Dear Manager and Board of Directors:
The National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System
(FRB), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS) (the agencies) are jointly issuing the enclosed statement to address concerns identified during examinations about the independence of the collateral valuation process. Specifically for credit unions, the purpose is to clarify §722.5 of the NCUA Rules and Regulations (12 C.F.R. 722.5).
This statement applies to all real estate-related financial transactions originated or purchased by a credit union for its own portfolio or as assets held for sale.
The credit union’s board of directors is responsible for reviewing and adopting policies and procedures that establish and maintain an effective, independent real estate appraisal and evaluation program (program) for all of its lending functions.
Credit unions engaged in real estate-related activities should take measures to ensure that their program includes the independent selection of qualified, experienced, and educated individuals to appraise or evaluate real estate collateral. These individuals must be independent of the transaction and not subject to external or internal influence. Furthermore, an individual not involved in the loan production should select the appraiser or evaluator. Finally, a qualified and trained individual who is not involved in loan production should review the reports.
The statement references the Interagency Appraisal and Evaluation Guidelines (Guidelines) which were implemented several years ago by the other agencies. Although NCUA was not a party to those Guidelines at that time, most of the content provides pertinent and valuable guidance for credit unions 1 . The Guidelines establish minimum standards for an effective program, including standards for selecting individuals who may perform appraisals or evaluations. A copy of the Guidelines is also enclosed for your review.
Credit unions should ensure that their real estate-related functions address and implement the best practices detailed in the enclosed documents. Examiners will evaluate the risk of a credit union’s real estate-related activities based on its size and the nature and complexity of the transactions.
Should you have any questions regarding this statement or the Guidelines, please contact your district examiner, regional office, or state supervisory authority.