal standards of the U.S. government

agencies established to maintain a secondary market in various types of

loans are appropriate for these exempt transactions. Furthermore, the

Board believes that compliance with these standards will protect the

safety and soundness of regulated financial institutions. Accordingly,

the Board is adopting the proposed amendments in final.

2. Appraisals to Address Safety and Soundness Concerns

The Board proposed to clarify that NCUA may require Title XI

appraisals to address safety and soundness concerns where real estate-

related financial transactions present greater-than-normal risk to

individual credit unions. For example, NCUA may require a troubled

credit union to obtain an appraisal for transactions below the

threshold level. Two commenters supported this amendment. One commenter

objected stating that USPAP standards already provide sufficient

safeguards. In general, the Board believes that the USPAP standards are

sufficient but as the above example demonstrates there may be occasions

where additional standards are necessary. Accordingly, the Board is

adopting this amendment as proposed.

3. Minimum Appraisal Standards

The Board proposed to reduce the number of minimum appraisal

standards applicable to Title XI appraisals for federally-related

transactions from the thirteen standards found in Sec. 722.4(a) of

NCUA's Regulations (12 CFR 722.4(a)) to five and eliminate the current

prohibition on the use of the USPAP Departure Provision in connection

with federally-related transactions. The Board proposed to require all

appraisals for federally-related transactions to: (i) Conform to

generally accepted appraisal standards as evidenced by the USPAP; (ii)

be written and contain sufficient information and analysis to support

the credit union's decision to engage in the transaction; (iii) analyze

and report appropriate deductions and discounts for proposed

construction or renovation, partially leased buildings, no-market lease

terms and tract developments with unsold units (iv) be based upon the

definition of market value as set forth in the regulation; and (v) be

performed by State licensed or certified appraisers.

The Board also proposed deleting Appendix A from the regulation

since USPAP would be referenced in the regulation.

Nine commenters supported the modification and believe that

eliminating the parallel USPAP standards will ease regulatory burden.

Most of these commenters believed that this amendment will eliminate

any confusion on what standards to follow. One commenter specifically

stated that the elimination of Appendix A will make it clear to credit

unions that any reference to USPAP is the current edition. Ten

commenters did not believe this change will ease regulatory burden but

they did not object to the change. One of these commenters stated that

all the proposed changes are the responsibility of the appraiser and

not the credit union. One commenter objected to the amendment because

he does not believe the current standards impose any sort of regulatory

burden. Two commenters believe the proposed amendments will affect the

usefulness of an appraisal. The Board does not believe an appraisal

will be less useful by eliminating these standards since an appraiser

must still follow the parallel USPAP standards. By eliminating the

regulatory standards that parallel USPAP standards the Board is simply

reducing the confusion on what standards need to be followed in the

preparation of appraisals for federally related transactions.

Departure Provision

The Board proposed to permit credit unions to use appraisals

prepared in accordance with the USPAP Departure Provision for

federally-related transactions. The Departure Provision permits limited

exceptions to specific guidelines in the USPAP. The Board believes that

credit unions should be allowed to determine, with the assistance of

the appraiser, whether an appraisal to be prepared in accordance with

the Departure Provision is appropriate for a particular transaction and

consistent with principles of safe and sound lending. Thirteen

commenters supported the ability of a credit union to use USPAP's

Departure Provision. Most of these commenters do not believe this

change would affect the reliability of an appraisal report. They

believe this change would provide credit unions with added flexibility

which will result in decreased appraisal costs. Five commenters believe

the use of the Departure Provision may affect an appraisal's

reliability and two of these

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commenters stated that the interpretation of the data given by the

appraiser may be misleading and not acceptable. The Board believes that

appraisal data is always subject to some interpretation. A credit union

can minimize this risk by carefully selecting an appraiser.

Furthermore, appraisers preparing appraisals using the Departure

Provision must still comply with all binding requirements of the USPAP

and must be sure that the resulting appraisal is not misleading. The

amendment also makes clear that the written appraisal must contain

sufficient information and analysis to support the credit union's

decision to engage in the transaction. This puts the credit union on

notice of their responsibility to have appraisals that are appropriate

for the particular federally related transaction.

Deductions and Discounts

The Board proposed to retain the current standard in the appraisal

regulation regarding deductions and discounts. See 12 CFR 722.4(a)(8).

The USPAP provision on this subject requires the appraiser to include a

discussion of deductions and discounts when it is necessary to prevent

an appraisal from being misleading. The Board believes it is

appropriate to emphasize the need to include an appropriate discussion

of deductions and discounts applicable to the estimate of value in

Title XI appraisals for federally related transactions. For example, in

order to properly underwrite a loan, a credit union may need to know a

prospective value of a property, in addition to the market value as the

date of the appraisal. A prospective value of a property is based upon

events yet to occur, such as completion of construction or renovation,

reaching a stabilized occupancy level, or some other event to be

determined. Thus, more than one value may be reported in an appraisal

as long as all values are clearly described and reflect the projected

dates when future events could occur.

The standard on deductions and discounts emphasize the need for

appraisers to analyze, apply and report appropriate discounts and

deductions when providing values based on future events. In financing

the purchase of an existing home in a long-standing community, there

typically would be no need to apply any discounts or deductions to

arrive at the market value of the property since the credit union's

financing of the project does not depend on events such as further

development of the property or the sale of units in a tract

development. Therefore, the Board is adopting in final the amendment as

proposed.

Remaining Standards

The Board also proposed to retain the current market value standard

in the appraisal regulation which requires the appraisal to be based on

the definition of market value in NCUA's Regulations. See 12 CFR

722.4(a)(2). Finally, the Board proposed a new standard that all

appraisals for federally related transactions must be prepared by

licensed or certified appraisers. This requirement is mandated by Title

XI of FIRREA and is repeated in other parts of the appraisal

regulation.

The Board is adopting the minimum appraisal standards as proposed.

The Board believes these five standards will simplify compliance with

the appraisal regulation without diminishing the usefulness of Title XI

appraisals prepared for federally related transactions. Under these

standards, the USPAP is referenced but is no longer part of NCUA's

Regulations. This approach no longer requires NCUA to republish changes

to the USPAP adopted by the Appraisal Standards Board in Appendix A of

this rule. The appendix is deleted from NCUA's appraisal regulation.

4. Elimination of the Provision on Unavailable Information

The Board proposed to delete the current provision that requires

appraisers to disclose and explain when information necessary to the

completion of an appraisal is unavailable. See 12 CFR 722.4(b). The

USPAP currently requires appraisers to disclose and explain the absence

of information necessary to complete an appraisal that is not

misleading. See USPAP Standard Rule 2-2(k). Moreover, when information

that may materially affect the estimate of the value is unavailable,

the Board believes that generally accepted appraisal standards require

appraisers to explain the absence of that information and its effect on

the reliability of the appraisal. Therefore, to streamline the

regulation the Board is adopting the amendment as proposed.

5. Elimination of the Provision on Additional Appraisal Standards

The Board proposed to delete the current provision that merely

confirms the authority of credit unions to require appraisers to comply

with additional standards. See 12 CFR 722.4(c). As the regulation's

minimum appraisal standards for federally related transactions do not

prevent a credit union from requiring additional appraisal standards or

information to meet the credit union's business needs. It is

unnecessary to keep this provision in the appraisal regulation.

Consequently, the Board is adopting the proposed amendment in final.

6. Appraiser Independence

The Board proposed to permit a credit union to use an appraisal

that was prepared for any financial service institution including

mortgage bankers. Twenty commenters supported this amendment. One of

these commenters added a caveat that it should be permissible only if

the appraisal is ordered by a lending establishment and the appraiser

is one that has been approved by the lender. Three of these commenters

believed the appraiser should be certified or licensed. Two commenters

say the appraisal should be recent. Three commenters objected to this

provision. One of these commenters stated that relying on an appraisal

commissioned by another financial institution may lead to a faulty

credit decision. A credit union need not rely on an appraisal if it

does not have confidence in the report or the appraiser. The Board

believes that these are all business decisions that should be made by

the credit union and need not be regulated. However, it is incumbent on

the credit union to ensure that the appraisal conforms to the

requirements of the regulation and is otherwise acceptable.

Furthermore, the appraiser would not be allowed to have a direct or

indirect interest, financial or otherwise, in the property or the

transaction, and must have been directly engaged by the non-regulated

institution.

Age of Appraisal

In the preamble to the proposed amendments, the Board addressed the

maximum age for an acceptable appraisal. The Board believed that there

should be a maximum age (time from date of the appraisal to date of the

application of the loan) for an appraisal, but that the age should not

be so short as to unnecessarily require a new appraisal in the unlikely

event that a mortgage is refinanced within a reasonably short time or a

credit union is using an appraisal prepared for another financial

service institution. The Board realized that setting a specific time

period would not be appropriate in all situations. The Board proposed

allowing credit unions to determine the period for an appraisal but

recommending that any appraisal over six months not be used. Ten

commenters supported the six month recommendation and nine commenters

objected. Most of these commenters

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would prefer that NCUA allow the determination to be made on a case by

case basis or continue with the current one year recommendation. They

also believed that in many locations an appraisal that is one year old

is still an accurate reflection of market value.

The Board does not have any empirical evidence to demonstrate that

an appraisal older than six months is inherently unreliable. The Board

believes that while any specific time period will not be appropriate in

all situations, appraisals generally can be relied upon for up to one

year. During periods of stable real estate market conditions,

appraisals that are one year old may be fairly accurate. However,

because of the uncertain nature of real estate market conditions, older

appraisals may be unreliable. It is the responsibility of the credit

union to be aware of market conditions. The ultimate judgment on

whether to use an appraisal rests with the credit union. This approach

provides guidance while permitting credit unions the flexibility to use

their best judgment in this matter.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact a proposed regulation may

have on a substantial number of small credit unions (primarily those

under $1 million in assets). The final amendments reduce regulatory

burden and are less restrictive than current requirements. Overall, the

Board expects the changes to benefit members and federally-insured

credit unions regardless of size by reducing costs without

substantially increasing the risk of loss. In addition, most small

credit unions do not offer real estate loans. Accordingly, the Board

determines and certifies that the final rule is not expected to have a

significant economic impact on a substantial number of small credit

unions and that a Regulatory Flexibility Analysis is not required.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The final rule will apply to all federally-

insured credit unions and reduce regulatory requirements. The Board has

determined that the final amendments would not have a substantial

direct effect on the states, on the relationship between the national

government and the states, or on the distribution of power and

responsibilities among the various levels of government.

Paperwork Reduction Act

The final rule decreases paperwork requirements for a credit union.

The paperwork requirements were submitted to the Office of Management

and Budget (OMB) for approval under the Paperwork Reduction Act. A

notice will be published in the Federal Register once approval is

received from OMB.

List of Subjects in 12 CFR Part 722

Appraisals, Credit unions, State-certified and State-licensed

appraisers

By the National Credit Union Administration Board on September

28, 1995.

Becky Baker, --

Secretary to the Board.

Accordingly, NCUA amends 12 CFR part 722 as follows:

PART 722--APPRAISALS

1. The authority citation for part 722 continues to read as

follows:

Authority: 12 U.S.C. 1766, 1789 and Pub. L. No. 101-73.

2. Section 722.3 is amended by revising the section headings,

revising paragraphs (a) and (d) and adding a new paragraph (e) to read

as follows:

Sec. 722.3 Appraisals required; transactions requiring a State

certified or licensed appraiser.

(a) Appraisals required. An appraisal performed by a State

certified or licensed appraiser is required for all real estate-related

financial transactions except those in which:

(1) The transaction value is $100,000 or less except if it is a

business loan and then the transaction value is $50,000 or less;

(2) A lien on real property has been taken as collateral through an

abundance of caution and where the terms of the transaction as a

consequence have not been made more favorable than they would have been

in the absence of a lien;

(3) A lien on real estate has been taken for purposes other than

the real estate's value;

(4) A lease of real estate is entered into, unless the lease is the

economic equivalent of a purchase or sale of the leased real estate;

(5) The transaction involves an existing extension of credit at the

credit union, provided that:

(i) There is no advancement of new monies, other than funds

necessary to cover reasonable closing costs; and

(ii) There has been no obvious and material change in market

conditions or physical aspects of the property that threatens the

adequacy of the credit union's real estate collateral protection after

the transaction;

(6) The transaction involves the purchase, sale, investment in,

exchange of, or extension of credit secured by, a loan or interest in a

loan, pooled loans, or interests in real property, including mortgage-

backed securities, and each loan or interest in a loan, pooled loan, or

real property interest met the requirements of this regulation, if

applicable, at the time of origination;

(7) The transaction is wholly or partially insured or guaranteed by

a United States government agency or United States government sponsored

agency; or

(8) The transaction either:

(i) Qualifies for sale to a United States government agency or

United States government sponsored agency; or

(ii) Involves a residential real estate transaction in which the

appraisal conforms to the Federal National Mortgage Association or

Federal Home Loan Mortgage Corporation appraisal standards applicable

to that category of real estate.

* * * * *

(d) Valuation requirement. Secured transactions exempted from

appraisal requirements pursuant to paragraphs (a)(1) of this section

and not otherwise exempted from this regulation or fully insured shall

be supported by a written estimate of market value, as defined in this

regulation, performed by an individual having no direct or indirect

interest in the property, and qualified and experienced to perform such

estimates of value for the type and amount of credit being considered.

(e) Appraisals to address safety and soundness concerns. NCUA

reserves the right to require an appraisal under this subpart whenever

the agency believes it is necessary to address safety and soundness

concerns.

3. Section 722.4 is revised to read as follows:

Sec. 722.4 Minimum appraisal standards.

For federally related transactions, all appraisals shall, at a

minimum:

(a) Conform to generally accepted appraisal standards as evidenced

by the Uniform Standards of Professional Appraisal Practice (USPAP)

promulgated by the Appraisal Standards Board of the Appraisal

Foundation, 1029 Vermont Ave., NW., Washington, DC 20005;

(b) Be written and contain sufficient information and analysis to

support the institution's decision to engage in the transaction;

(c) Analyze and report appropriate deductions and discounts for

proposed construction or renovation, partially

[[Page 51895]]

leased buildings, non-market lease terms, and tract developments with

unsold units;

(d) Be based upon the definition of market value as set forth in

Sec. 722.2(f); and

(e) Be performed by State licensed or certified appraisers in

accordance with requirements set forth in this subpart.

4. Section 722.5 is amended by revising paragraph (b) to read as

follows:

Sec. 722.5 Appraiser independence.

* * * * *

(b) Fee Appraisers. (1) If an appraisal is prepared by a fee

appraiser, the appraiser shall be engaged directly by the credit union

or its agent and have no direct or indirect interest, financial or

otherwise, in the property or the transaction.

(2) A credit union also may accept an appraisal that was prepared

by an appraiser engaged directly by another financial services

institution; if:

(i) the appraiser has no direct or indirect interest, financial or

otherwise, in the property or transaction; and

(ii) the credit union determines that the appraisal conforms to the

requirement of this regulation and is otherwise acceptable.

Appendix A--[Removed]

5. Appendix A to Part 722 is removed.

[FR Doc. 95-24690 Filed 10-3-95; 8:45 am]

BILLING CODE 7535-01-U