[Federal Register Volume 79, Number 244 (Friday, December 19, 2014)]
[Rules and Regulations]
[Pages 75746-75748]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-29635]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Parts 701 and 722

RIN 3133-AE36


Appraisals--Availability to Applicants and Requirements for 
Transactions Involving an Existing Extension of Credit

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

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SUMMARY: As part of NCUA's Regulatory Modernization Initiative, the 
NCUA Board (Board) is revising two of NCUA's regulations regarding 
appraisals. In response to a recent amendment to the Consumer Financial 
Protection Bureau's (CFPB) Regulation B, the Board is eliminating from 
NCUA's regulations the now duplicative requirement that federal credit 
unions (FCUs) make available, to any requesting member, a copy of the 
appraisal used in connection with that member's application for a loan 
secured by a first lien on a dwelling. Also, the Board is amending 
NCUA's appraisal regulations by expanding the current exemption for 
certain transactions involving an existing extension of credit. More 
specifically, under the expanded exemption, a federally insured credit 
union (FICU) will be permitted to refinance or modify a real estate-
related loan held by the FICU, without having to obtain another 
appraisal, if there is no advancement of new monies or if there is 
adequate collateral protection even with the advancement of new monies. 
Lastly, the Board is making a minor technical amendment to the 
definition of the term ``application.''

DATES: This rule is effective January 20, 2015.

FOR FURTHER INFORMATION CONTACT: Pamela Yu, Senior Staff Attorney, 
Office of General Counsel, National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314-3428 or telephone (703) 518-
6593.

SUPPLEMENTARY INFORMATION: 
I. Background and Proposal
II. Final Rule
III. Regulatory Procedures

I. Background and Proposal

A. Background

    Each year, NCUA reviews one-third of its regulations for substance 
and to ensure they are clear, current, and appropriate in scope. NCUA 
notifies the public of those regulations under review so that the 
public may have an opportunity to provide comments on those 
regulations.
    In 2013, NCUA reviewed part 722, along with several other parts of 
NCUA's regulations.\1\ Part 722 sets forth the appraisal requirements 
for federally-related transactions involving real estate. The appraisal 
requirements in part 722 are generally equivalent to the appraisal 
requirements of the other federal financial regulatory agencies.\2\
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    \1\ As part of the 2013 regulatory review process, NCUA also 
reviewed parts 711, 712, 713, 714, 715, 716, 717, 721, 723, 724, 
725, 740, 741, 745, and 747 of NCUA's regulations.
    \2\ For purposes of this rulemaking, these agencies are the 
Board of Governors of the Federal Reserve System, Federal Deposit 
Insurance Corporation, and Office of the Comptroller of Currency.
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    However, NCUA received numerous comments during the public comment 
period requesting a specific change to Sec.  722.3(a)(5) to better 
align NCUA's appraisal requirements with those of the

[[Page 75747]]

other federal financial regulatory agencies. Specifically, commenters 
requested that NCUA expand the current appraisal exemption for existing 
extensions of credit to allow a FICU to refinance or modify a real 
estate-related loan held by that FICU without having to obtain an 
additional appraisal.
    In addition, a number of commenters requested that NCUA eliminate 
the now duplicative portion of Sec.  701.31(c)(5) of NCUA's 
regulations, which requires an FCU to retain the appraisal used in 
connection with a real estate-related loan application for a period of 
25 months and to make a copy of the appraisal available to the 
applicant upon request. A recent amendment to Sec.  1002.14 of CFPB's 
Regulation B requires that all creditors, including FCUs, automatically 
provide applicants free copies of all appraisals and other written 
valuations developed in connection with an application for a loan to be 
secured by a first lien on a dwelling. As a result of this amendment to 
Regulation B, the requirements of Sec.  701.31(c)(5) of NCUA's 
regulations and Sec.  1002.14 of Regulation B overlap with respect to 
providing copies of appraisals used in connection with an application 
for a loan secured by a first lien on a dwelling.

B. June 2014 Proposed Rule

    In June 2014, as part of NCUA's regulatory review and in response 
to public comments received, the Board issued a proposed rule to amend 
two of NCUA's regulations regarding appraisals.\3\ Consistent with 
NCUA's Regulatory Modernization Initiative, the proposed amendments 
improve NCUA's regulations by better aligning them with the current 
marketplace, reduce costs for FICUs and their members, and remove 
outdated regulatory requirements.
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    \3\ 79 FR 36248 (June 26, 2014).
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    Specifically, the Board proposed to make the following three 
changes to NCUA's regulations. First, as requested by the public, the 
Board proposed to eliminate the now duplicative requirement in NCUA's 
regulations that requires FCUs to make available, to any requesting 
member, a copy of the appraisal used in connection with that member's 
application for a loan secured by a first lien on a dwelling. FCUs 
would still be required to provide a borrower with a copy of the 
appraisal used for a loan involving a subordinate lien on a dwelling.
    Additionally, the Board proposed to amend Sec.  722.3(a)(5) of 
NCUA's appraisal regulations to better align this appraisal exemption 
for existing extensions of credit with that applicable to banks. The 
current provision exempts from the appraisal requirement transactions 
that involve an existing extension of credit at the FICU, 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. Under the current 
regulation, for a transaction involving an existing extension of credit 
to be exempt from the general requirement to obtain an appraisal, the 
transaction must satisfy both the criteria in paragraph (i) and the 
criteria in paragraph (ii) of current Sec.  722.3(a)(5).
    The revised provision will allow FICUs to refinance or modify 
existing real estate-related loans without obtaining an appraisal if 
(1) there is no advancement of new monies; or (2) in transactions where 
there is an advancement of new monies, if there is no obvious and 
material change in market conditions or physical aspects of the 
property. In addition to achieving parity with banking regulations, the 
amendment gives FICUs more latitude to modify or refinance existing 
real estate loans for distressed borrowers without having to obtain an 
appraisal.
    Finally, the Board proposed to make a minor technical amendment to 
correct and update the definition of the term ``application'' in Sec.  
701.31(a)(1) of NCUA's regulations. Current Sec.  701.31(a)(1) defines 
the term ``application'' for purposes of part 701 as carrying the same 
``meaning of that term as defined in 12 CFR 1002.2(f) (Regulation B)'' 
and then provides a parenthetical quoting the text of the Regulation B 
definition of application, which has since been revised. As a result, 
the definition of application in Sec.  1002.2(f) no longer matches the 
quote in Sec.  701.31(a)(1). The technical amendment to Sec.  
701.31(a)(1) will update the definition.

II. Final Rule

    NCUA received thirteen comments on the proposed rule. Two comments 
were received from trade associations representing credit unions, seven 
from state credit union leagues, one from an FCU, and three from 
federally insured, state-chartered credit unions.
    All of the comments were supportive of the proposal. Commenters 
generally indicated that the proposed amendments will provide greater 
parity and consistency among federal financial regulations, eliminate 
redundancies, and benefit credit unions and their members by easing 
administrative and cost impediments to successful loan modifications. 
Several commenters, however, requested clarification of current 
regulatory requirements or offered comments beyond the scope of the 
June 2014 proposal.
    For example, two commenters suggested eliminating the current 
requirement that FCUs make available, to any requesting member, a copy 
of the appraisal used in connection with that member's application for 
a dwelling secured by a subordinate lien. The Board, however, proposed 
only to eliminate the portion of the current requirement in Sec.  
701.31(c)(5) relative to loans secured by a first lien on a dwelling 
because it is duplicative of Regulation B. The Board did not propose to 
eliminate those current protections provided under Sec.  701.31(c)(5) 
for FCU members regarding loans secured by subordinate liens because 
that portion of NCUA's regulations are not duplicative of Regulation B.
    As stated in the proposed rule, the consumer protections provided 
by NCUA's regulation and Regulation B do not overlap entirely. Under 
current Sec.  701.31(c)(5), FCUs are required under certain 
circumstances to provide copies of appraisals used in connection with 
an application for a real estate-related loan, which includes any loan 
to be secured by a first lien or a subordinate lien on a dwelling. The 
protections provided in Sec.  1002.14 of Regulation B extend to 
appraisals developed in connection with an application for a loan 
secured by a first lien on a dwelling. Despite this, the Board 
continues to believe the requirements of Sec.  701.31(c)(5) relating to 
appraisals used in connection with a loan secured by a subordinate lien 
on a dwelling must be retained as a consumer protection for FCU 
members.
    Several commenters asked for additional amendments to modify or 
clarify existing definitions or other current regulatory requirements. 
For example, one commenter requested clarification of the scope and 
meaning of the term ``dwelling'' in Sec.  701.31(a)(2)) of NCUA's 
regulations. The Board notes that the proposed rule did not modify any 
existing definitions or impose any new requirements on credit unions. 
All definitions in the current regulation have the same meaning under 
this final rule as they do under the current regulation. The Board also 
emphasizes that this final rule does not modify the 2010 Federal 
Financial Institutions Examination Council's interagency appraisal and 
evaluation guidelines and credit unions may continue to rely on that 
guidance.

[[Page 75748]]

    Accordingly, the Board is adopting the June 2014 proposed rule as 
final without change.

III. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \4\ requires NCUA to prepare 
an analysis to describe any significant economic impact a rule may have 
on a substantial number of small entities (defined for purposes of the 
RFA to include credit unions with assets less than $50 million).\5\ The 
amendments to parts 701 and 722 will only reduce regulatory impacts on 
credit unions by exempting them from certain regulatory requirements. 
Accordingly, the Board certifies the final rule will not have a 
significant economic impact on a substantial number of small credit 
unions.
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    \4\ 5 U.S.C. 601 et seq.
    \5\ 78 FR 4032 (Jan. 18, 2013).
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B. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in 
which an agency by rule creates a new paperwork burden on regulated 
entities or increases an existing burden.\6\ For purposes of the PRA, a 
paperwork burden may take the form of a reporting or recordkeeping 
requirement, both referred to as information collections. This final 
rule would not impose or expand upon any existing reporting or 
recordkeeping requirements. Accordingly, this final rule would not 
create new paperwork burdens or increase any existing paperwork 
burdens.
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    \6\ 44 U.S.C. 3507(d); 5 CFR part 1320.
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C. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. 
NCUA, an independent regulatory agency, as defined in 44 U.S.C. 
3502(5), voluntarily complies with the executive order to adhere to 
fundamental federalism principles. The final rule would not have 
substantial direct effects on the states, on the relationship between 
the national government and the states, or the distribution of power 
and responsibilities among the various levels of government. NCUA has, 
therefore, determined that this final rule does not constitute a policy 
that has federalism implications for purposes of the executive order.

D. Assessment of Federal Regulations and Policies on Families

    NCUA has determined that this final rule will not affect family 
well-being within the meaning of Sec.  654 of the Treasury and General 
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 
(1998).

E. Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 \7\ 
(SBREFA) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where NCUA issues a 
final rule as defined by Section 551 of the Administrative Procedure 
Act.\8\ NCUA does not believe this final rule is a ``major rule'' 
within the meaning of the relevant sections of SBREFA because it will 
only reduce regulatory burden on credit unions by exempting them from 
certain regulatory requirements. NCUA has submitted the rule to the 
Office of Management and Budget for its determination in that regard.
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    \7\ Public Law 104-121, 110 Stat. 857 (1996).
    \8\ 5 U.S.C. 551.
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List of Subjects

12 CFR Part 701

    Advertising, Aged, Civil rights, Credit, Credit unions, Fair 
housing, Individuals with disabilities, Insurance, Marital status 
discrimination, Mortgages, Religious discrimination, Reporting and 
recordkeeping requirements, Sex discrimination.

12 CFR Part 722

    Appraisals, Credit unions, Mortgages, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on December 
11, 2014.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the NCUA Board amends 12 CFR parts 
701 and 722 as follows:

PART 701--ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNIONS

0
1. The authority citation for part 701 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also 
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. 
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.


Sec.  701.31  [Amended]


0
2. Amend Sec.  701.31 as follows:
0
a. In paragraph (a)(1), remove the words ``, which is as follows:'' and 
remove the indented definition parenthetical ``An oral or written 
request for an extension of credit that is made in accordance with 
procedures established by a creditor for the type of credit 
requested''.
0
b. In paragraph (c)(5) in the first sentence, remove the words ``a copy 
of the appraisal used in connection with that member's real estate-
related loan application'' and add in their place the words ``a copy of 
the appraisal used in connection with that member's application for a 
loan to be secured by a subordinate lien on a dwelling'', and, in the 
second sentence, remove the words ``real estate-related loan 
application'' and add in their place the words ``application for a loan 
to be secured by a subordinate lien on a dwelling''.

PART 722--APPRAISALS

0
3. The authority citation for part 722 continues to read as follows:

    Authority: 12 U.S.C. 1766, 1789 and 3339.

Sec.  722.3  [Amended]

0
4. Amend Sec.  722.3 as follows:
0
a. In paragraph (a)(5) introductory text add the word ``lending'' 
before the words ``credit union'';
0
b. In paragraph (a)(5)(i) remove the word ``and'' and add in its place 
the word ``or''; and
0
c. In paragraph (a)(5)(ii) add the words ``, even with the advancement 
of new monies'' to the end of the paragraph.

[FR Doc. 2014-29635 Filed 12-18-14; 8:45 am]
BILLING CODE 7535-01-P