NCUA Finalizes Amendments to Part 722 – Appraisals

michaelchristians • July 20, 2019

At its meeting on Thursday, July 18th, the NCUA Board finalized amendments to its appraisal rules found in Part 722.

Exemptions

The final rule reaffirms the exemptions currently found in Part 722.3. If one of the following exemptions applies, an appraisal is not required:

  • The transaction involves an existing extension of credit, provided that –
    • No new money has been advanced; or
    • There has been no obvious or material change in market conditions or physical aspects of the property that threatens the adequacy of the credit union’s collateral protection
  • The lien is being taken against the real estate out of an abundance of caution
  • The lien is being taken against the real estate for a purpose other than the real estate’s value
  • The transaction is a real estate lease
  • The transaction involves a pool of loans (including mortgage-backed securities); or
  • The transaction qualifies for sale to a United States government agency

In addition, the final rule establishes a new exemption for real estate located in a rural area. A credit union is permitted to waive the appraisal requirement under Part 722 under the following conditions:

  • The real estate securing the loan is located in a rural area (as described in Section 1026.35 of Regulation Z)
  • The loan amount is less than $400,000; and
  • Not later than 3 days following delivery of the Closing Disclosure to the borrower –
    • The credit union has contacted at least 3 state-certified or state-licensed appraisers; and
    • No state-certified or state-licensed appraiser was available within 5 business days to complete the appraisal

Appraisal Requirement

If one of the exemptions identified above does not apply, the final rule provides the conditions under which an appraisal is required:

  • An appraisal performed by a  state-certified  appraiser is required if:
    • The loan amount is $1 million or more; or
    • The transaction is considered “complex” and $250,000 or more of the loan is not insured by or guaranteed by a United States government agency
  • An appraisal performed by either a  state-certified  or  state-licensed  appraiser is required if:
    • The transaction is not “complex”; and
    • $250,000 or more of the loan is not insured by or guaranteed by a United States government agency

Written Estimate of Market Value

All other transactions require at minimum a written estimate of market value, unless the loan is fully insured or guaranteed by a United States government agency. The final rule requires that a written estimate of market value be performed by an individual that:

  • Is independent of the loan production and collection process at the credit union
  • Has no direct, indirect or prospective interest, financial or otherwise, in the subject property; and
  • Is qualified and experienced to perform such written estimates of market value.

The changes to NCUA Part 722 become effective 90 days following publication of the final rule in the Federal Register.

To assist credit unions with implementation of the changes to NCUA Part 722, Michael Christians Consulting, LLC has developed a flow chart available free of charge. Please contact Michael at michael@mchristiansconsulting.com for more information.

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