A final rule for credit unions that raises to $1 million the threshold for commercial real estate transactions subject to required appraisals from state-certified appraisers was approved Thursday by the National Credit Union Administration (NCUA) Board on a split vote of 2-1.
The one “no” vote was from Board Member Todd Harper, who said quadrupling the threshold from $250,000 to $1 million was too great a leap at this time.
The final rule, set to take effect 90 days after publication in the Federal Register, is mostly unchanged from the proposal issued last year. Specifically, it:
- increases the threshold below which appraisals are not required for commercial real estate transactions from $250,000 to $1,000,000 (written estimates are required instead);
- restructures the rule to enhance clarity;
- exempts from the rule certain federally related transactions involving real estate in a rural area (transactions up to $400,000, in keeping with a provision of last year’s Economic Growth, Regulatory Relief, and Consumer Protection Act, or EGRRCPA); and
- makes conforming amendments to the definitions section.
In one change from the proposal, the final rule does not include last year’s proposed modification to the exemption for existing extensions of credit.
The final rule brings the NCUA rule up to date with federal banking agency rules, up to a point. The Federal Deposit Insurance Corp. (FDIC), Federal Reserve Board, and Office of the Comptroller of the Currency (OCC) make distinctions in their commercial real estate appraisal rules between “qualified business loans” (QBLs) and “non-qualified business loans” (non-QBLs). QBLs are defined as business loans that are real estate-related financial transactions that are not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment.
Under banking agencies’ rules, QBLs involving less than $1 million require written estimates; but non-QBLs from $500,000 to $1 million have to have appraisals from certified appraisers. NCUA, in its rule, does not distinguish between QBLs and non-QBLs; the $1 million threshold applies to all commercial real estate transactions.
NCUA staff said commercial real estate comprises about 4% of total credit union assets and that the net transaction exposure of the final rule involved less than 1% of total assets.
Harper, harkening back to events leading up to the Great Recession, opposed the rule, citing the magnitude of it increase in the commercial real estate transaction appraisal threshold; lack of consistency with other federal financial institution regulators; and potential impact on consumer safeguards for small-business owners, “particularly unsophisticated consumers of modest means and the safety and soundness of individual credit unions.”