On April 21, 2020, the National Credit Union Administration (NCUA) published an interim final rule that will allow for appraisals and written estimates of market value of homes and other real property to be obtained by federally insured credit unions up to 120 days after closing. As previously reported, on April 14, 2020, the federal banking agencies issued a corresponding interim rule, and the banking agencies, along with the NCUA and Consumer Financial Protection Bureau (CFPB), also issued an interagency statement addressing existing flexibilities in appraisal standards and regulations with regard to appraisals of homes and other real property.
The interim final rule became effective on April 21, 2020, and applies to transactions closed on or before December 31, 2020, unless the NCUA extends the date. Comments on the interim final rule are due by June 5, 2020.
Consistent with the interim final rule adopted by the federal banking agencies, the interim final rule adopted by the NCUA provides that the “completion of appraisals and written estimate[s] of market value required [by the NCUA appraisal rule] may be deferred up to 120 days from the date of closing.” As is the case with the interim rule of the federal banking agencies, the deferral applies to all residential and commercial real-estate transactions, other than acquisition, development, and construction loans.
Also consistent with statements of the federal banking agencies, in the supplementary information to the interim final rule the NCUA advises that it expects credit unions that defer receipt of an appraisal or written estimate of market value:
- “[T]o 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.”
- To use best efforts and available information to develop a well-informed estimate of the collateral value of the property.
- To adhere to internal underwriting standards for assessing a borrower’s creditworthiness and repayment capacity, and develop procedures for estimating the collateral’s value for the purposes of extending or refinancing credit.
The NCUA also addresses a clear issue addressed by the federal banking agencies—the possibility of an eventual valuation that is lower than expected. The NCUA states that it “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.”