[Federal Register Volume 84, Number 230 (Friday, November 29, 2019)]
[Proposed Rules]
[Pages 65707-65714]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25768]


 ========================================================================
 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 84, No. 230 / Friday, November 29, 2019 / 
Proposed Rules  

[[Page 65707]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 722

RIN 3133-AE98


Real Estate Appraisals

AGENCY: National Credit Union Administration (NCUA).

ACTION: Notice of proposed rulemaking and request for comment.

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SUMMARY: The NCUA Board (Board) proposes to amend the agency's 
regulation requiring appraisals for certain real estate-related 
transactions. The proposed rule would increase the threshold level 
below which appraisals would not be required for residential real 
estate-related transactions from $250,000 to $400,000. Consistent with 
the requirement for other transactions that fall below applicable 
appraisal thresholds, federally insured credit unions (FICUs) would be 
required to obtain written estimates of market value of the real estate 
collateral that is consistent with safe and sound banking practices in 
lieu of an appraisal. For easier reference, the proposed rule would 
explicitly incorporate the existing statutory requirement that 
appraisals be subject to appropriate review for compliance with the 
Uniform Standards of Professional Appraisal Practice (USPAP). This 
proposal is consistent with the final rule, effective on October 9, 
2019, issued by the Board of Governors of the Federal Reserve System, 
the Federal Deposit Insurance Corporation, and the Office of the 
Comptroller of the Currency (other banking agencies) that increases the 
threshold level at or below which appraisals are not required for 
residential real estate transactions from $250,000 to $400,000.

DATES: Comments must be received on or before January 28, 2020.

ADDRESSES: You may submit written comments, identified by RIN 3133-
AE98, by any of the following methods (Please send comments by one 
method only):
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Fax: (703) 518-6319. Include ``[Your Name]--Comments on 
Proposed Rule: Real Estate Appraisals'' in the transmittal.
     Mail: Address to Gerard Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.
    Public Inspection: You may view all public comments on the Federal 
eRulemaking Portal at http://www.regulations.gov as submitted, except 
for those we cannot post for technical reasons. NCUA will not edit or 
remove any identifying or contact information from the public comments 
submitted. You may inspect paper copies of comments in NCUA's law 
library at 1775 Duke Street, Alexandria, Virginia 22314, by appointment 
weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 
518-6546 or send an email to [email protected].

FOR FURTHER INFORMATION CONTACT: 
    Technical information: Kenneth Acu[ntilde]a, Senior Credit 
Specialist, (703)518-6613, Office of Examination and Insurance.
    Legal information: Rachel Ackmann, Senior Staff Attorney, (703) 
518-6540, Office of General Counsel.
    Address: National Credit Union Administration, 1775 Duke Street, 
Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION:

I. Introduction

    The Board proposes to increase the threshold level below which 
appraisals would not be required for real estate-related financial 
transactions secured by a single 1-to-4 family residential property 
(residential real estate transactions) from $250,000 to $400,000 
(residential threshold). The proposal would continue to require written 
estimates of market value that are consistent with safe and sound 
business practices for transactions exempted from the appraisal 
requirement by the increased threshold. The proposal to raise the 
residential threshold is based on consideration of available 
information on residential real estate transactions, supervisory 
experience, and comments received from the public in connection with 
the July 2019 NCUA rulemaking on real estate appraisals (July 2019 real 
estate appraisal rule) in which the Board specifically asked about 
increasing the threshold for residential real estate transactions.\1\ 
Generally, credit union-related commenters to the July 2019 real estate 
appraisal rule supported increasing the residential real estate 
threshold. The Board believes that the proposed increase to the 
residential threshold would reduce burden in a manner that is 
consistent with federal public policy interests in real estate-related 
financial transactions and the safety and soundness of FICUs.
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    \1\ 83 FR 49857 (Oct. 3, 2018) and 84 FR 35525 (July 24, 2019).
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    The Board has long recognized that the valuation information 
provided by appraisals and written estimates of market value assists 
FICUs in making informed lending decisions and mitigating risk. The 
Board also recognizes the role that appraisers play in helping to 
ensure a safe and sound real estate lending process. However, the Board 
is aware the cost and time of obtaining an appraisal can result in 
delays and higher expenses for both FICUs and borrowers. The Board also 
acknowledges that appraisals can provide protection to consumers by 
facilitating the informed use of credit and helping to ensure that the 
estimated value of the property supports the loan amount. However, 
written estimates of market value have provided these benefits for 
FICUs and borrowers for transactions below the current $250,000 
threshold.
    Under Title XI of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (Title XI),\2\ the NCUA must receive Consumer 
Financial Protection Bureau (CFPB) concurrence that the proposed 
residential threshold level provides reasonable protection for 
consumers who purchase ``1-4 unit single-family residences.'' \3\ 
Accordingly, the NCUA is consulting with the CFPB regarding the 
proposed residential threshold increase and will continue this 
consultation in developing a final rule. The Board notes that on August 
5, 2019, the CFPB concurred

[[Page 65708]]

that the other banking agencies' residential appraisal final rule's 
threshold of $400,000 provides reasonable protection for consumers who 
purchase ``1-4 unit single-family residences.'' \4\
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    \2\ 12 U.S.C. 3331 et seq.
    \3\ 12 U.S.C. 3341(b).
    \4\ Concurrence applied to the threshold, and the CFPB took no 
position with respect to any other aspect of the other banking 
agencies' residential appraisal final rule. See, https://files.consumerfinance.gov/f/documents/cfpb_firrea-concurrence_2019_08.pdf.
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II. Legal Authority

    Title XI directs each federal financial institutions regulatory 
agency \5\ to require regulated institutions to obtain appraisals 
meeting minimum standards for certain real estate-related transactions. 
The purpose of Title XI is to protect federal financial and public 
policy interests \6\ in real estate-related transactions \7\ by 
requiring that real estate appraisals used in connection with federally 
related transactions (Title XI appraisals) be performed in accordance 
with uniform standards, by individuals whose competency has been 
demonstrated, and whose professional conduct will be subject to 
effective supervision.\8\
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    \5\ ``Federal financial institutions regulatory agencies'' mean 
the Board of Governors of the Federal Reserve System; the Federal 
Deposit Insurance Corporation (FDIC); the Office of the Comptroller 
of the Currency, Treasury (OCC); the NCUA, and, formerly, the Office 
of Thrift Supervision. 12 U.S.C. 3350(6).
    \6\ These interests include those stemming from the federal 
government's roles as regulator and deposit insurer of financial 
institutions that engage in real estate lending and investment, 
guarantor or lender on mortgage loans, and as a direct party in real 
estate-related financial transactions. These federal financial and 
public policy interests have been described in predecessor 
legislation and accompanying congressional reports. See Real Estate 
Appraisal Reform Act of 1988, H.R. Rep. No. 100-1001, pt. 1, at 19 
(1988); 133 Cong. Rec. 33047-33048 (1987).
    \7\ 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 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. 12 U.S.C. 3350(5).
    \8\ 12 U.S.C. 3331.
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    Title XI directs the NCUA to prescribe appropriate standards for 
Title XI appraisals under the NCUA's jurisdiction, including, at a 
minimum that Title XI appraisals be: (1) Performed in accordance with 
USPAP; (2) written appraisals, as defined by the statute; and (3) 
subject to appropriate review for compliance with USPAP.\9\ All 
federally related transactions must have a Title XI appraisal.
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    \9\ 12 U.S.C. 3339. The NCUA's Title XI appraisal regulations 
apply to transactions entered into by the NCUA or by FICUs. 12 CFR 
722.1(b).
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    Title XI defines a ``federally related transaction'' as a real 
estate-related financial transaction that is regulated or engaged in by 
a federal financial institutions regulatory agency and requires the 
services of an appraiser.\10\ The NCUA has authority to determine those 
real estate-related financial transactions that do not require the 
services of a state-certified or state-licensed appraiser and are 
therefore exempt from the appraisal requirements of Title XI. Such 
exempt real estate-related financial transactions are not federally 
related transactions under the statutory or regulatory definitions 
because they are not required to have Title XI appraisals.\11\
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    \10\ 12 U.S.C. 3350(4) (defining ``federally related 
transaction'').
    \11\ See 59 FR 29482 (June 7, 1994).
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    The NCUA has exercised this authority by exempting several 
categories of real estate-related financial transactions from the Title 
XI appraisal requirements, including transactions at or below certain 
designated dollar thresholds.\12\ The NCUA has determined that these 
categories of transactions do not require appraisals by state-certified 
or state-licensed appraisers in order to protect federal financial and 
public policy interests or to satisfy principles of safety and 
soundness.
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    \12\ See 12 CFR 722.3(a).
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    Title XI expressly authorizes the NCUA to establish dollar 
threshold levels at or below which Title XI appraisals are not required 
if: (1) The NCUA determines, in writing, that the threshold does not 
represent a threat to the safety and soundness of financial 
institutions; and (2) the NCUA receives concurrence from the CFPB that 
such threshold level provides reasonable protection for consumers who 
purchase ``1-4 unit single-family residences.'' \13\ As noted above, 
transactions below the threshold level are exempt from the Title XI 
appraisal requirements and thus are not federally related transactions.
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    \13\ 12 U.S.C. 3341(b).
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III. Background

A. The Other Banking Agencies' Residential Real Estate Appraisal 
Rulemaking

    The other banking agencies issued a final rule on October 8, 2019, 
to amend their appraisal regulations to increase the threshold level at 
or below which appraisals would not be required for residential real 
estate-related transactions from $250,000 to $400,000 (other banking 
agencies' residential appraisal final rule).\14\ The other banking 
agencies' residential appraisal final rule, consistent with the 
requirement for other transactions that fall below applicable 
thresholds, requires regulated institutions to obtain an evaluation of 
the real property collateral that is consistent with safe and sound 
banking practices instead of an appraisal. The other banking agencies' 
residential appraisal final rule, pursuant to the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act),\15\ amends 
the other banking agencies' appraisal regulations to require regulated 
institutions to subject appraisals for federally related transactions 
to appropriate review for compliance with USPAP.
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    \14\ 84 FR 53579 (Oct. 8, 2019).
    \15\ Dodd-Frank Act, Sec.  1473(e), Public Law 111-203, 124 
Stat. 1376, 2191. USPAP is written and interpreted by the Appraisal 
Standards Board of the Appraisal Foundation. USPAP contains 
generally recognized ethical and performance standards for the 
appraisal profession in the United States, including real estate, 
personal property, and business appraisals. See http://www.appraisalfoundation.org/imis/TAF/Standards/Appraisal_Standards/Uniform_Standards_of_Professional_Appraisal_Practice/TAF/USPAP.aspx?hkey=a6420a67-dbfa-41b3-9878-fac35923d2af.
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B. Purpose of the Proposed Rule

    The Board is proposing to increase the appraisal threshold for 
residential real estate transactions in an effort to reduce regulatory 
burden, while maintaining federal public policy interests in real 
estate-related transactions and the safety and soundness of FICUs. To 
consider the probable effect on burden reduction, the NCUA assessed the 
potential impact of the proposed threshold increase on regulated 
transactions.\16\ The NCUA estimates that setting the appraisal 
threshold at $400,000 would continue to exempt the majority of 
residential real estate transactions from the NCUA's residential real 
estate appraisal requirement. The increase in the number of loans that 
would no longer require appraisals, as compared to the current $250,000 
threshold, would provide meaningful burden reduction for FICUs. The 
impact of the threshold change is discussed in more detail in section 
``IV. Proposed Rule.''
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    \16\ Regulated transactions are residential mortgage 
originations by NCUA-insured institutions that were not sold to the 
government-sponsored enterprises or otherwise insured or guaranteed 
by a U.S. government agency.
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    Some commenters to the July 2019 real estate appraisal rule 
(commenters) noted that obtaining an appraisal for a real estate 
transaction adds to the cost of the transaction, which is often passed 
on to the borrower. In addition, the need for an appraisal can delay 
the closing of a transaction when an appraiser cannot complete the 
appraisal timely. Thus,

[[Page 65709]]

reducing regulatory burden by increasing the appraisal threshold for 
residential real estate transactions may provide both transaction cost 
and time savings for FICUs and borrowers.
Cost and Time Estimates
    As discussed above, and as noted in the preamble to the other 
banking agencies' residential appraisal final rule, written estimates 
of market value generally cost less than Title XI appraisals for the 
same properties. The United States Department of Veterans Affairs' 
appraisal fee schedule \17\ for a single-family residence reflects that 
the cost of an appraisal generally ranges from $375 to $900, depending 
on the location of the property. Information available on the cost of 
written estimates of market value and appraisals suggests that there 
could be cost savings for FICUs and borrowers where a written estimate 
of market value, as opposed to an appraisal, is obtained.
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    \17\ See VA Appraisal Fee Schedules and Timeliness Requirements, 
available at https://www.benefits.va.gov/HOMELOANS/appraiser_fee_schedule.asp.
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    The Board also considered the amount of time it takes for lenders 
to receive a completed appraisal. The time it takes to complete a 
written estimate of market value may often be shorter than the time it 
takes to receive a Title XI appraisal, particularly in rural areas. As 
described in the Interagency Appraisal and Evaluations Guidelines 
(Guidelines), FICUs should review the property valuation prior to 
entering into a transaction.\18\
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    \18\ Interagency Appraisal and Evaluations Guidelines at 75 FR 
77458, 77461 (Dec. 10, 2010).
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    Congress recently amended Title XI by adding an exemption to the 
Title XI appraisal requirement for certain mortgage loans under 
$400,000 secured by property in rural areas. However, the exemption is 
only available where FICUs can document that they are unable to obtain 
an appraisal at a reasonable cost and within a reasonable timeframe, 
among other requirements.\19\ This proposed rule is broader in scope 
and would eliminate the requirement for an appraisal for all 
residential real estate transactions below $400,000. The proposed 
threshold would include all such transactions in rural areas without 
requiring FICUs to meet the other criteria of the rural residential 
appraisal exemption.\20\ The Board estimates the proposed rule would 
provide burden relief in rural areas at a proportional rate to the 
burden reduction overall.
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    \19\ Public Law 115-174.
    \20\ Accordingly, the proposed rule would remove the reference 
to this statutory exemption.
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    As discussed in the Safety and Soundness Considerations for 
Increasing the Residential Threshold section below, the Board estimates 
that under the proposed rule, the percentage of transactions exempted 
from the appraisal requirement would be restored to the level it was 
following the last threshold increase in 2001. For all of the above 
reasons, the proposed rule is expected to lead to cost savings, as well 
as reduce the time to close residential real estate loans.

C. Consumer Protection Considerations for Increasing the Residential 
Threshold

    Comments to the July 2019 real estate appraisal rule stated that 
appraisals provide some measure of consumer protection, and that 
increasing the appraisal threshold for residential real estate 
transactions could raise consumer protection issues. Appraisals can 
play a role in providing protection to borrowers who purchase 1-to-4 
family residential property.\21\ Indeed, the Dodd-Frank Act's amendment 
to Title XI added the CFPB to the group of agencies assigned a role in 
the appraisal threshold-setting process.\22\ As stated previously, the 
CFPB concurred that the other banking agencies' residential appraisal 
final rule's threshold of $400,000 provides reasonable protection for 
consumers who purchase ``1-4 unit single-family residences.'' \23\
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    \21\ The Board notes that information on property sales 
transactions and tax assessment values is now often widely available 
online.
    \22\ 12 U.S.C. 3341(b). The Dodd-Frank Act also required the 
CFPB to engage in rulemakings under amendments to Title XI, 
including standards for appraisal management companies (12 U.S.C. 
3353) and automated valuation models (12 U.S.C. 3354). In addition, 
the Dodd-Frank Act amended two consumer protection laws--the Truth 
in Lending Act (TILA), 15 U.S.C. 1601 et seq., and Equal Credit 
Opportunity Act (ECOA), 15 U.S.C. 1691 et seq.--to establish new 
requirements for appraisals and other valuation types. See 15 U.S.C. 
1639e and 1639h (TILA) and 15 U.S.C. 1691e (ECOA).
    \23\ Concurrence applies to the threshold, and the CFPB took no 
position with respect to any other aspect of the other banking 
agencies' residential appraisal final rule.
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    The NCUA has long required written estimates of market value in 
lieu of appraisals for many transactions, including certain 
transactions exempted by an appraisal threshold. A written estimate of 
market value must be consistent with safe and sound business practices 
and should contain sufficient information and analysis to support the 
decision to engage in the transaction, although it may be less 
structured than an appraisal.\24\
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    \24\ Guidelines, 75 FR at 77461.
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    The adequacy of written estimates of market value as a substitute 
for appraisals has previously been raised by commenters. One concern 
previously expressed during the July 2019 real estate appraisal 
rulemaking about the adequacy of written estimates of market value is 
that the individuals performing them are not required to have 
professional credentials for valuing real estate. On this point, the 
Board notes that one of the benefits of written estimates over 
appraisals that institutions have cited is that they can more readily 
be performed in-house. The Board notes, however, that under the NCUA's 
regulations, individuals preparing written estimates of market value 
must be qualified, competent, and independent of the transaction and 
the loan production function of the institution. The Board recently 
formalized specific independence expectations by codifying them in the 
regulation. The amended regulation requires that a written estimate of 
market value be performed by an individual who is independent of the 
loan production and collection processes, has no direct, indirect, or 
prospective interest, financial or otherwise, in the property or the 
transaction, and is qualified and experienced to perform such estimates 
of value for the type and amount of credit being considered. The Board 
believes that written estimates of market value prepared accordingly 
provide an important level of consumer protection for transactions 
below the proposed appraisal threshold.
    Additionally, the interim final rule on valuation independence (IFR 
on Valuation Independence) applies to all types of valuations (other 
than valuations produced solely using an automated model or system) 
used in connection with a consumer-purpose transaction secured by a 
borrower's principal dwelling.\25\ FICUs using written evaluations for 
transactions covered by the IFR on Valuation Independence must meet 
standards for independence that carry civil liability, regardless of 
transaction size.
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    \25\ The Federal Reserve Board issued the IFR on Valuation 
Independence in 2010 that amended Regulation Z (effective April 
2011), establishing independence rules for consumer purpose 
residential mortgage loans secured by a consumer's primary dwelling. 
See 75 FR 66554 (Oct. 28, 2010) and 75 FR 80675 (Dec. 23, 2010) 
(implementing Dodd-Frank Act amendments to TILA at 15 U.S.C. 1639e); 
Federal Reserve Board: 12 CFR 226.42; and CFPB: 12 CFR 1026.42.
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    Another consideration about the adequacy of written estimates of 
market value as a substitute for appraisals is that written estimates 
of market value are not required to be in a standard form, and specific 
content is not mandated. Therefore, it is possible that some written 
estimates of market value

[[Page 65710]]

will be more difficult for borrowers to understand, or that written 
estimates lack information about the property typically included in an 
appraisal that could be useful to a borrower. However, the NCUA has not 
noted any such issues with written estimates of market value being 
conducted for transactions below the current $250,000 threshold.
    Another consideration when weighing consumer protection issues is 
the availability to borrowers of alternative valuation information, 
such as written estimates of market value. The Dodd-Frank Act amended 
the Equal Credit Opportunity Act \26\ (ECOA) to require creditors to 
provide applicants free copies of appraisals and other types of 
valuations prepared in connection with first-lien transactions secured 
by a dwelling, which include written estimates of market value.\27\ 
Therefore, when a FICU conducts or obtains a written estimate of market 
value, it must be provided to the borrower.\28\
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    \26\ 15 U.S.C. 1691 et seq.
    \27\ See 15 U.S.C. 1691(e), implemented by the CFPB at 12 CFR 
1002.14. The Dodd-Frank Act also amended TILA to require creditors 
to provide applicants free copies of appraisals prepared in 
connection with certain higher-priced mortgage loans (HPMLs). See 15 
U.S.C. 1639h(c), implemented jointly by the OCC, Federal Reserve 
Board, FDIC, NCUA, Federal Housing Finance Agency (FHFA), and CFPB. 
See, OCC: 12 CFR 34.203(f); Federal Reserve Board: 12 CFR 226.43(f); 
CFPB: 12 CFR 1026.35(c)(6); NCUA: 12 CFR 722.3(a); FHFA: 12 CFR 
1222, subpart A (HPML Appraisal Rule). The FDIC adopted the HPML 
Appraisal Rule as published in the CFPB's regulation. See 78 FR 
78520, 10370, 10415 (Dec. 26, 2013).
    \28\ 12 CFR 1002.14.
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    The Board also notes that borrowers currently have significantly 
more access to property valuation information than when the appraisal 
threshold was last increased in 2001. For example, property records are 
often available to the public through the internet. These records may 
include not only a particular property's tax assessed value, but also 
the property's historical sales activity and information on other 
recent property sales in the area.\29\ These widely available data 
sources may reduce consumer reliance on appraisals. Borrowers also may 
obtain an appraisal before engaging in the transaction. In addition, 
appraisals would still be required, regardless of transaction amount, 
for certain higher-priced mortgage loans (HPMLs), pursuant to the HPML 
Appraisal Rule.\30\
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    \29\ Some states (or counties within states) do not publish sale 
amounts, but do provide estimates based on loan amounts or mortgage 
transfer taxes, which could be substantially different from the 
actual sale amount.
    \30\ 15 U.S.C. 1639h, implemented by the CFPB at 12 CFR 1026.35. 
Transactions covered by the HPML Appraisal Rule are limited due to 
significant exemptions from the requirements, including an exemption 
for qualified mortgages.
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    Finally, commenters have also raised concerns about the 
accountability of individuals performing written estimates of market 
value and borrowers' more limited options for recourse. For example, 
the Dodd-Frank Act required establishment of a national hotline for 
complaints against state-certified and state-licensed appraisers 
relating to non-compliance with appraisal independence and USPAP, 
including complaints from appraisers, individuals, borrowers, or other 
entities.\31\ State appraisal regulatory agencies have authority to 
discipline appraisers that violate USPAP. These consumer protection 
benefits are not applicable for complaints against individuals who 
prepare written estimates of market value. However, borrowers may have 
some recourse against individuals performing written estimates of 
market value. Borrowers may make a complaint to the CFPB consumer 
complaint database and, as discussed above, FICUs using written 
evaluations for transactions covered by the IFR on Valuation 
Independence may be subject to civil liability.
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    \31\ The Dodd-Frank Act instituted a number of reforms to ensure 
the legitimacy, independence, and oversight of appraisals. See Dodd-
Frank Act, Title XIV, Subtitle F--Appraisal Activities, Public Law 
111-203, 124 Stat. 1376, 2185.
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    The Board is requesting comment specifically on the following 
questions related to the consumer protection aspect of appraisals.
    Question 1: How often do FICUs use their own internal staff to 
prepare written estimates of market value?
    Question 2: What valuation information, if any, would borrowers 
lose in practice if more written estimates of market value are 
performed rather than appraisals? Please provide data or other evidence 
to support any comments.
    Question 3: To what extent do appraisals and written estimates of 
market value provide benefits or protections for borrowers that are 
purchasing 1-to-4 family residential property? What are the nature and 
magnitude of the differences, if any, in consumer protection? Please 
provide data or other evidence to support any comments.
    Question 4: To what extent is useful and accurate property 
valuation information readily available to borrowers through public 
sources?
    Question 5: How well have consumers understood written estimates of 
market value, and are there any concerns the Board should take into 
account? For example, would a model format for written estimates of 
market value be helpful to borrowers?
    Question 6: Are there any other consumer protection concerns raised 
by the proposal that the Board should consider?

IV. Proposed Rule

    Under the current appraisal rule, generally residential real estate 
transactions with a transaction value less than $250,000 do not require 
Title XI appraisals, but require written estimates of market value.\32\ 
The current thresholds were established in 2001 (2001 residential 
appraisal final rule) and effective in 2002.\33\ The Board proposes to 
increase the appraisal threshold from $250,000 to $400,000 for 
residential real estate transactions. Residential real estate 
transactions below the applicable threshold would still require a 
written estimate of market value that is consistent with safe and sound 
banking practices.\34\
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    \32\ 12 CFR 722.3. See also, 66 FR 58656, 58662 (Nov. 23, 2001). 
The other banking agencies promulgated a similar rule in 1994. See 
59 FR 29482 (June 7, 1994). Note that transactions with insurance or 
guarantees from a U.S. government agency or sponsored agency may 
have slightly different treatment.
    \33\ 66 FR 58656 (Nov. 23, 2001). The rule was effective March 
1, 2002.
    \34\ 12 CFR 722.3(d).
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A. Setting the Appropriate Threshold for Residential Real Estate 
Transactions

    In determining the level of the proposed increase, the Board 
considered the comments received to the July 2019 real estate appraisal 
rule, as well as a variety of home price and inflation indices. In 
particular, the NCUA analyzed residential home prices based on the 
Standard & Poor's Case-Shiller Home Price Index (Case-Shiller Index) 
\35\ and the FHFA Index,\36\ as well as the Consumer Price Index 
(CPI).\37\
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    \35\ The Case-Shiller Index tracks the value of single-family 
housing within the United States. See Standard & Poor's CoreLogic 
Case-Shiller Home Price Indices, available at https://us.spindices.com/index-family/real-estate/sp-corelogic-case-shiller.
    \36\ The FHFA Index tracks changes in residential property 
prices. See FHFA House Price Index, available at https://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx.
    \37\ The CPI, which is published by the Bureau of Labor 
Statistics, is a measure of the average change over time in the 
prices paid by urban consumers for a market basket of goods and 
services. See https://www.bls.gov/cpi/.
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    These home price indices reflect that prices for residential real 
estate have increased since 2002, when the 2001 residential appraisal 
final rule increase became effective. Table 1 below shows that the 
threshold level in 2002 of $250,000 would result in a price of 
approximately $450,000 as of June 2019, when adjusted by the Case-
Shiller Index

[[Page 65711]]

and the FHFA Index. Using the more general CPI, which tracks price 
changes for general consumer goods and services, would result in a 
value of approximately $360,000, which would be $425,000 based on when 
the other banking agencies changed their threshold to $250,000 in 1994.

                     Table 1--Appreciation in Residential Real Estate Prices Since 2002 \38\
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                                                  NCUA  proposed
                      Year                           threshold     Case-Shiller        FHFA             CPI
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                                     NCUA since the Last Threshold Increase
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2002............................................         250,000         250,000         250,000         250,000
2Q 2019.........................................         400,000         455,864         452,218         361,338
Compound annual growth rate (CAGR)..............            2.5%            3.2%            3.2%            2.0%
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                      Year                         OBA threshold   Case-Shiller        FHFA             CPI
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                            Other Banking Agencies since the Last Threshold Increase
----------------------------------------------------------------------------------------------------------------
1994............................................         250,000         250,000         250,000         250,000
2Q 2019.........................................         400,000         660,689         631,576         426,518
Compound annual growth rate (CAGR)..............            1.8%            3.7%            3.5%            2.0%
----------------------------------------------------------------------------------------------------------------

    Several commenters to the other banking agencies' residential 
appraisal final rule encouraged the other banking agencies to commit to 
adjusting the threshold periodically, or automatically adjusting the 
threshold, to reflect changes in housing values, market conditions, or 
inflation.\39\ The other banking agencies concluded that automatic 
adjustments to the threshold or agency commitments to set timetables 
for future threshold increases would not be appropriate. The NCUA also 
believes that automatic adjustments to the threshold are not 
appropriate. The NCUA is required by Title XI to weigh safety and 
soundness implications regarding any proposed threshold increase and 
obtain CFPB concurrence on whether the threshold provides reasonable 
protection for borrowers of ``1-4 unit single-family residences.'' In 
addition, the NCUA already periodically reviews (at least every three 
years) its regulations to identify outdated or unnecessary regulatory 
requirements and can consider any comments concerning the thresholds 
through that process.
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    \38\ For this Table, the analysis uses a starting date of 
January 1 of the year a threshold is increased and goes until June 
30, 2019. The other banking agencies conducted a similar analysis, 
however, used dates June 30, 1994 to June 30, 2019.
    \39\ 84 FR 53579, 53583 (Oct. 8, 2019).
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B. Safety and Soundness Considerations for Increasing the Residential 
Threshold

    Under Title XI, in setting a threshold at or below which an 
appraisal performed by a state-certified or state-licensed appraiser is 
not required, the NCUA must determine in writing that such a threshold 
level does not pose a threat to the safety and soundness of FICUs.\40\ 
The Board evaluated a number of factors in considering the effect of 
the proposed residential threshold on the safety and soundness of 
FICUs. The Board determined that the proposed threshold of $400,000 for 
residential real estate transactions is not expected to pose a threat 
to the safety and soundness of FICUs for the reasons discussed below.
---------------------------------------------------------------------------

    \40\ 12 U.S.C. 3341(b).
---------------------------------------------------------------------------

    First, the proposed threshold level of $400,000 would exempt a 
similar number of transactions and dollar volume of transactions as did 
the current threshold of $250,000 when it was set in 2001. The increase 
in the appraisal threshold in the 2001 residential appraisal final rule 
did not result in a material increase in risk to safety and 
soundness.\41\
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    \41\ None of the 27 material loss reviews of FICU failures 
conducted by the NCUA's Inspector General since the mid-2000s found 
a lack of appraisals as the cause of a FICU's failure.
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    The NCUA conducted analyses using 2018 data reported under the Home 
Mortgage Disclosure Act (HMDA), which requires a variety of financial 
institutions to maintain, report, and publicly disclose loan-level 
information about residential mortgage originations. Information 
reported under HMDA includes various data points relevant to the NCUA's 
analysis, including loan size, loan type, property type, property 
location, and secondary market purchaser. While the HMDA data has 
limitations, including that certain low-volume originators and 
originators located in rural areas are not required to report, the 
Board believes it provides a representative sample of the universe of 
mortgage originations, including transactions subject to the NCUA's 
appraisal requirement.
    As described in further detail below, the NCUA used 2018 HMDA data 
to estimate the effect of the proposed residential threshold increase. 
The NCUA used HMDA data to determine the number of transactions and 
dollar volume of transactions that would be affected relative to: (1) 
Total FICU originations reported in the HMDA data; and (2) transactions 
originated by NCUA-insured institutions that were not sold to a 
government-sponsored enterprise (GSE) or otherwise insured or 
guaranteed by a U.S. government agency (regulated transactions). The 
NCUA compared these figures with similar figures using data from 2001, 
which was the data set used to evaluate the 2001 residential appraisal 
final rule when the $250,000 residential appraisal threshold was 
adopted.
    As outlined in Table 2 below, the NCUA estimates that approximately 
77 percent of FICU residential real estate transactions for a total of 
55 percent of the dollar amount of the transactions, are currently not 
subject to the NCUA's residential appraisal requirement. This is 
estimated to increase to 94 percent of transactions and 83 percent of 
the dollar amount with the proposed increased threshold. For context, 
in 2001, an estimated 95 percent of residential transactions and 80 
percent of the dollar amount of residential transactions were exempt 
when the current $250,000 threshold was set.

[[Page 65712]]



                                                        Table 2--2018 HMDA Data Mortgage Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Newly exempted
                                                              Exempted by        by proposed     Total exempted by   Appraisal still
       Regulated transactions by transaction amount        current threshold     increase to     proposed increase    required over          Total
                                                               of $250,000         $400,000         to $400,000          $400,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of transactions...................................            215,155             45,860            261,015             16,989            278,004
% of total...............................................                77%                16%                94%                 6%               100%
Dollar volume ($ billions)...............................               27.0               14.2               41.2                8.3               49.5
% of total...............................................                55%                29%                83%                17%               100%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As seen below in Table 3, the proposed residential threshold also 
would result in a level of residential transaction coverage consistent 
with the coverage estimated for the 2001 threshold increase, which did 
not result in a risk to safety and soundness.

                                                        Table 3--2001 HMDA Data Mortgage Analysis
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Newly exempted
                                                              Exempted by        by proposed     Total exempted by   Appraisal still
       Regulated transactions by transaction amount        current threshold     increase to     proposed increase    required over          Total
                                                               of $100,000         $250,000         to $250,000          $250,000
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of transactions...................................            299,674            143,185            442,859             22,575            465,434
% of total...............................................                64%                31%                95%                 5%               100%
Dollar volume ($ billions)...............................               12.2               18.3               30.6                7.6               38.2
% of total...............................................                32%                48%                80%                20%               100%
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The Board also estimates that the proposed rule would increase the 
share of exempt transactions from 83 percent to 95 percent for 
transactions that are secured by residential property located in a 
rural area. The Board also estimates that the proposed rule would 
exempt 83 percent of the dollar volume of transactions that are secured 
by residential property located in a rural area.
    Second, the new threshold would not introduce significant 
additional risk to the credit union system. Based on 2018 data, the 
NCUA estimates the proposed new threshold would only incrementally 
exempt real estate-secured loans granted each year. FICUs originated 
approximately $78 billion in residential transactions in 2018. Of that 
amount, approximately $18 billion of transactions were sold to Federal 
National Mortgage Association (Fannie Mae) and Federal Home Loan 
Mortgage Corporation (Freddie Mac) and $11 billion of transactions were 
insured or sold as part of other government guarantee programs.\42\ 
Therefore, approximately $50 billion in originated residential real 
estate transactions were subject to the NCUA's appraisal rule. 
Approximately $27 billion of the originated residential real estate 
transactions were exempted from appraisal requirements because the 
transaction values were under the current $250,000 threshold. In 
addition, $8 billion of originated residential real estate transactions 
had transaction values of $400,000 or greater, and therefore would 
continue to be subject to appraisal requirements under the proposed 
rule. Therefore, the proposed rule would only exempt an additional $14 
billion of residential real estate transactions from appraisal 
requirements, or 46,000 transactions. The incremental impact of the 
proposed increased threshold, $14 billion, equates to approximately 0.9 
percent of FICU assets as of the June 30, 2019 Statement of Financial 
Condition (referred to as the Call Report). Relative to credit union 
system assets, the incremental level of residential transactions exempt 
from appraisals would not pose undue risk.
---------------------------------------------------------------------------

    \42\ Other government guarantee programs consists of Federal 
Housing Administration insured (FHA), Veterans Affairs guaranteed 
(VA), and USDA Rural Housing Service or Farm Service Agency 
guaranteed (RHS or FSA).
---------------------------------------------------------------------------

    Third, the NCUA examined data reported on the (Call Report) and 
determined that FICUs' residential real estate-secured loans have 
performed well with relatively low delinquencies and net charge-off 
rates.\43\ To evaluate the impact of residential real estate 
transactions on the safety and soundness of the credit union system, 
the NCUA compared the net charge-off rates from 1994 to 2018, which 
includes two recessionary periods. The net charge-off rate for 
residential real estate transactions did not increase after the NCUA's 
increase in the appraisal threshold from $50,000 to $100,000 in 1995, 
or when the NCUA threshold was increased to $250,000 in 2001. These 
prior threshold increases did not have a negative impact on loan 
performance.
---------------------------------------------------------------------------

    \43\ Net charge-offs are charge-offs minus recoveries. Net 
charge-offs represent losses to financial institutions.
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    The net charge-off rate for residential real estate loans from 2001 
through 2007 ranged from three to nine basis points. For context, FDIC-
insured institutions experienced residential real estate net charge-
offs rates of seven to 25 basis points during the same period. From 
2008 through 2011, during and immediately after the last recession, 
FICU net charge-off rates for residential real estate loans ranged from 
11 to 68 basis points. FDIC-insured institutions experienced net 
charge-off rates for residential real estate loans ranging from 104 to 
231 basis points during the same period. The data reflects that the 
loss experience associated with residential real estate loans in FICUs 
has been relatively modest. Thus, an increase in the appraisal 
threshold is not expected to pose a safety and soundness risk to FICUs 
or the National Credit Union Share Insurance Fund.
    Further, based on supervisory experience and analysis of material 
loss reviews conducted by the NCUA's Inspector General, appraisals have 
not been a substantial factor in any material FICU failures. Of the 27 
material loss reviews, 14 were residential real estate related, but 
none of the failures resulted from a lack of appraisals. This available 
data on failures during the recent recession suggests that an increase 
in the threshold is not expected to pose a safety and soundness risk to 
FICUs or

[[Page 65713]]

the National Credit Union Share Insurance Fund.
    Finally, the NCUA considered the requirement for transactions below 
applicable thresholds to obtain written estimates of market value and 
how this requirement contributes to safety and soundness. The NCUA's 
appraisal regulations require FICUs to obtain written estimates of 
market value for all real estate-related financial transactions that do 
not require a Title XI appraisal, unless the real estate-related 
financial transaction is explicitly exempt from written estimate of 
market value requirements.\44\ A written estimate of market value 
prepared by qualified, competent, and independent individuals who use 
appropriate supporting information provides FICUs an alternative 
estimate of market value and should provide sufficient information to 
enable FICUs to make a prudent decision regarding the transaction.
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    \44\ See 12 CFR 722.3(d).
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    Through the Guidelines, the NCUA has provided guidance to FICUs on 
its expectations regarding when and how written estimates of market 
value should be used.\45\ The Guidelines provide guidance on obtaining 
appropriate written estimates of market value that are consistent with 
safe and sound banking practices. Written estimates of market value 
must be performed by persons who are competent and have the relevant 
experience and knowledge of the market, location, and type of real 
property being valued. The Guidelines state that a written estimate of 
market value should provide an estimate of the property's market value 
and have sufficient information and analysis to support the credit 
decision. The Guidelines also describe the content that an evaluation 
should contain.
---------------------------------------------------------------------------

    \45\ Guidelines at 77460.
---------------------------------------------------------------------------

    In addition, the NCUA strengthened independence requirements for 
individuals performing written estimates of market value. Specifically, 
the Board recently incorporated into the NCUA's appraisal rule the 
existing Guidelines expectation that the individual performing a 
written estimate of market value be independent of the loan production 
and collection processes. The Board believes that the enhanced 
independence requirement is an important prudential safeguard.
    Furthermore, as is the current practice, FICUs and borrowers may 
obtain appraisals to establish collateral value even if a transaction 
is exempt from the appraisal requirement. For example, this may be done 
for transactions below the appraisal threshold levels. The Guidelines 
advise FICUs to develop policies and procedures for identifying 
instances when this would be prudent.\46\ The Guidelines recommend that 
a FICU should obtain an appraisal instead of a written estimate of 
market value for higher-risk real estate-related financial 
transactions. The Guidelines list factors such as those involving loans 
with high loan-to-value ratios and properties outside the FICU's 
traditional lending market. The NCUA also retains the ability to 
require an appraisal whenever ``necessary to address safety-and-
soundness concerns.'' \47\
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    \46\ Guidelines at 77460.
    \47\ 12 CFR 722.3(e).
---------------------------------------------------------------------------

    The Board also notes that FICUs have used written estimates of 
market values for transactions below the applicable appraisal 
thresholds successfully since the issuance of the first rule 
implementing Title XI.\48\ The Board believes written estimates of 
market value are a proven safe and sound alternative for transactions 
below the applicable thresholds. The Board will continue to evaluate a 
FICU's use of written estimates of market value as part of its 
examination and supervision program.
---------------------------------------------------------------------------

    \48\ 55 FR 30199 (Jul. 25, 1990).
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C. Appraisal Review

    Section 1473(e) of the Dodd-Frank Act amended Title XI to include a 
requirement that appraisals be subject to appropriate review for 
compliance with USPAP.\49\ The proposed rule would make a conforming 
amendment to the NCUA's appraisal regulation to explicitly incorporate 
the existing statutory requirement for easier reference. The Board 
proposes to mirror the statutory language for this standard. As 
outlined in the Guidelines, which provide guidance on the review 
process, the NCUA has long recognized that appraisal review is 
consistent with safe and sound lending practices.\50\ The NCUA already 
sets minimum appraisal standards that require appraisals to conform to 
USPAP's generally accepted appraisal standards. In addition, the NCUA 
recommends that FICUs have effective quality controls over the 
appraisal process through a periodic review of work completed by 
appraisers, and for individuals selected to hold appropriate state 
certification or licenses. A FICU should ensure that selected 
appraisers have the right qualifications for a given transaction and 
property in order for the appraisers to be able to make appropriate 
adjustments to market value for factors such as prospective 
improvements, lease terms, and market conditions.
---------------------------------------------------------------------------

    \49\ Dodd-Frank Act, section 1473, Public Law 111-203, 124 Stat. 
1376.
    \50\ See Guidelines, at 77453.
---------------------------------------------------------------------------

D. Consistency With Other Banking Agencies

    On October 9, 2019, the other banking agencies' residential 
appraisal final rule to amend their appraisal regulations became 
effective. Their final rule increased the threshold level at or below 
which appraisals would not be required for residential real estate 
transactions from $250,000 to $400,000. The rule, consistent with the 
requirement for other transactions that fall below applicable 
thresholds, also requires regulated institutions to obtain an 
evaluation of the real property collateral that is consistent with safe 
and sound banking practices in lieu of an appraisal.
    The NCUA and the other banking agencies had the same threshold for 
residential transactions from 2002 up to 2019. Commenters to the July 
2019 real estate appraisal rule expressed concern that any differences 
between the residential threshold for banks and FICUs may create a 
competitive disadvantage for FICUs and their 117 million members.
    The Board is requesting comment specifically on the following 
questions related to the analysis for the proposed rule and written 
estimates of market value.
    Question 7: Is $400,000 an appropriate level for the residential 
appraisal threshold?
    Question 8: Are there other sources of data that would be useful to 
analyze this issue?
    Question 9: Will the proposed rule lead to cost savings for FICUs 
and/or borrowers, as well as reduce the time to close residential real 
estate loans?
    Question 10: Will FICUs expand their use of written estimates of 
market value if the proposal to raise the residential threshold is 
finalized, or continue to use appraisals for the residential real 
estate transactions below $400,000 that are eligible for this 
exemption? For what types of eligible residential real estate 
transactions are FICUs likely to obtain written estimates of market 
value? Please provide data or other evidence to support any comments.
    Question 11: What, if any, concerns are raised by incorporating the 
requirement to review appraisals consistent with the referenced 
statutory language?

[[Page 65714]]

V. Request for Comments

    In addition to the above questions outlined, the Board invites 
comment on all aspects of the proposed rulemaking.

VI. Regulatory Procedures

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires that, in 
connection with a notice of proposed rulemaking, an agency prepare and 
make available for public comment an initial regulatory flexibility 
analysis that describes the impact of a proposed rule on small 
entities. A regulatory flexibility analysis is not required, however, 
if the agency certifies that the rule will not have a significant 
economic impact on a substantial number of small entities (defined for 
purposes of the RFA to include FICUs with assets less than $100 
million) and publishes its certification and a short, explanatory 
statement in the Federal Register together with the rule.
    Data currently available to the NCUA is not sufficient to estimate 
how many small FICUs make residential real estate loans in amounts that 
fall between the current and proposed thresholds. Therefore, the NCUA 
cannot estimate how many small entities may be affected by the 
increased threshold and how significant the reduction in burden may be 
for such small entities. The NCUA believes, however, that the proposed 
threshold increase will meaningfully reduce burden for small FICUs. 
Accordingly, the NCUA certifies that the proposed rule will not have a 
significant economic impact on a substantial number of small FICUs.

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 modifies an existing burden (44 U.S.C. 3507(d)). For 
purposes of the PRA, a paperwork burden may take the form of a 
reporting, recordkeeping, or a third-party disclosure requirement, 
referred to as an information collection. The NCUA may not conduct or 
sponsor, and the respondent is not required to respond to, an 
information collection unless it displays a valid OMB control number.
    The proposed rule increases the threshold from $250,000 to $400,000 
for residential real estate transactions for which an appraisal is 
required. Transaction values of less than $400,000 do not require an 
appraisal, but a written estimate of market value. The information 
collection requirement of this part is that the FICU retain a record of 
either the appraisal or estimate, whichever applies. Even though the 
threshold has increased, the proposal will not result in a change in 
burden. This recordkeeping requirement is cleared under OMB control 
number 3133-0125. There is no new information collection requirements 
associated with this proposed rule.

C. Executive Order 13132

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

D. Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule will not affect 
family well-being within the meaning of Section 654 of the Treasury and 
General Government Appropriations Act, 1999.

List of Subjects in 12 CFR Part 722

    Appraisal, Appraiser, Credit unions, Mortgages, Reporting and 
recordkeeping requirements, Truth in lending.

    By the National Credit Union Administration Board on November 
21, 2019.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the NCUA Board proposes to amend 
12 CFR part 722 as follows:

PART 722--APPRAISALS

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

    Authority: 12 U.S.C. 1766, 1789, and 3331 et seq. Section 
722.3(a) is also issued under 15 U.S.C. 1639h.

0
2. Amend Sec.  722.3 by:
0
a. Revising paragraphs (b)(2), (c)(1); and
0
b. Removing paragraph (f).
    The revision reads as follows:


Sec.  722.3  Appraisals and written estimates of market value 
requirements for real estate-related financial transactions.

* * * * *
    (b) * * *
    (1) * * *
    (2) The transaction is complex, involves a residential real estate 
transaction, and $400,000 or more of the transaction value is not 
insured or guaranteed by a United States government agency or United 
States government sponsored agency.
    (c) * * *
    (1) An appraisal performed by a state-certified appraiser or a 
state-licensed appraiser is required for any real estate-related 
financial transaction not exempt under paragraph (a) of this section in 
which the transaction is not complex, involves a residential real 
estate transaction, and $400,000 or more of the transaction value is 
not insured or guaranteed by a United States government agency or 
United States government sponsored agency.
* * * * *
0
3. Amend Sec.  722.4 by:
0
a. Republishing the introductory text;
0
b. Redesignating paragraphs (c), (d), and (e) as (d), (e), and (f), 
respectively;
0
c. Adding a new paragraph (c); and
0
d. Revising in newly designated paragraph (e) the text ``Sec.  
722.2(f)'' and adding in its place the text ``Sec.  722.2''.
    The addition reads as follows.


Sec.  722.4  Minimum appraisal standards.

    For federally related transactions, all appraisals shall, at a 
minimum:
* * * * *
    (c) Be subject to appropriate review for compliance with the 
Uniform Standards of Professional Appraisal Practice.
* * * * *
[FR Doc. 2019-25768 Filed 11-27-19; 8:45 am]
BILLING CODE 7535-01-P