PART 722—APPRAISALS Authority: 12 U.S.C. 1766, 1789, and 3331 et seq. Source: 55 FR 30207, July 25, 1990, unless otherwise noted. Subpart A—Appraisals Generally § 722.101 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. (2) This part: (i) Identifies which real estate-related financial transactions require the services of an appraiser; (ii) Prescribes which categories of federally related transactions shall be appraised by a state-certified appraiser and which by a state-licensed appraiser; and (iii) Prescribes minimum standards for the performance of real estate appraisals in connection with federally related transactions under the jurisdiction of the National Credit Union Administration. [55 FR 30207, July 25, 1990. Redesignated at 89 FR 64575, Aug. 7, 2024] § 722.102 Definitions. Appraisal Appraisal Foundation Appraisal Subcommittee Complex Federal financial institutions regulatory agency Federally related transaction (1) The National Credit Union Administration, or any federally insured credit union, engages in or contracts for; and (2) Requires the services of an appraiser. Market value (1) Buyer and seller are typically motivated; (2) Both parties are well informed or well advised, and acting in what they consider their own best interests; (3) A reasonable time is allowed for exposure in the open market; (4) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (5) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Real estate real property Real estate-related financial transaction (1) The sale, lease, purchase, investment in or exchange of real estate, including interests in property, or the financing thereof; or (2) The refinancing of real estate or interests in real estate; or (3) The use of real estate or interests in property as security for a loan or investment, including mortgage-backed securities. Residential real estate transaction Staff appraiser State-certified appraiser State-licensed appraiser Tract development Transaction value (1) For loans or other extensions of credit, the amount of the loan or extension of credit; and (2) For sales, leases, purchases, and investments in or exchanges of real estate, the market value of the real estate interest involved; and (3) For the pooling of loans or interests in real estate for resale or purchase, the amount of the loan or market value of the real estate calculated with respect to each such loan or interest in real estate. [84 FR 35536, July 24, 2019. Redesignated at 89 FR 64575, Aug. 7, 2024] § 722.103 Appraisals and written estimates of market value requirements for real estate-related financial transactions. (a) Real estate-related financial transactions not requiring an appraisal under this part. (1) The transaction involves an existing extension of credit at the lending credit union, provided that: (i) There is no advancement of new monies, other than funds necessary to cover reasonable closing costs; or (ii) There has been no obvious and material change in market conditions or physical aspects of the property that threatens the adequacy of the credit union's real estate collateral protection after the transaction, even with the advancement of new monies; (2) A lien on real estate has been taken as collateral through an abundance of caution and where the terms of the transaction as a consequence have not been made more favorable than they would have been in the absence of a lien; (3) A lien on real estate has been taken for purposes other than the real estate's value; (4) A lease of real estate is entered into, unless the lease is the economic equivalent of a purchase or sale of the leased real estate; (5) The transaction involves the purchase, sale, investment in, exchange of, or extension of credit secured by, a loan or interest in a loan, pooled loans, or interests in real estate, including mortgage-backed securities, and each loan or interest in a loan, pooled loan, or real estate interest met the requirements of this regulation, if applicable, at the time of origination; or (6) The transaction either qualifies for sale to a United States government agency or United States government-sponsored agency, or involves a residential real estate transaction in which the appraisal conforms to the Federal National Mortgage Association or Federal Home Loan Mortgage Corporation appraisal standards applicable to that category of real estate. (b) Real estate-related financial transactions requiring an appraisal by a state-certified appraiser. (1) The transaction value is $1,000,000 or more; or (2) The transaction is complex, involves a residential real estate transaction, and $400,000 or more of the transaction value is not insured or guaranteed by a United States government agency or United States government sponsored agency. (c) Real estate-related financial transactions requiring an appraisal by either a state-certified or state-licensed appraiser. (2) If, during the course of an appraisal of a residential real estate transaction performed by a state-licensed appraiser, factors are identified that result in the transaction meeting the definition of complex, then the credit union may either: (i) Ask the state-licensed appraiser to complete the appraisal and have a state-certified appraiser approve and cosign the appraisal; or (ii) Engage a state-certified appraiser to complete the appraisal. (d) Real estate-related financial transactions requiring a written estimate of market value Applicability. (i) An appraisal performed by a state-certified or state-licensed appraiser was obtained; (ii) An appraisal is not required under paragraphs (a)(2) through (6) of this section; or (iii) The transaction is fully insured or guaranteed by a United States government agency or United States government-sponsored agency. (2) Requirements. (i) Independent of the loan production and collection processes (if independence cannot be achieved, the credit union must be able to demonstrate clearly that it has prudent safeguards to isolate its collateral valuation program from influence or interference from the loan production process and collection process); (ii) Having no direct, indirect, or prospective interest, financial or otherwise, in the property or the transaction; and (iii) Qualified and experienced to perform such estimates of value for the type and amount of credit being considered. (e) Appraisals to address safety and soundness concerns. (f) [Reserved] [84 FR 35537, July 24, 2019, as amended at 85 FR 23917, Apr. 30, 2020. Redesignated at 89 FR 64575, Aug. 7, 2024] § 722.104 Minimum appraisal standards. For federally related transactions, all appraisals shall, at a minimum: (a) Conform to generally accepted appraisal standards as evidenced by the Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation, 1029 Vermont Ave., NW., Washington, DC 20005; (b) Be written and contain sufficient information and analysis to support the institution's decision to engage in the transaction; (c) Be subject to appropriate review for compliance with the Uniform Standards of Professional Appraisal Practice. (d) Analyze and report appropriate deductions and discounts for proposed construction or renovation, partially leased buildings, non-market lease terms, and tract developments with unsold units; (e) Be based upon the definition of market value as set forth in § 722.2; and (f) Be performed by State licensed or certified appraisers in accordance with requirements set forth in this subpart. [60 FR 51894, Oct. 4, 1995, as amended at 85 FR 23917, Apr. 30, 2020. Redesignated at 89 FR 64575, Aug. 7, 2024] § 722.105 Appraiser independence. (a) Staff appraiser. (b) Fee appraisers. (2) A credit union also may accept an appraisal that was prepared by an appraiser engaged directly by another financial services institution; if: (i) The appraiser has no direct or indirect interest, financial or otherwise, in the property or transaction; and (ii) The credit union determines that the appraisal conforms to the requirement of this regulation and is otherwise acceptable. [55 FR 30207, July 25, 1990, as amended at 60 FR 51895, Oct. 4, 1995. Redesignated at 89 FR 64575, Aug. 7, 2024] § 722.106 Professional association membership; competency. (a) Membership in appraisal organization. (b) Competency. [55 FR 30207, July 25, 1990. Redesignated at 89 FR 64575, Aug. 7, 2024] § 722.107 Enforcement. Credit unions and institution-affiliated parties, including staff appraisers and fee appraisers, may be subject to removal and/or prohibition orders, cease-and-desist orders, and the imposition of civil money penalties pursuant to section 1786 of the Federal Credit Union Act, or any other applicable law. [55 FR 30207, July 25, 1990. Redesignated at 89 FR 64575, Aug. 7, 2024] Subpart B—Quality Control Standards for Automated Valuation Models Used for Mortgage Lending Purposes Source: 89 FR 64576, Aug. 7, 2024, unless otherwise noted. § 722.201 Authority, purpose, and scope. (a) Authority. (b) Purpose and scope. (2) This subpart does not apply to the use of automated valuation models in: (i) Monitoring of the quality or performance of mortgages or mortgage-backed securities; (ii) Reviews of the quality of already completed determinations of the value of collateral; or (iii) The development of an appraisal by a certified or licensed appraiser. § 722.202 Definitions. As used in this subpart: Automated valuation model Control systems Covered securitization determination (1) Whether to waive an appraisal requirement for a mortgage origination in connection with its potential sale or transfer to a secondary market issuer; or (2) Structuring, preparing disclosures for, or marketing initial offerings of mortgage-backed securitizations. Credit decision Dwelling Mortgage Mortgage originator (1) Any person who, for direct or indirect compensation or gain, or in the expectation of direct or indirect compensation or gain— (i) Takes a mortgage application; (ii) Assists a consumer in obtaining or applying to obtain a mortgage; or (iii) Offers or negotiates terms of a mortgage; (2) Includes any person who represents to the public, through advertising or other means of communicating or providing information (including the use of business cards, stationery, brochures, signs, rate lists, or other promotional items), that such person can or will provide any of the services or perform any of the activities described in paragraph (1) of this definition; (3) Does not include any person who is— (i) Not otherwise described in paragraph (1) or (2) of this definition and who performs purely administrative or clerical tasks on behalf of a person who is described in any such paragraph; or (ii) A retailer of manufactured or modular homes or an employee of the retailer if the retailer or employee, as applicable— (A) Does not receive compensation or gain for engaging in activities described in paragraph (1) of this definition that is in excess of any compensation or gain received in a comparable cash transaction; (B) Discloses to the consumer— (1) In writing any corporate affiliation with any creditor; and (2) If the retailer has a corporate affiliation with any creditor, at least 1 unaffiliated creditor; and (C) Does not directly negotiate with the consumer or lender on loan terms (including rates, fees, and other costs); (4) Does not include a person or entity that only performs real estate brokerage activities and is licensed or registered in accordance with applicable State law, unless such person or entity is compensated by a lender, a mortgage broker, or other mortgage originator or by any agent of such lender, mortgage broker, or other mortgage originator; (5) Does not include a person that meets all of the following criteria: (i) The person provides seller financing for the sale of three or fewer properties in any 12-month period to purchasers of such properties, each of which is owned by the person and serves as security for the financing; (ii) The person has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of the person; (iii) The person provides seller financing that meets the following requirements: (A) The financing is fully amortizing; (B) The financing is one that the person determines in good faith the consumer has a reasonable ability to repay; (C) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases. If the financing agreement has an adjustable rate, the rate is determined by the addition of a margin to an index rate and is subject to reasonable rate adjustment limitations. The index the adjustable rate is based on is a widely available index such as indices for U.S. Treasury securities or SOFR. (6) Does not include a natural person, estate, or trust that meets all of the following criteria: (i) The natural person, estate, or trust provides seller financing for the sale of only one property in any 12-month period to purchasers of such property, which is owned by the natural person, estate, or trust and serves as security for the financing; (ii) The natural person, estate, or trust has not constructed, or acted as a contractor for the construction of, a residence on the property in the ordinary course of business of the person; (iii) The natural person, estate, or trust provides seller financing that meets the following requirements: (A) The financing has a repayment schedule that does not result in negative amortization; (B) The financing has a fixed rate or an adjustable rate that is adjustable after five or more years, subject to reasonable annual and lifetime limitations on interest rate increases. If the financing agreement has an adjustable rate, the rate is determined by the addition of a margin to an index rate and is subject to reasonable rate adjustment limitations. The index the adjustable rate is based on is a widely available index such as indices for U.S. Treasury securities or SOFR. (7) Does not include a servicer or servicer employees, agents and contractors, including but not limited to those who offer or negotiate terms of a mortgage for purposes of renegotiating, modifying, replacing and subordinating principal of existing mortgages where borrowers are behind in their payments, in default or have a reasonable likelihood of being in default or falling behind. Person Secondary market issuer § 722.203 Quality control standards. Mortgage originators and secondary market issuers that engage in credit decisions or covered securitization determinations themselves, or through or in cooperation with a third-party or affiliate, must adopt and maintain policies, practices, procedures, and control systems to ensure that automated valuation models used in these transactions adhere to quality control standards designed to: (a) Ensure a high level of confidence in the estimates produced; (b) Protect against the manipulation of data; (c) Seek to avoid conflicts of interest; (d) Require random sample testing and reviews; and (e) Comply with applicable nondiscrimination laws.