[Federal Register Volume 60, Number 48 (Monday, March 13, 1995)]
[Proposed Rules]
[Pages 13388-13393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-5592]



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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