The Appraisal Institute, an association that represents real estate appraisers, strongly opposes the National Credit Union Administration’s (NCUA) plan to reduce the number of non-residential real estate loans requiring appraisals.
NCUA proposed to quadruple – from $250,000 to $1 million – the appraisal threshold for non-residential real estate loans. Loan amounts below that threshold would not require an appraisal. The Institute said that an increased threshold would drastically increase the number of real estate loans that would not require an appraisal.
In a letter to the NCUA, the Appraisal Institute said the change could recreate conditions that led to the housing market meltdown of the late 2000s.
“The proposed rule is written purely through the lens of regulatory relief – not safety and soundness. It ignores the fact that the United States suffered through a financial crisis less than a decade ago,” the letter said. “If anything, the current market conditions beg for heightened due diligence by regulated institutions today – not a loosening of a fundamental risk management activity.”
The Institute also noted that the proposed increase is higher than was recommended by federal banking regulatory agencies – the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Federal Reserve Board. Those agencies approved increasing the commercial appraisal threshold from $250,000 to $500,000 earlier this year.
“We are deeply concerned the NCUA proposal, if finalized at $1 million for commercial real estate transactions, will result in a regulatory ‘arms race’ between the Agencies and the NCUA,” the letter said. “This would result in the NCUA – the agency with the least direct experience in overseeing business and commercial real estate lending – effectively driving the appraisal policies for the entire financial regulatory system.”
It added that the proposal could impact not just credit unions and banks, but SBA lenders and SBA loans. The Institute urges the NCUA to keep it at the $250,000 threshold level for residential real estate transactions.
The letter was signed by 17 other real estate appraiser organizations and coalitions from across the United States.