Appraisals

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 722

Appraisals

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed amendments.

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SUMMARY: The NCUA Board is proposing amendments to its regulation

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

the Financial Institutions Reform, Recovery and Enforcement Act of

1989. The proposed amendments simplify compliance with regulatory

requirements for credit unions by changing provisions of the appraisal

regulation that govern: the publication of the Uniform Standards of

Professional Appraisal Practice; minimum appraisal standards;

appraisals to address safety and soundness concerns; unavailable

information; additional appraisal standards developed by credit unions;

and appraiser independence. The proposed amendments should reduce costs

without affecting the reliability of appraisals used in connection with

federally related transactions.

DATES: Comments must be postmarked or received by May 12, 1995.

ADDRESSES: Send comments to Becky Baker, Secretary of the Board,

National Credit Union Administration, 1775 Duke Street, Alexandria,

Virginia 22314 or via NCUA's electronic bulletin board to Becky Baker

at 703-518-6480.

FOR FURTHER INFORMATION CONTACT: Kent Buckham, Deputy Director, (703)

518-6360, Herbert Yolles, Director, Department of Risk Management,

Office of Examination and Insurance, (703) 518-6360 or Michael McKenna,

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

SUPPLEMENTARY INFORMATION:

A. Background

Title XI of the Financial Institutions Reform, Recovery, and

Enforcement Act of 1989 (FIRREA), 12 U.S.C. 3331 et seq., directed NCUA

and the other financial institution regulatory agencies to publish

appraisal rules for federally related real estate transactions within

the jurisdiction of each agency. Section 1121(4) of FIRREA, 12 U.S.C

3350(4), defines a federally related transaction as a real estate-

related financial transaction that, among other things, requires the

services of an appraiser. A real estate-related financial transaction

is defined as any transaction that involves (i) the sale, lease,

purchase, investment in or exchange of real property, including

interests in property, or the financing thereof; (ii) the refinancing

of real property or interests in real property; and (iii) the use of

real property or interests in real property as security for a loan or

investment, including mortgage-backed securities. See 12 U.S.C.

3350(5).

In July of 1990, the Board published regulations to meet the

requirements of Title XI of FIRREA. See 55 FR 30199, July 25, 1990. The

Board recognized that not all real estate-related financial

transactions would require an appraisal. Accordingly, in the original

appraisal regulation, NCUA did not require a state-certified or -

licensed appraiser for real estate-related transactions having a

transaction value less than or equal to $50,000. In July of 1993, the

Board raised the de minimus amount for an appraisal performed by a

state-certified or -licensed appraiser to $100,000 (See 58 F.R. 40040,

July 27, 1993). The dollar threshold was raised because NCUA had not

found any evidence indicating that there had been a significant

increase in the defaults on real estate-related loans of less than

$50,000 and that the increase would not represent a threat to the

safety and soundness of credit unions but rather would reduce

unnecessary costs and paperwork requirements.

Recently, the other federal financial institution regulatory

agencies\1\ have increased the threshold to $250,000. See 59 FR 29482,

June 7, 1994. The Board has considered whether the de minimus level

should be increased for federally-insured credit unions. At this time,

the Board does not perceive a need to increase the threshold. Many

credit unions do not have the on-staff expertise to prepare appraisals.

In addition, although credit unions are well capitalized, they are

generally much smaller than other financial institutions. As a result,

the relative size of an average real estate loan to capital is

generally much higher for a credit union, which translates to much

greater relative risk. A major portion of the losses to the National

Credit Union Share Insurance Fund in the past ten years has been

associated with real estate lending.

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

Federal Deposit Insurance Corporation, the Office of the Comptroller

of the Currency and the Office of Thrift Supervision.

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For credit unions that do engage in real estate lending, the

greatest single risk protection they can obtain is a licensed or

certified appraisal to support the loan-to-value ratio. The current

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

commercial property are sufficiently high to preclude most home equity

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

enough to ensure that professional appraisals are obtained for higher-

dollar value real estate lending. Therefore, the Board is not proposing

to increase either of these dollar thresholds. However, the Board

believes that the appraisal regulation can be revised to provide

clarity and ease the regulatory burden on credit unions for some

categories of transactions.

B. Proposed Amendments

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

underwriting decision, the Board believes that NCUA should not require

Title XI appraisals where they impose costs without significantly

promoting the safety and soundness of credit unions or furthering the

purposes of Title XI of FIRREA. Accordingly, the Board is proposing to

amend its appraisal regulation to clarify [[Page 13389]] and expand the

circumstances in which a Title XI appraisal is not required.

It is also NCUA's experience that the current minimum standards

applicable to federally related transactions and requirements

concerning the independence of appraisers can be simplified without

significantly affecting the reliability of Title XI appraisals.

Therefore, the Board is proposing to amend the appraisal regulation to

eliminate standards that parallel standards in the Uniform Standards of

Professional Appraisal Practice (``USPAP'') promulgated by the

Appraisal Standards Board of the Appraisal Foundation. In addition, the

Board is proposing to amend the regulation concerning appraiser

independence to permit credit unions to use appraisals prepared for

other financial service institutions. The Board also proposes to

simplify compliance with regulatory requirements for both credit unions

and appraisers by changing provisions of the appraisal regulation that

govern: (i) publication of USPAP; (ii) unavailable information; (iii)

appraisals to address safety and soundness concerns and (iv) additional

appraisal standards developed by credit unions. The proposed changes

should reduce costs without affecting the reliability of appraisals

used in connection with federally related transactions.

1. Exemptions

The ``Abundance of Caution'' Provision

The Board proposes to amend the regulation to clarify and expand

the scope of the exemption for real estate liens taken in an

``abundance of caution.'' NCUA's appraisal regulation currently

provides that an appraisal is not required when a lien on real estate

has been taken as collateral solely through an abundance of caution and

where the terms of the transaction as a consequence have not been made

more favorable than they would have been in the absence of a lien. See

12 CFR 722.3(a)(2).

NCUA's experience with implementing the appraisal regulation

indicates that the existing abundance of caution exemption has been

interpreted too narrowly. Therefore, to emphasize the broader scope of

the abundance of caution exemption, the Board proposes to delete the

word ``solely'' from the current exemption. However, this amendment

would still not allow a credit union to use this exemption when there

is a change to the terms of the loan because the credit union also

received a lien on real estate.

Liens for Purposes Other Than the Real Estate's Value

As defined in NCUA's Regulations, an appraisal is a written

statement independently and impartially prepared by a qualified

appraiser setting forth an opinion as to the market value of real

estate. See 12 CFR 722.2(a). When the market value of the real estate

as an individual asset is not part of the credit union's decision to

take a lien against real estate, no purpose is served by requiring the

institution to obtain an appraisal. The Board is proposing a new

exemption for transactions in which a credit union takes a lien on real

estate for a purpose other than the value of the real estate. On

occasion a credit union takes a real estate lien to protect the legal

rights to other collateral and not because of the value of the real

estate as an individual asset. For instance, where the collateral for a

loan is a small business, a credit union may take a lien against the

land and improvements in order to be able to sell the entire business

as a going concern if the borrower defaults. Similarly, in lending

associated with agriculture, credit unions may take a lien against the

real estate upon which the growing crops sit to ensure their access to

the agricultural product.

Requirements for Renewals, Refinancing and Other Subsequent

Transactions

The Board is proposing to clarify the exemption for renewals,

refinancings, and other transactions resulting from an existing

extension of credit to simplify the conditions under which the

exemption applies. NCUA's appraisal regulation currently provides that

an appraisal is not required for a subsequent transaction that results

from a maturing extension of credit if: (i) The borrower has performed

satisfactorily according to the original terms; (ii) no new monies are

advanced other than as previously agreed; (iii) the credit standing of

the borrower has not deteriorated; and (iv) there has been no obvious

and material change in the market conditions or physical aspects of the

property which would threaten the credit union's collateral protection.

See 12 CFR 722.3(a)(4). It has been NCUA's experience that the current

exemption may not provide sufficient flexibility to credit unions and

borrowers when a transaction is refinanced before its maturity. This is

especially true when the member is seeking a more favorable interest

rate. The proposed amendment would exempt a subsequent transaction

provided no new monies are advanced other than funds necessary to cover

reasonable closing costs and there has been no obvious and material

change in the market conditions or physical aspects of the property

which would threaten the credit union's collateral protection. This

exemption would not be applicable if a member refinances a mortgage

with a new lender.

Transactions Involving Real Estate Notes

The Board is proposing to amend the exemption regarding the

purchase of real estate-secured loans, loan participations, pooled

loans, interests in real property, and mortgage-backed securities. The

proposed amendment would allow credit unions to purchase, sell, invest

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

interests in real estate without obtaining a new Title XI appraisal if

each note or real estate interest is supported by an appraisal that

meets the regulatory appraisal requirements for the institution at the

time the real estate-secured note was originated. (The transaction

would, of course, have to meet other statutory and regulatory

requirements applicable to federally-insured credit unions.) The

current exemption simply refers to the purchase of these interests. In

addition, the Board is proposing to change the text of this exemption

to more clearly state the appraisal requirements that the underlying

notes must meet.

The Board believes that the proposed amendment would serve federal

public policy interests by helping to ensure that the appraisal

regulation does not unnecessarily inhibit secondary mortgage market

transactions that involve real estate-secured loans and real estate

interests. The proposed amendment would make clear that a credit union

need not obtain a new Title XI appraisal for loans originated before

the effective date of NCUA's regulation in order to buy or sell them in

the secondary mortgage market.

Transactions Insured or Guaranteed by a United States Government Agency

or United States Government Sponsored Agency

NCUA's appraisal regulation currently provides that loans insured

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

from NCUA's appraisal requirements. See 12 CFR 722.3(a)(6). The Board

is proposing to amend this provision in the regulation by deleting the

requirement that the transaction be supported by an appraisal that

conforms to the requirements of the insuring or guaranteeing agency. In

order to receive the insurance or guarantee, the transaction must meet

all underwriting [[Page 13390]] requirements of the insurer or

guarantor, including real estate appraisal or evaluation requirements.

The Board believes that the standards of these loan programs are

sufficient to protect the safety and soundness of credit unions.

Transactions that Meet the Qualifications for Sale to a United States

Government Agency or Government Sponsored Agency

NCUA proposes to not require a Title XI appraisal for any

transaction that meets the qualifications for sale to any United States

government agency or government sponsored agency. The Board believes

that the appraisal standards of U.S. government agencies or government

sponsored agencies established to maintain a secondary market in loans

are sufficient to protect federal financial and public policy interest

in the loans those government or government sponsored agencies

purchase. The Board also believes that compliance with these standards

will protect the safety and soundness of credit unions. By referring to

any U.S. government agency or U.S. government sponsored agency, the

proposed amendment would include not only loans sold to federal

agencies, but also any transaction that meets the qualifications for

sale to agencies established or chartered by the federal government to

serve public purposes specified by the U.S. Congress. These government

sponsored agencies are:

* Banks for Cooperatives.

* Federal Agricultural Mortgage Corporation (Farmer Mac).

* Federal Farm Credit Banks.

* Federal Home Loan Banks (FHLBs).

* Federal Home Loan Mortgage Corporation (Freddie Mac).

* Federal National Mortgage Association (Fannie Mae).

* Student Loan Marketing Association (Sallie Mae).

* Tennessee Valley Authority (TVA).

If a federally insured credit union is otherwise authorized to

originate, hold, buy or sell transactions that meet the qualifications

for sale to any U.S. government agency and the above listed government

sponsored agencies, this proposal would allow them to do so without

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

Board believes that permitting credit unions to follow these

standardized appraisal requirements, without the necessity of obtaining

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

ability to buy and sell these loans and also their liquidity if

necessary.

2. Appraisals to Address Safety and Soundness Concerns

The Board is proposing to amend its regulations to clarify that the

agency may require Title XI appraisals to address safety and soundness

concerns. Under this provision, NCUA could require appraisals where

real estate-related financial transactions present greater-than-normal

risk to individual credit unions. For example, NCUA may require a

troubled credit union to obtain an appraisal for transactions below the

threshold level. This amendment would simply and explicitly clarify

NCUA's current authority.

3. Minimum Appraisal Standards

The Board is proposing to reduce the number of minimum appraisal

standards applicable to Title XI appraisals for federally-related

transactions from the thirteen appraisal standards found in

Sec. 722.4(a) of NCUA's Regulations (12 CFR 722.4(a)) to five and

eliminate the current prohibition on the use of the USPAP Departure

Provision in connection with federally-related transactions.

Title XI of FIRREA states that each federal financial institution

regulatory agency shall prescribe appropriate standards for the

performance of real estate appraisals in connection with federally-

related transactions under the jurisdiction of each such agency. These

rules require, at a minimum that: (i) Real estate appraisals be

performed in accordance with generally accepted appraisal standards as

evidenced by the Appraisal Standards Board of the Appraisal Foundation;

and (ii) that such appraisals shall be written appraisals. Under Title

XI, each agency may require compliance with additional standards if it

makes a determination in writing that such additional standards are

necessary in order to properly carry out its statutory

responsibilities. See 12 U.S.C 3339.

At the time NCUA began drafting its appraisal regulation,\2\ the

Appraisal Standards Board was in the process of amending its appraisal

standards. Because of uncertainty about the content of the standards

and interpretations that would be promulgated by the Appraisal

Standards Board, the Board included within its appraisal regulation

thirteen minimum standards that paralleled existing or proposed USPAP

standards, including compliance with USPAP. NCUA also prohibited the

use of the USPAP Departure Provision in connection with federally-

related transactions. The Departure Provision permits an appraiser to

prepare an appraisal without complying with certain recommended

provisions of the USPAP if the appraisal report is not rendered

misleading.

\2\NCUA coordinated with the Board of Governors of the Federal

Reserve System, the Federal Deposit Insurance Corporation, the

Office of the Comptroller of the Currency and the Office of Thrift

Supervision when it drafted its original appraisal regulation. All

the federal financial institution regulatory agencies adopted

substantially similar appraisal regulations in 1990.

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Minimum Appraisal Standards and USPAP

The Board has gained considerable experience with the Appraisal

Standards Board and its appraisal standards and believe that it is no

longer necessary to include all the additional standards in its

appraisal regulation. The Board believes that the Departure Provision

of the USPAP may appropriately be used in connection with federally-

related transactions. Therefore, the Board is proposing to simply

require all appraisals for federally related transactions to: (i)

Conform to generally accepted appraisal standards as evidenced by the

USPAP; (ii) be written and contain sufficient information and analysis

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

(iii) analyze and report appropriate deductions and discounts for

proposed construction or renovation, partially leased buildings, non-

market lease terms, and tract developments with unsold units; (iv) be

based upon the definition of market value as set forth in the

regulation; and (v) be performed by State licensed or certified

appraisers.-

The Board believes these five standards will simplify compliance

with the appraisal regulation without affecting the usefulness of the

Title XI appraisals prepared for federally related transactions. The

proposed amendments would allow credit unions to make use of the

USPAP's Departure Provision and eliminate several regulatory standards

that parallel existing USPAP standards. Under these proposed standards,

the USPAP is referenced but would no longer be part of NCUA's

Regulations. This approach would no longer require NCUA to republish

changes to the USPAP adopted by the Appraisal Standards Board, and thus

references to USPAP in the regulation could be assumed to always refer

to the most current edition. The Board believes this approach minimizes

potential conflicts between an institution's duty to follow NCUA's

appraisal requirements and an appraiser's professional obligation to

follow the latest USPAP version. If the Board adopts this approach in

the final rule, the USPAP provisions applicable [[Page 13391]] to

federally-related transactions will no longer be published as Appendix

A to NCUA's appraisal regulation. Therefore, the Board is proposing to

delete Appendix A from its appraisal regulation.

The Board would like to make clear that if this amendment is

adopted in final, the principles of safe and sound lending may require

credit unions to comply with stricter standards than the USPAP.

Although the credit union has the primary responsibility for obtaining

a Title XI appraisal that meets its needs, NCUA may by regulation or

guidance identify USPAP standards that are inappropriate for federally

related transactions. For example, the USPAP allows an appraiser to

appraise property even though the appraiser may have a direct or

indirect interest in the property, if the interest is disclosed in the

appraisal report. However, the Board believes that federal financial

and public policy interests are better served by requiring that an

appraiser for a federally related transaction not have any direct or

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

property. This requirement is discussed further in the section

addressing appraiser independence.

Departure Provision

The proposed minimum standards would also permit credit unions to

use appraisals prepared in accordance with the USPAP Departure

Provision for federally related transactions. The Departure Provision

permits limited exceptions to specific guidelines in the USPAP.

Appraisers preparing appraisals using the Departure Provision still

must comply with all binding requirements of the USPAP and must be sure

that the resulting appraisal is not misleading. The Board believes that

if this amendment is adopted in final that credit unions should be

allowed to determine, with the assistance of the appraiser, whether an

appraisal to be prepared in accordance with the Departure Provision is

appropriate for a particular transaction and consistent with principles

of safe and sound lending. The proposed amendment would make clear that

the written appraisal must contain sufficient information and analysis

to support the credit union's decision to engage in the transaction.

This would put credit unions on notice of their responsibility to have

appraisals that are appropriate for the particular federally related

transaction.

Deductions and Discounts

The Board is proposing to retain the current standard in the

appraisal regulation regarding deductions and discounts. See 12 CFR

722.4(a)(8). The USPAP provision on this subject requires the appraiser

to include a discussion of deductions and discounts only when it is

necessary to prevent an appraisal from being misleading. The Board

believes it is appropriate to emphasize the need to include an

appropriate discussion of deductions and discounts applicable to the

estimate of value in Title XI appraisals for federally related

transactions. For example, in order to properly underwrite a loan, a

credit union may need to know a prospective value of a property, in

addition to the market value as the date of the appraisal. A

prospective value of a property is based upon events yet to occur, such

as completion of construction or renovation, reaching a stabilized

occupancy level, or some other event to be determined. Thus, more than

one value may be reported in an appraisal as long as all values are

clearly described and reflect the projected dates when future events

could occur.

The standard on deductions and discounts is intended to make clear

that appraisers must analyze, apply and report appropriate discounts

and deductions when providing values based on future events. In

financing the purchase of an existing home, there typically would be no

need to apply any discounts or deductions to arrive at the market value

of the property since the credit union's financing of the project does

not depend on events such as further development of the property or the

sale of units in a tract development.

Remaining Standards

The Board is also proposing to retain the current standard in the

appraisal regulation on market value that requires the appraisal to be

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

CFR 722.4(a)(2). Finally, the Board is proposing a new standard that

makes clear that all appraisals for federally related transactions must

be prepared by licensed or certified appraisers. This requirement is

mandated by Title XI of FIRREA and is repeated in other parts of the

appraisal regulation.

4. Elimination of the Provision on Unavailable Information

The Board is proposing to delete the current provision that

requires appraisers to disclose and explain when information necessary

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

The USPAP currently requires appraisers to disclose and explain the

absence of information necessary to completion of an appraisal that is

not misleading. See USPAP Standard Rule 2-2(k). Moreover, when

information that may materially affect the estimate of the value is

unavailable, the Board believes that generally accepted appraisal

standards require appraisers to explain the absence of that information

and its effect on the reliability of the appraisal. Therefore, the

elimination of this provision would not result in a substantive change

in the requirements applicable to appraisals for federally related

transactions since the Board is proposing to require appraisals to

conform to the USPAP.

5. Elimination of the Provision on Additional Appraisal Standards

The Board is proposing to delete the current provision that merely

confirms the authority of credit unions to require appraisers to comply

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

minimum appraisal standards for federally related transactions do not

prevent a credit union from requiring an appraiser to follow additional

standards or provide addition information to satisfy the credit union's

business needs and thus it is unnecessary to regulate this in the

appraisal regulation.

6. Appraiser Independence

The Board is proposing to amend and clarify its appraisal

regulation to permit the use of appraisals prepared for financial

service institutions other than institutions subject to Title XI of

FIRREA. NCUA's current appraisal regulation provides that fee

appraisers must be engaged by the credit union or its agent. An

exception to this requirement is permitted if the appraiser is directly

engaged by another institution that is subject to Title XI of FIRREA.

See 12 CFR 722.5(b).

The current provision was adopted to help ensure that appraisers

would not be subject to conflicts of interest as a result of having

been engaged by borrowers. However, the Board believes that the current

provision is too restrictive. It requires a credit union to obtain a

new appraisal if the borrower originally sought the loan from an

institution that is not subject to Title XI of FIRREA and is not an

agent of the credit union. There also has been uncertainty about the

meaning of agent in these cases.

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

that was prepared for any financial services institution, including

mortgage bankers. The appraiser would not be allowed to have a direct

or indirect interest, financial or otherwise, in the property

[[Page 13392]] or the transaction, and must have been directly engaged

by the non-regulated institution. Further, the credit union would be

required to ensure that the appraisal conforms to the requirements of

the regulation and is otherwise acceptable. The prohibition on the

credit union using an appraisal prepared for the borrower would remain

in effect.

Age of Appraisal

Some have suggested that NCUA's appraisal regulation contain a

maximum allowable age of an appraisal for use by a credit union. They

believe that there should be a maximum age (time from date of the

appraisal to date of the application of the loan) for an appraisal, but

that the age should not be so short as to unnecessarily require another

appraisal be prepared in the uncommon instance where a mortgage is

refinanced within a reasonably short time or a credit union is using an

appraisal prepared for another financial service institution. Hence,

the Board realizes that any specific time period will not be

appropriate in all situations. The Board has specifically decided to

permit each institution to determine the allowable period for an

appraisal, but recommends that any appraisal over six months old not be

used.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact a proposed regulation may

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

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

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

Board expects the changes to benefit members and federally-insured

credit unions regardless of size by reducing costs without

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

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

determines and certifies that the proposed rule is not expected to have

a significant economic impact on a substantial number of small credit

unions and that a Regulatory Flexibility Analysis is not required.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The proposed rule will apply to all

federally-insured credit unions. The proposed rule will reduce

regulatory requirements for all federally-insured credit unions. The

Board has determined that the proposed amendments would not have a

substantial direct effect on the states, on the relationship between

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

and responsibilities among the various levels of government.

Paperwork Reduction Act

The proposed rule, if adopted, will decrease paperwork requirements

for a credit union. The paperwork requirements will be submitted to the

Office of Management and Budget (OMB) for review under the Paperwork

Reduction Act. Written comments on the paperwork requirements should be

forwarded directly to the OMB Desk Officer indicated below at the

following address: OMB Reports Management Branch, New Executive Office

Building, Room 10202, Washington, DC 20530. Attn: Milo Sunderhauf. NCUA

will publish a notice in the Federal Register once OMB action is taken

on the submitted requirement.

List of Subjects in 12 CFR Part 722

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

appraisers

By the National Credit Union Administration Board on March 1,

1995.

Becky Baker,

Secretary to the Board.

Accordingly, NCUA proposes to amend 12 CFR part 722 as follows:

PART 722--APPRAISALS

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

follows:

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

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

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

as follows:

Sec. 722.3 Appraisals required; transactions requiring a State

certified or licensed appraiser.

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

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

financial transactions except those in which:

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

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

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

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

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

in the absence of a lien;

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

the real estate's value;

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

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

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

credit union, provided that:

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

necessary to cover reasonable closing costs and

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

conditions or physical aspects of the property that threatens the

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

the transaction;

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

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

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

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

real property interest met the requirements of this paragraph, if

applicable, at the time of origination;

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

a United States government agency or United States government sponsored

agency; or

(8) The transaction either:

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

United States government sponsored agency; or

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

appraisal conforms to the Federal National Mortgage Association or

Federal Home Loan Mortgage Corporation appraisal standards applicable

to that category of real estate.

* * * * *

(d) Valuation Requirement. Secured transactions exempted from

appraisal requirements pursuant to paragraphs (a)(1) and (a)(5) of this

section and not otherwise exempted shall be supported by a written

estimate of market value, as defined in this part, performed by an

individual having no direct or indirect interest in the property, and

qualified and experienced to perform such estimates of value for the

type and amount of credit being considered.

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

reserves the right to require an appraisal under this part whenever the

agency believes it is necessary to address safety and soundness

concerns.

3. Section 722.4 is revised to read as follows: [[Page 13393]]

Sec. 722.4 Minimum appraisal standards.

For federally related transactions, all appraisals shall, at a

minimum:

(a) Conform to generally accepted appraisal standards as evidenced

by the Uniform Standards of Professional Appraisal Practice (USPAP)

promulgated by the Appraisal Standards Board of the Appraisal

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

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

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

(c) Analyze and report appropriate deductions and discounts for

proposed construction or renovation, partially leased buildings, non-

market lease terms, and tract developments with unsold units;

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

Sec. 722.2(f); and

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

accordance with requirements set forth in this part.

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

follows:

Sec. 722.5 Appraiser Independence.

* * * * *

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

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

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

otherwise in the property or the transaction.

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

by an appraiser engaged directly by another financial services

institution; if:

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

otherwise, in the property or transaction; and

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

requirement of this part and is otherwise acceptable.

Appendix A [Removed]

5. Appendix A to part 722 is removed.

[FR Doc. 95-5592 Filed 3-10-95; 8:45 am]

BILLING CODE 7535-01-U