Letters to Credit Unions 20-CU-10 Residential Appraisals Threshold Increase & Other COVID-19 Related Relief Measures
NCUA issued LTCU 20-CU-10 to provide information on regulatory relief provided by 2 rules published in April related to residential real estate transactions. The guidance also provides information on additional appraisal relief provided by Fannie Mae, Freddie Mac, and other federal agencies in response to the disruptions of the real estate valuation process caused by the COVID-19 pandemic.
Final Rule: Real Estate Appraisal Threshold
The final rule increases the appraisal threshold for residential real estate from $250,000 to $400,000, bringing credit unions on par with the banking threshold. For residential real estate transactions of $400k or more, the new requires:
- an appraisal from a state-certified appraiser if the transaction is complex
- an appraisal from a state-licensed appraiser non-complex transactions
Appraisals must comply with the Uniform Standards of Professional Appraisal Practice (USPAP). Current USPAP standards allow for a desktop and exterior-only appraisals.
For transactions below $400k, credit unions have the option of obtaining either an appraisal or a written estimate of market value. Written estimates of market value must:
- be conducted by an individual who is 1) qualified to perform the valuation, and 2) independent of the transaction
- contain a reliable estimate of the property’s market value supported by documentation, analysis, and a physical inspection
- contain sufficient information for the CU to make a prudent credit decision
Interim Final Rule: Deferment of Appraisals and Evaluations
The recently issued NCUA Interim Final Rule (IFR) allows credit unions to defer appraisals and written estimates of market value for transactions requiring such valuations for up to 120 days after closing. The IFR is intended to grant relief due the extraordinary circumstances of the COVID-19 outbreak and bring credit unions on par with the temporary rules for banks.
The IFR expires on December 31, 2020 and any transactions closing on that date would have to be appraised by April 30, 2021. The 120-day deferment applies to all residential real estate loans, and all commercial real estate loans except acquisition, development, construction loans. There is no limit on transaction size. NCUA stresses that credit unions will still be expected to underwrite real estate loans prudently.
If a credit union engages an appraiser to conduct a desktop or exterior-only appraisal, it should seek those services at the time of the loan rather than delaying the 120 days.
On April 14, 2020, the NCUA and other banking agencies released an interagency statement on appraisal flexibility for FIs during the COVID-19 pandemic In addition to noting the USPAP guidelines allowing for non-physical inspection appraisals and NCUA’s relief (discussed above) the interagency guidance also notes that certain residential mortgages that qualify for sale to Fannie Mae and Freddie Mac can utilize appraisals with exterior-only inspections, desktop appraisals, and appraisal waivers.
Updated Appraisal Flexibilities from Other Federal Agencies
In addition HUD, the VA, and the Agriculture Department have issued guidance on appraisal flexibility that closely align with the appraisal flexibilities offered by Fannie Mae and Freddie Mac, including desktop appraisals and exterior-only inspections for certain real estate transactions. See:
- S. Department of Housing and Urban Development
- S. Department of Veterans Affairs
- United States Department of Agriculture