[Federal Register Volume 85, Number 77 (Tuesday, April 21, 2020)]
[Rules and Regulations]
[Pages 22014-22017]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-08435]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 722

RIN 3133-AF17


Real Estate Appraisals

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: The NCUA Board (Board) is adopting this interim final rule to 
amend its regulations requiring appraisals of real estate for certain 
transactions. The interim final rule defers the requirement to obtain 
an appraisal or written estimate of market value for up to 120 days 
following the closing of a transaction for certain residential and 
commercial real estate transactions, excluding transactions for 
acquisition, development, and construction of real estate. Credit 
unions should make best efforts to obtain a credible valuation of real 
property collateral before the loan closing, and otherwise underwrite 
loans consistent with safety and soundness principles. The Board is 
providing this relief to allow credit unions to expeditiously extend 
liquidity to creditworthy households and businesses in light of recent 
strains on the U.S. economy as a result of the National Emergency 
declared in connection with coronavirus disease 2019 (COVID-19). The 
interim final rule is substantially identical to a recent interim final 
rule issued by the Office of the Comptroller of the Currency, Treasury 
(OCC); Board of Governors of the Federal Reserve System (FRB); and 
Federal Deposit Insurance Corporation (FDIC) (collectively, the other 
banking agencies) that also defers the requirement to obtain an 
appraisal or evaluation for up to 120 days following the closing of a 
transaction for certain residential and commercial real estate 
transactions.

DATES: The interim final rule is effective April 21, 2020 through 
December 31, 2020. Comments on the interim final rule must be received 
no later than June 5, 2020.

ADDRESSES: You may submit written comments, identified by RIN 3133-
AF17, 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 
Interim Final 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. The NCUA will not edit 
or remove any identifying or contact information from the public 
comments submitted. Due to social distancing measures in effect through 
at least April 30, 2020, the usual opportunity to inspect paper copies 
of comments in the NCUA's law library is not currently available. After 
social distancing measures are relaxed, visitors may make an 
appointment to review paper copies by calling (703) 518-6540 or 
emailing [email protected].

FOR FURTHER INFORMATION CONTACT: Technical information: Uduak Essien, 
Director--Credit Markets, (703) 518-6399, and Lou Pham, Senior Credit 
Specialist, (703) 548-2745, Office of Examination and Insurance. Legal 
information: Rachel Ackmann, Senior Staff Attorney, (703) 548-2601, 
Office of General Counsel, National Credit Union Administration, each 
at 1775 Duke Street, Alexandria, VA 22314.

SUPPLEMENTARY INFORMATION:

[[Page 22015]]

Table of Contents

I. Introduction
    A. Background
    B. Summary of the Interim Final Rule
II. The Interim Final Rule
III. Effective Date
IV. Administrative Law Matters
    A. Administrative Procedure Act
    B. Congressional Review Act
    C. Paperwork Reduction Act
    D. Regulatory Flexibility Act Analysis
    E. Executive Order 13132
    F. Assessment of Federal Regulations and Policies on Families

I. Introduction

A. Background

    Impact of COVID-19 on appraisals and written estimates of market 
value. Due to the impact of COVID-19, businesses and individuals have a 
heightened need for additional liquidity. Being able to quickly access 
equity in real estate could help address this need. However, government 
restrictions on non-essential movement and health and safety advisories 
in response to the National Emergency declared in connection with 
COVID-19,\1\ including those relating to social distancing, have led to 
complications with respect to performing and completing real property 
appraisals and written estimates of market value needed to comply with 
federal appraisal regulations. As a result, some borrowers may 
experience delays in obtaining funds needed to meet immediate and near-
term financial needs.
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    \1\ Proclamation 9994, 85 FR. 15337 (March 18, 2020).
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    Title XI and the appraisal regulations. Title XI directs each 
Federal financial institutions regulatory agency to publish appraisal 
regulations for federally related transactions within its 
jurisdiction.\2\ The purpose of Title XI is to protect federal 
financial and public policy interests \3\ in real estate-related 
transactions by requiring that real estate appraisals used in 
connection with federally related transactions (Title XI appraisals) 
are performed in writing, in accordance with uniform standards, by 
individuals whose competency has been demonstrated and whose 
professional conduct will be subject to effective supervision.\4\
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    \2\ The term ``Federal financial institutions regulatory 
agencies'' means the FRB, the FDIC, the OCC, the National Credit 
Union Administration, and, formerly, the Office of Thrift 
Supervision. 12 U.S.C. 3350(6).
    \3\ 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).
    \4\ 12 U.S.C. 3331.
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    Title XI directs the Board to prescribe appropriate standards for 
Title XI appraisals under its jurisdictions.\5\ At a minimum, the 
statute provides that a Title XI appraisal must be: (1) Performed in 
accordance with the Uniform Standards of Professional Appraisal 
Practice (USPAP); (2) a written appraisal, as defined by the statute; 
and (3) subject to appropriate review for compliance with USPAP.\6\ 
While appraisals are ordinarily completed before a lender and borrower 
close a real estate transaction, there is no specific requirement in 
USPAP that appraisals be completed at a specific time relative to the 
closing of a transaction.
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    \5\ 12 U.S.C. 3339.
    \6\ Id.
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    All federally related transactions must have Title XI appraisals. 
Title XI defines a ``federally related transaction'' as a real estate-
related financial transaction \7\ that is regulated or engaged in by a 
federal financial institutions regulatory agency and requires the 
services of an appraiser.\8\ The Board has the authority to determine 
those real estate-related financial transactions that do not require 
the services of an appraiser and thus are not required to have Title XI 
appraisals.\9\ The Board has exercised this authority by exempting 
certain categories of real estate-related financial transactions from 
its appraisal requirements.\10\
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    \7\ 12 U.S.C. 3350(5). 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 property as security 
for a loan or investment, including mortgage-backed securities.
    \8\ 12 U.S.C. 3350(4).
    \9\ Real estate-related financial transactions that the Board 
has exempted from its appraisal requirement are not federally 
related transactions under its appraisal regulations.
    \10\ See 12 CFR 722.3(a). 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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    The Board has used its safety and soundness authority to require 
written estimates of market value for a subset of transactions for 
which an appraisal is not required.\11\ Under the appraisal 
regulations, for these transactions, credit unions must obtain an 
appropriate written estimate of market value that is consistent with 
safe and sound practices.\12\
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    \11\ See 12 CFR 722.3(d).
    \12\ The NCUA and the other banking agencies have provided 
guidance on appraisals and evaluations (referred to as written 
estimates of market value in part 722) through the Interagency 
Guidelines on Appraisals and Evaluations. See 75 FR 77450 (December 
10, 2010), available at https://www.ncua.gov/files/letters-credit-unions/LCU2010-23Encl.pdf.
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    Authority to defer appraisals and written estimates of market 
value. In general, the Board requires that Title XI appraisals for 
federally related transactions occur prior to closing of a federally 
related transaction.\13\ The Interagency Guidelines on Appraisals and 
Evaluations provide similar information about written estimates of 
market value.\14\ Under this interim final rule, deferrals of 
appraisals and written estimates of market value will allow for 
expeditious access to credit. The deferrals, which will be temporary, 
are offered in response to a National Emergency. Credit unions that 
defer receipt of an appraisal or written estimate of market value are 
still expected to conduct their lending activity consistent with safe 
and sound underwriting principles, such as the ability of a borrower to 
repay a loan and other relevant laws and regulations.\15\ These 
deferrals are not an exercise of the NCUA's waiver authority, because 
appraisals and written estimate of market value are being deferred, not 
waived. The deferrals are also not a waiver of USPAP requirements, 
given that (1) USPAP does not address the completion of an appraisal 
assignment with the timing of a lending decision; and (2) the deferred 
appraisal must be conducted in compliance with USPAP.
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    \13\ See 12 CFR 722.3(a), 722.4(b)&(d) (requiring an appraisal 
to: (1) Contain sufficient information and analysis to support the 
institution's decision to engage in the transaction, and (2) be 
based on the definition of market value in the regulation, which 
takes into account a specified closing date for the transaction).
    \14\ See 75 FR 77450 (Dec. 10, 2010), available at https://www.ncua.gov/files/letters-credit-unions/LCU2010-23Encl.pdf.
    \15\ See, 12 U.S.C. 1786(b) and (e); and 12 CFR 723.4; 12 CFR 
741.3(b).
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    The deferral of written estimates of market value reflects the same 
considerations relating to the impact of COVID-19 as the deferral of 
appraisals. The Board requires written estimates of market value for 
certain exempt transactions as a matter of safety and soundness. 
Written estimates of market value do not need to comply with USPAP, but 
must be sufficiently robust to support a valuation conclusion. A 
written estimate of market value can be less complex than an appraisal 
and usually takes less time to complete than an appraisal, but it also 
commonly

[[Page 22016]]

involves physical property inspections. For these reasons, the Board 
also is using its safety and soundness authority \16\ to allow for 
deferral of written estimates of market value.
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    \16\ Id.
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    By the end of the deferral period, credit unions must obtain 
appraisals or written estimates of market value that are consistent 
with safe and sound practices as required by the NCUA's appraisal 
regulations.

B. Summary of the Interim Final Rule

    The interim final rule allows a temporary deferral of the 
requirements for appraisals and written estimates of market value under 
the NCUA's appraisal regulations. The deferrals apply to both 
residential and commercial real estate-related financial transactions, 
excluding transactions for acquisition, development, and construction 
of real estate. The Board is excluding transactions for acquisition, 
development, and construction of real estate because these loans 
present heightened risks not associated with financing existing real 
estate.
    Under the interim final rule, credit unions may close a real estate 
loan without a contemporaneous appraisal or written estimate of market 
value, subject to a requirement that credit unions obtain the appraisal 
or written estimate of market value, as would have been required under 
the appraisal regulations without the deferral, within a grace period 
of 120 days after closing of the transaction. While appraisals and 
written estimates of market value can be deferred, the Board expects 
credit unions to use best efforts and available information to develop 
a well-informed estimate of the collateral value of the subject 
property. In addition, the Board continues to expect credit unions to 
adhere to internal underwriting standards for assessing borrowers' 
creditworthiness and repayment capacity, and to develop procedures for 
estimating the collateral's value for the purposes of extending or 
refinancing credit. Loans for acquisition, development, and 
construction of real estate are being excluded because repayment of 
loans for such transactions is generally dependent on the completion or 
sale of the property being held as collateral as opposed to repayment 
generated by existing collateral or the borrower. The Board also 
expects credit unions to develop an appropriate risk mitigation 
strategy if the appraisal or written estimate of market value 
ultimately reveals a market value significantly lower than the expected 
market value. A credit union's risk mitigation strategy should consider 
safety and soundness risk to the institution, balanced with mitigation 
of financial harm to COVID-19-affected borrowers. The temporary 
provision permitting credit unions to defer an appraisal or written 
estimate of market value for eligible transactions will expire on 
December 31, 2020 (a transaction closed on or before December 31, 2020 
is eligible for a deferral), unless extended by the Board. The Board 
believes that the limited timeframe for the deferral will in some 
respects help to manage potential risk by balancing the need for 
immediate relief due to the National Emergency with safety and 
soundness concerns for risk to credit unions as lenders.

II. Revisions to the Title XI Appraisal Regulations

    The interim final rule adds a new, temporary provision to the 
appraisal regulations in part 722 that provides a 120-day deferral of 
appraisal and written estimates of market value requirements for all 
transactions secured by commercial or residential real estate during 
the National Emergency related to the COVID-19 pandemic, excluding 
transactions for acquisition, development, and construction of real 
estate. The interim final rule does not revise any of the existing 
appraisal exceptions or any other requirements with respect to the 
performance of written estimates of market value.
    The interim final rule will allow credit unions to quickly provide 
liquidity to owners of commercial and residential property. The 
temporary provision allowing credit unions to defer appraisals or 
written estimates of market value for covered transactions will expire 
on December 31, 2020, unless extended by the Board.

III. Effective Date

    The interim final rule is effective April 21, 2020.

IV. Administrative Law Matters

A. Administrative Procedure Act

    The Board is issuing this interim final rule without prior notice 
and the opportunity for public comment and the 30-day delayed effective 
date ordinarily prescribed by the Administrative Procedure Act 
(APA).\17\ Pursuant to the APA, general notice and the opportunity for 
public comment are not required with respect to a rulemaking when an 
``agency for good cause finds (and incorporates the finding and a brief 
statement of reasons therefor in the rules issued) that notice and 
public procedure thereon are impracticable, unnecessary, or contrary to 
the public interest.'' \18\
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    \17\ 5 U.S.C. 553.
    \18\ 5 U.S.C. 553(b)(B).
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    The Board believes that the public interest is best served by 
implementing the interim final rule as soon as possible. As discussed 
above, recent events have suddenly and significantly affected global 
economic activity, increasing businesses' and households' need to have 
timely access to liquidity from real estate equity. In addition, the 
spread of COVID-19 has greatly increased the difficulty of performing 
real estate appraisals and written estimates of market value in a 
timely manner. This relief will allow credit unions to better focus on 
supporting lending to creditworthy households and businesses in light 
of recent strains on the U.S. economy as a result of COVID-19, while 
reaffirming the safety and soundness principle that valuation of 
collateral is an essential part of the lending decision. For these 
reasons, the Board finds that there is good cause consistent with the 
public interest to issue the rule without advance notice and 
comment.\19\
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    \19\ 5 U.S.C. 553(b)(B); 553(d)(3). For the same reasons, the 
Board is not providing the usual 60-day comment period before 
finalizing this rule. See NCUA Interpretive Ruling and Policy 
Statement (IRPS) 87-2, as amended by IRPS 03-2 and IRPS 15-1. 80 FR 
57512 (Sept. 24, 2015).
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    The APA also requires a 30-day delayed effective date, except for 
(1) substantive rules which grant or recognize an exemption or relieve 
a restriction; (2) interpretative rules and statements of policy; or 
(3) as otherwise provided by the agency for good cause.\20\ Because the 
rule relieves a restriction, the interim final rule is exempt from the 
APA's delayed effective date requirement.\21\ Additionally, the Board 
finds good cause to publish the interim final rule with an immediate 
effective date for the same reasons set forth above under the 
discussion of 5 U.S.C. 553(b)(B).
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    \20\ 5 U.S.C. 553(d).
    \21\ 5 U.S.C. 553(d)(1).
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    While the Board believes that there is good cause to issue the rule 
without advance notice and comment and with an immediate effective 
date, it is interested in the views of the public and requests comment 
on the interim final rule.

B. Congressional Review Act

    For purposes of Congressional Review Act, the Office of Management 
and Budget (OMB) makes a determination as to whether a final rule 
constitutes a

[[Page 22017]]

``major'' rule.\22\ If a rule is deemed a ``major rule'' by the OMB, 
the Congressional Review Act generally provides that the rule may not 
take effect until at least 60 days following its publication.\23\
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    \22\ 5 U.S.C. 801 et seq.
    \23\ 5 U.S.C. 801(a)(3).
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    The Congressional Review Act defines a ``major rule'' as any rule 
that the Administrator of the Office of Information and Regulatory 
Affairs of the OMB finds has resulted in or is likely to result in (A) 
an annual effect on the economy of $100,000,000 or more; (B) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions, or 
(C) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\24\
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    \24\ 5 U.S.C. 804(2).
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    For the same reasons set forth above with respect to APA 
requirements, the Board is adopting the interim final rule without the 
delayed effective date generally prescribed under the Congressional 
Review Act. The delayed effective date required by the Congressional 
Review Act does not apply to any rule for which an agency for good 
cause finds (and incorporates the finding and a brief statement of 
reasons therefor in the rule issued) that notice and public procedure 
thereon are impracticable, unnecessary, or contrary to the public 
interest.\25\ In light of households' and businesses' immediate need to 
access liquidity from real estate equity, combined with the difficulty 
of obtaining appraisals during the ongoing COVID-19 outbreak, the Board 
believes that delaying the effective date of the rule would be contrary 
to the public interest.
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    \25\ 5 U.S.C. 808(2).
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    As required by the Congressional Review Act, the Board will submit 
the final rule and other appropriate reports to Congress and the 
Government Accountability Office for review.

C. 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.\26\ 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.
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    \26\ 44 U.S.C. 3507(d).
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    The information collection requirements of this part is approved 
under OMB control number 3133-0125, which require that a federal 
insured credit union retain a records of either the appraisal or 
estimate, which ever applies. The deferral to obtain an appraisal or 
estimate will not result in a change in burden; therefore, no 
submission will be made to OMB for review.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) \27\ generally requires an 
agency to consider whether the rule it proposes will have a significant 
economic impact on a substantial number of small entities. For purposes 
of the RFA, the Board considers credit unions with assets less than 
$100 million to be small entities.\28\
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    \27\ 5 U.S.C. 601 et seq.
    \28\ NCUA Interpretive Ruling and Policy Statement 15-1. 80 FR 
57512 (Sept. 24, 2015).
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    The RFA applies only to rules for which an agency publishes a 
general notice of proposed rulemaking pursuant to 5 U.S.C. 553(b).\29\ 
As discussed previously, consistent with 5 U.S.C. 553(b)(B), the Board 
has determined for good cause that general notice and opportunity for 
public comment is unnecessary, and therefore the Board is not issuing a 
notice of proposed rulemaking. Accordingly, the Board has concluded 
that the RFA's requirements relating to initial and final regulatory 
flexibility analysis do not apply.
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    \29\ 5 U.S.C. 604(a).
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    Nevertheless, the Board seeks comment on whether, and the extent to 
which, the interim final rule would affect a significant number of 
small entities.

E. Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. The 
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.
    This interim final rule does not have substantial direct effects 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. The Board has therefore determined that 
this rule does not constitute a policy that has federalism implications 
for purposes of the executive order.

F. Assessment of Federal Regulations and Policies on Families

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

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 April 16, 
2020.
Gerard Poliquin,
Secretary of the Board.

    For the reasons discussed above, the Board amends 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. Section 722.3 is amended by adding paragraph (g) to read as follows:


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

* * * * *
    (g) Deferrals of appraisals and written estimates of market value 
for certain residential and commercial transactions--(1) 120-day grace 
period. The completion of appraisals and written estimate of market 
value required under paragraphs (b), (c), and (d) of this section may 
be deferred up to 120 days from the date of closing.
    (2) Covered transactions. The deferrals authorized under paragraph 
(g)(1) of this section apply to all residential and commercial real 
estate-secured transactions, excluding transactions for acquisition, 
development, and construction of real estate.
    (3) Sunset. The appraisal and written estimate of market value 
deferrals authorized by this paragraph (g) will expire for transactions 
closing after December 31, 2020.

[FR Doc. 2020-08435 Filed 4-20-20; 8:45 am]
BILLING CODE 7535-01-P