Written by Brandy Bruyere, Regulatory Compliance Counsel
Last week, we blogged about the NCUA Board’s June meeting and promised to provide some more in-depth information regarding some of the proposed rules that the Board approved. Today, we will review the proposed changes to NCUA’s rules relating to appraisals, specifically those at 722.3(a)(5), Section 701.31(a)(1) & (c)(5) which are a result of NCUA’s annual review of one-third of its rules for possible regulatory modernization.
Section 722.3(a)(5)—Providing Appraisals for Transactions Involving Existing Extensions of Credit
Under the current version of the rule, a credit union must have an appraisal performed by a State certified or licensed appraiser on transactions involving existing extensions of credit except where two conditions are met:
- There is no advancement of new monies other than those necessary to cover reasonable closing costs; and
- There have been no obvious and material changes in market conditions or the property’s physical attributes which would threaten the property’s adequacy as collateral for the loan.
NCUA received many comments noting that this requirement created a lack of parity between the rules credit unions had to follow as compared analogous provisions that apply to other financial institutions. This is because other financial regulators allow this exception if only one of these conditions is met rather than both. NCUA’s proposal is intended to provide parity between NCUA’s rule by changing the conditions to an “or” rather than a conjunctive requirement. However, Section 722.3(d) would still require that these transactions be supported by a valuation that is a “written estimate of market value.”
Section 701.31(c)(5)—Availability of a Copy of the Appraisal to Requesting Members
Currently, Section 701.31(c)(5) requires credit unions to provide a copy of the appraisal produced in connection with a “real estate-related loan application” upon a member’s request. However, Section 1002.14 of Regulation B requires credit unions to automatically provide an appraisal developed in connection with an application for a first-lien loan on a dwelling. NCUA’s proposal would amend Section 701.31(c)(5) to remove the requirement to provide an appraisal created in relation to a first-lien loan application as this is now duplicative in light of Regulation B. The proposed rule reads as follows:
“§701.31 Nondiscrimination requirements.
(c) Nondiscrimination in appraisals.
(5) Each Federal credit union shall make available, to any requesting member/applicant, 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. The appraisal shall be available for a period of 25 months after the applicant has received notice from the Federal credit union of the action taken by the Federal credit union on the application for a loan to be secured by a subordinate lien on a dwelling.” (Emphasis added.)
Finally, as we noted last week, NCUA proposed to amend the definition of “application” in Section 701.31(a)(1) to simply cross-reference the definition in Regulation B.
NCUA Launches Interest Rate Risk Resource Page. Interest rate risk is a high priority at NCUA these days, and this topic is one of NCUA’s 2014 Supervisory Focus for exams. Last week, NCUA announced the creation of a webpage that aggregates the agency’s resources relating to interest rate risk. This includes a video as well as links to specific rules and Letters to Credit Unions.
I Don’t Like Mondays. Actually, I don’t know many people who think Mondays are great, but mine was particularly special! I started off at jury duty, but was not selected and sent home early. I was off to a good start! A large segment of a tree spontaneously fell onto our house this past weekend, so we arranged to have the entire tree removed. The tree removers came on Monday, and for the first time in the owner’s 15+ years of experience, the crane fell onto our house with its brand new roof! Luckily, no one was hurt and the tree remover had my roof repaired, good as new, within 24 hours.