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NCUA’s Proposed Appraisal Rule: The Sequel

Last week, we discussed the NCUA’s proposed rulemaking related to appraisals. In today’s post, I’ll discuss parts two and three of that proposal.

Part two of the proposed rule seeks to establish consistency between credit unions and other banking agencies as to when an appraisal is required in connection with a real estate related transaction. Currently, Section 722.3(a)(5) of the NCUA’s rules and regulations requires that an appraisal be completed on every real estate related transaction unless one of nine exceptions applies. One of those exceptions reads as follows:

The transaction involves an existing extension of credit at the credit union, provided that:

  • There is no advancement of new monies, other than funds necessary to cover reasonable closing costs; AND
  • 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.

The NCUA is proposing to amend the language of the exception by replacing AND with OR. Currently, other banking agencies qualify for an exception to the mandatory appraisal requirement by satisfying either requirement, not both. The proposed rule would provide parity and permit a federally insured credit union to refinance or modify a real estate related loan, without having to obtain an appraisal, if there is no advancement of new money or if there is adequate collateral protection even with the advancement of new money.

Part three of the proposed rule would make a technical amendment to the definition of “application” found in Section 701.31(a)(1) of the NCUA’s non-discrimination requirements. Currently, this section provides that application has the same meaning as assigned to it under Regulation B and then it parenthetically quotes that definition. Now that the Regulation B definition has been revised, the parenthetical is inaccurate. The proposed rule would remove the parenthetical altogether and retain only a cross-reference to Regulation B’s application definition.

As a reminder, if your credit union would like to comment on the proposed rule, comments must be received on or before August 25th.

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