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Sept. 21, 2018

Proposal raises appraisal threshold to $1M
for non-residential RE transactions

Non-residential real estate transactions under $1 million would not require appraisals under a rule proposed by the NCUA Board Thursday. However, federally insured credit unions would still be required to obtain written estimates of market value of the real estate collateral (consistent, the agency board said, with safe and sound lending practices).

The new threshold for appraisals on non-residential real estate – increased from $250,000 – is one of four “objectives” of the proposed rule, according to the agency board:

  • To make the commercial real estate appraisal standards for credit unions more consistent with those for banks (by raising the appraisal requirement threshold).
  • To restructure the regulation to make it easier to determine what is required (by clarifying requirements for a written estimate of marked value, an appraisal by a state-licensed appraiser or an appraisal by a state-certified appraiser).
  • To incorporate the rural exemption provided by this spring’s regulatory relief legislation (by exempting from the agency’s appraisal regulation certain federally related transactions involving real estate where the property is located in rural areas, valued below $400,000, and no state certified or licensed appraiser is available, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155) enacted in May). A “federally related transaction” is a real estate-related financial transaction that is regulated or engaged in by a federal financial institutions regulatory agency (such as NCUA) and requires the services of an appraiser, NCUA said.
  • To make various other conforming adjustments to the agency’s rules.

The proposal makes no changes (at least, for now) to appraisal requirements of residential real estate; that threshold generally stands at transaction values of more than $250,000.

The agency’s proposal to make its regulation consistent with those imposed on banks by their regulators follows a long-time recommendation by NASCUS. Two years ago, in comments submitted by NASCUS to NCUA in response to the agency’s call for comments under the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA), the association urged NCUA to maintain appraisal thresholds consistent across federal banking regulatory agencies. NASCUS noted that, at that time, the banking agencies were considering changes in their appraisal thresholds for banks and that NCUA should ensure the threshold for credit unions be consistent with those.

In their presentation to the board on risk considerations for the new threshold, NCUA staff said that for qualifying business loans (QBL) and non-QBL commercial real estate, cash flow and resiliency of the business (not the real estate collateral) are the primary underwriting factors. They noted that “even the most precise value estimates are as of a point in time and change with market considerations.”

The staff asserted that improved market transparency and innovation over the past two decades have provided “significant information about rental and sales market trends.” Further, they said, credit union exposure to both QBL and non-QBL loans is limited (comprising 46% of credit union net worth), that the collateral valuation method is not a key driver of risk, and that most credit unions are subject to a statutory cap on business lending.

In a chart presented to the board, the staff illustrated how its proposed rule aligns in nearly all cases with key provisions of rules already in place for banks by their federal regulators. According to the chart, the NCUA rule deviates in only one area: no written estimate or appraisal is required where there is an existing extension of credit (and not fully insured; that is, using the GAAP definition of a new loan). Bank rules require an evaluation.

The proposal was issued for a 60-day comment period.

Staff presentation: Part 722-appraisals notice of proposed rulemaking (NPR)

Real estate appraisals: NCUA Notice of proposed rulemaking and request for comment

NASCUS comments: Regulatory Review Pursuant to EGRPRA (round 4)


NCUA’s proposal on non-residential real estate appraisals has resurfaced some questions about the relative scarcity of appraisers, particularly in rural areas, and whether the new rule may exacerbate the problem.

For example, the scarcity of appraisers was addressed in a letter last month from the North Dakota regulator to the FFIEC’s appraisal subcommittee. In the Aug. 1 letter, signed by both Gov. Doug Burgum (R) and state Department of Financial Institutions Commissioner Lise Kruse, the state requested initiation of a temporary waiver proceeding from federal appraisal requirements.

The letter notes that credit unions and banks in the state have “long encountered unreasonable delays and excessive costs for real estate appraisals required for federally related transactions. Problems are of significant duration and of such severity as to generate legislative concern and frustration as well as frustration for customers, real estate professionals, and lenders.”

The letter states that delayed appraisals in the current rising rate environment “can cause customers to lose out on favorable interest rates or incur increased costs as rate locks expire or must be extended, and, even more egregiously, can even cause a buyer to lose the opportunity to purchase a home at all because of competition from cash buyers.”

NCUA Board Member Rick Metsger echoed these concerns during Thursday’s board meeting, questioning whether raising the threshold would diminish the availability of appraisers, particularly in rural areas. With fewer appraisals required, Metsger suggested, “if it's hard to get an appraiser now in those areas, it would seem to be even more difficult later” under the proposal. “Because who's going to be doing business where there is no business,” Metsger asked.

Agency staff acknowledged that the proposal, if made final, could have an impact on demand for appraisals. However, they also indicated a “robust” need for appraisals in other areas (including residential real estate).

Metsger noted that he would be “curious to see as time unfolds” if the proposal helps to mitigate or exacerbate an issue that “I know has been around a long time.”

Letter from North Dakota regarding temporary appraisal waiver


In a statement following Thursday’s action NASCUS President and CEO Lucy Ito commended the board for issuing the proposal, but signaled that more work may lie ahead.

“NASCUS commends NCUA for proposing a rule that would provide relief to credit unions by increasing the threshold for which appraisals would be required for commercial real estate transactions, incorporating S. 2155’s relief for rural communities, and restructuring the regulation to make it easier to determine what is required,” she said.

She noted, however, that NASCUS will be analyzing the proposal – in consultation with member state regulators and state credit unions -- to identify additional opportunities for NCUA to work with state supervisory agencies to provide relief while protecting safety and soundness of the credit union system at large.

NASCUS President and CEO Lucy Ito on NCUA’s appraisal rule proposal


In other action at its Thursday meeting, the NCUA Board:

  • Approved a request from the Texas Credit Union Department to revise the state’s member business lending (MBL) rule to provide parity with the NCUA rule. Federal rules require states that wish to have their own MBL rule versions to receive board approval – which the Texas rule has received consistently, both in 1999 and with subsequent changes nearly two years ago (December 2016). This year’s request was made to create consistency between the Texas rule and the new NCUA rule that became effective June 5.
  • Revealed a board notation vote to approve appointment of two administrative law judges in the federal Office of Financial Institution Adjudication (OFIA) taken late last month (Aug. 28). OFIA, NCUA said, is the office that houses administrative law judges and staff for administrative proceedings conducted by NCUA, the FDIC, OCC, and the Federal Reserve. NCUA said a recent U.S. Supreme Court decision (Lucia et al. v. Securities & Exchange Commission) held that administrative law judges must be appointed by the head of the agency in order to comply with the Constitution’s appointments clause, requiring the agency’s procedural action. (Additionally, President Donald Trump in July issued an executive order stating that federal administrative law judges will be hired directly by individual agencies, rather than from a central pool of candidates.)
  • Heard that the calculated equity ratio for the National Credit Union Share Insurance Fund was 1.35%, based on insured shares of $1.1 trillion, at midyear. The number of CAMEL codes 4 and 5 credit unions was up 5.0% from the first quarter of 2018 (to 210 from 200), the agency said. Assets for these credit unions increased 40.2% from the first quarter of 2018 (to $12.9 billion from $9.2 billion). As of midyear, three credit union failures were reported (which doesn’t include the fourth: the closing of Melrose CU in New York, action taken in August).

Texas member business lending rule

National Credit Union Share Insurance Fund mid year report

Notice of appointment of two administrative law judges

EDUCATION: Crisscrossing the country (and thanks!)

The NASCUS education program was in full stride this week, hosting three meetings across three states – all across the country. In Rocky Hill, Conn., on Monday, NASCUS hosted an Executive Forum to discuss a wide variety of current issues. The Connecticut Department of Banking and the Credit Union League of Connecticut joined NASCUS in developing the program. On Tuesday, NASCUS hosted two events on both sides of the country: the Colorado Executive Forum (in Denver; developed in partnership with the Colorado Department of Regulatory Agencies Division of Financial Services and Mountain West Credit Union Association) and the Ohio Directors’ College (in Reynoldsburg, in partnership with the Ohio Division of Financial Institutions). Thanks to all of the speakers and panelists who also participated (see the graphic above for more.) (At bottom: Rob Rutkowski, deputy superintendent for credit unions, Ohio Division of Financial Institutions, leads a session for CU directors and staff in Reynoldsburg.)

There’s much more to come for the NASCUS education agenda in the weeks ahead, including:

  • Oct. 9, Ohio Credit Union Day (Columbus, OH)
  • Oct. 10-11, Ohio Examiners School (Columbus, OH);
  • Oct. 15-19, Michigan Examiners School (Ann Arbor, MI);
  • Oct. 16, Michigan Industry Day (Ann Arbor, MI);
  • Nov. 5-8, NASCUS/CUNA BSA Conference (Louisville, Ky.);
  • Nov. 13, Kansas/Missouri Directors College (Overland Park, Kansas);
  • Nov. 27-28, NASCUS Mortgage Symposium Part 3 (Needham, Mass.);
  • Dec. 4, Tennessee Directors’ College (Nashville, TN)

NASCUS 2018 Education & Training Agenda

ON THE ROAD: In CA with financial leaders talking state issues

NASCUS’ Lucy Ito joined credit union chief financial officers (CFOs) and others at a San Diego conference this week to share and discuss current, critical regulatory issues in the state system. The conference, hosted by ALM First Financial Advisors, included discussion of federal banking regulators’ recent joint statement on supervisory guidance; banking cannabis-related businesses; how the state system—credit unions, banks and their state regulators—assures a robust dual charter framework placing competitive checks on the federal system (and vice versa); difficulty of forming de novo financial institutions in today’s regulatory environment; common challenges faced by credit unions and community banks; burden and analytic opportunities associated with CECL – and more. (In the photo, attendees at the conference, from left: Cindy Nelson, SVP, EasCorp CU (a NASCUS associate member); Emily Hollis, CEO, ALM First; NASCUS’ Lucy Ito.)

REMINDER: NASCUS 101 set for Nov. 1

Learn more about NASCUS and the benefits it offers to credit unions and other state credit union system players in a Nov. 1 “NASCUS 101,” a no-charge event featuring an overview of the benefits of membership in the association. Participants will learn about the NASCUS commitment to the state credit union system, and NASCUS’ unique role. Also under review: NASCUS Advocacy, training and education agendas for 2019; how NASCUS facilitates access to all state CU regulators; and how members can participate in dialogue sessions with regulators to gain national perspective on regulatory and compliance issues.

Info/registration for NASCUS 101; Thursday, Nov. 1, 2-3 p.m. ET

BRIEFLY: Fed Board filling up; Treasury official nominated

More action this week on filling out the Federal Reserve Board, with a new vice chairman sworn in, and a seventh board member nominated. On Monday, Fed Vice Chairman Richard Clarida was officially sworn in (by Chairman Jerome Powell), just in time for next week’s policy and rate-setting meetings by the Federal Open Market Committee (FOMC) … Meanwhile, on Wednesday, President Trump announced his intention to nominate to the seventh seat on the Fed Board Jean Nellie Liang to serve a 14-year term ending Jan. 31, 2024. She’s a former, long-time Fed economist (playing a key role in post-crisis financial stability efforts) … Also this week: Trump said he plans to nominate Bimal Patel as the next Treasury assistant secretary for financial institutions (the top Treasury liaison to federal financial institution regulators, including NCUA). Patel is currently Treasury’s deputy assistant secretary for the Financial Stability Oversight Council.

Information Contact:
Patrick Keefe,