Residential real estate appraisal proposal issued for credit unions; matches threshold set by bank regulators

A proposed rule raising the threshold for mandatory appraisals on residential real estate from $250,000 to $400,000 – which would match, if approved, the appraisal level set by federal banking agencies just last month – was issued Thursday by the National Credit Union Administration (NCUA) Board by unanimous vote.

In issuing the proposal, the agency said even though the new threshold would be $400,000, federally insured credit unions would be required to obtain written estimates of market value of the real estate collateral that is consistent with safe and sound banking practices in lieu of an appraisal for those loans under the threshold.

In addition, the proposed rule would explicitly incorporate the existing statutory requirement that appraisals be subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice.

However, NCUA staff told the board credit unions could still seek appraisals as they wish. Staff said the proposal is also consistent with the final rule, effective on Oct. 9, issued by federal banking regulators (the Federal Reserve, the Federal Deposit Insurance Corp. [FDIC], and the Office of the Comptroller of the Currency [OCC]) that increases the threshold level at or below which appraisals are not required for residential real estate transactions from $250,000 to $400,000.

The staff additionally told the board that the proposed higher threshold would exempt (based on year-end 2018 results) an additional 46,000 mortgages (valued at $14.2 billion) from appraisal requirements (or 18% of all total first mortgages at FICUs). According to NCUA, based on the 2018 numbers, 11% of first mortgages would be above the $400,000 threshold ($8.3 billion in loans).

Although the board unanimously issued the proposal for comment, Board Member Todd Harper expressed some skepticism, saying loosening appraisal standards now may be the “wrong point in time.” Harper said he was concerned that, as the post-financial crisis economic recovery ends (and a downturn begins), the higher threshold could become problematic.

Proposed Rule, Part 722, Real Estate Appraisals