[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