MBA Urges NCUA to Raise Appraisal Threshold for Residential Transactions
The Mortgage Bankers Association, in a comment letter submitted yesterday to the National Credit Union Administration, said it supports NCUA’s proposal to raise the appraisal threshold for residential real estate transactions from $250,000 to $400,000.
“MBA believes the changes proposed by NCUA will offer credit unions an opportunity to better serve their members and expand access to mortgage credit, while also promoting a more competitive market and preserving crucial safety and soundness standards,” wrote MBA Senior Vice President of Residential Policy and Member Engagement Pete Mills.
Under Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), NCUA and other federal financial regulators must require their regulated institutions to obtain appraisals for certain real estate-related transactions. Since 2002, NCUA has exempted most residential real estate transactions with a transaction value less than $250,000 from its appraisal requirements. These exempted transactions do, however, require written estimates of market value.
In May 2018, Congress amended Title XI of FIRREA through Section 103 of the Economic Growth, Regulatory Relief and Consumer Protection Act, which provided appraisal exemptions for certain transactions with values below $400,000 that are secured by residential properties in rural areas. These exemptions were limited to situations in which appraisals could not be obtained in a reasonable timeframe.
This past July, NCUA issued a final rule raising its appraisal threshold for commercial real estate transactions from $250,000 to $1 million. NCUA noted a proposal by the federal banking agencies to increase their appraisal thresholds for residential real estate transactions under Title XI of FIRREA from $250,000 to $400,000. In October, the agencies issued a final rule increasing their appraisal thresholds under Title XI of FIRREA from $250,000 to $400,000.
In its comment letter, MBA said its supports NCUA’s proposal to raise the threshold for appraisal exemptions on residential real estate transactions, saying it would create alignment with the amended standards.
“Raising the threshold for appraisal exemptions for residential real estate properties is appropriate in response to the significant appreciation in national and regional home prices since NCUA last revised its standards nearly two decades ago,” MBA said. “As NCUA notes in its proposal, an increase in the appraisal threshold to $400,000 would exempt approximately the same share of residential real estate transactions as were exempt when NCUA’s prior revisions to the threshold took effect in 2002.”
Moreover, MBA noted, in the current market, the lengthy processing times and high costs often associated with traditional appraisals reduce the efficiency of the loan origination process. “Rising appraisal costs in recent years have largely been attributed to appraiser shortages in certain areas, and allowing institutions to expand their use of alternative estimates will help offset the effects of these appraiser shortages,” MBA said. “More broadly, raising the threshold will positively impact various participants in the mortgage market – most notably consumers – by expediting valuations and lowering closing costs.”
Additionally, MBA said it encourages NCUA to maintain alignment with the federal banking agencies on appraisal threshold standards. “Consistency across appraisal threshold standards maintained by NCUA and the Federal Banking Agencies is vital to fostering a level playing field among depository institutions and providing borrowers with a wide array of financing options,” MBA said. “Disparities in appraisal standards could result in a subset of depository lenders receiving a competitive advantage over others based on their charter and institutional structure, which could in turn lead to borrowers disproportionately favoring one set of lenders.”
MBA said it “firmly believes” differences in regulatory and supervisory requirements should not dictate borrower choices in the mortgage market. “MBA recommends that NCUA and the Federal Banking Agencies coordinate future appraisal threshold updates, notices, and proposed rulemakings to ensure that depository institutions adhere to similar underwriting requirements, which should promote robust competition among lenders and broad access to affordable mortgage credit for borrowers.”