UPDATED: Proposal says no appraisal needed for CU commercial RE loans under $1 million

Exemption for some rural residential loans also added under EGRRCPA

Federally insured credit unions would no longer need appraisals for certain commercial real estate loans of less than $1 million, up from the current threshold of $250,000, under a proposed rule issued Sept. 20 by the federal credit union regulator; comments are due Dec. 3.

Source: NCUA

The proposed change, according to the National Credit Union Administration (NCUA) Board, would bring the agency’s real estate appraisal requirements for commercial real estate loans – member business loans secured by real property – more in line with those of banking agencies.

In addition, the proposal reflects a recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) provision exempting from appraisal requirements certain federally related, rural real-estate transactions valued below $400,000 if no state-certified or state-licensed appraiser is available. (The threshold for 1-to-4-family mortgage loans, with distinctions for complex vs. noncomplex loans, is otherwise unchanged at $250,000.)

The changes are laid out in a proposal for comment issued Thursday on a 2-0 vote of the NCUA Board, which met in open session.

QBL = qualifying business loan (Source: NCUA)

The change affecting commercial real estate loans, revising requirements the agency set under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), applies specifically to “qualifying business loans” (QBLs). QBLs are defined in the proposal as business loans that are real estate-related financial transactions and that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment. Any such credit union loan under $1 million will not need an appraisal by a certified real estate appraiser under the proposed rule, though the credit union will still be required to obtain a written estimate of market value of the real estate collateral that is “consistent with safe and sound lending practices,” NCUA states in its proposed rule summary.

The proposal would bring the NCUA rule more line with banking rules, but there are some distinctions. For example, banking agencies require the use of certified appraisers for non-QBLs of $500,000 or more and QBLs of $1 million or more.

NCUA staff Thursday said raising the appraisal threshold to $1 million for commercial real estate loans would raise the portion of credit union commercial transactions exempt from the appraisal requirement from an estimated 27% to 66%. This provides “significant burden relief” to credit unions, yet the appraisal requirements would continue to apply roughly 90% of the dollar value of such transactions, staff said.

The proposed rule also restructures the NCUA appraisal regulation, the agency says, in an effort to more clearly indicate when a written estimate of market value, an appraisal conducted by a state-licensed appraiser, or an appraisal conducted by a state-certified appraiser is required for a real estate-related financial transaction. Conforming amendments to the definitions section are also added.

Notice of proposed rulemaking and request for comment (Federal Register notice)