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Board Approves Changes to Real Estate Appraisals Rule

September 2020
Board Approves Changes to Real Estate Appraisals Rule

Board Action Bulletin

Share Insurance Fund Reports $17.7 Billion in Assets; NCUA Monitoring Equity Ratio

ALEXANDRIA, Va. (Sept. 17, 2020) – Using a live audio webcast, the National Credit Union Administration Board held its seventh open meeting of 2020 and unanimously approved two items:

  • A final rule that temporarily amends the NCUA’s regulations requiring all federally insured credit unions to provide appraisals for certain real estate-related transactions.
  • An exemption from the requirements found in Section 326(a) of the USA PATRIOT Act for loans extended to facilitate the purchase of property and casualty insurance policies.

The Chief Financial Officer briefed the Board on the National Credit Union Share Insurance Fund's performance during the second quarter of 2020. The NCUA Board was briefed on the implementation of the agency’s new Modern Examination and Risk Identification Tool.

Board Approves Changes to Real Estate Appraisal Regulations

The NCUA Board approved a final rule that defers the requirement to obtain an appraisal or written estimate of market value for up to 120 days following the closing of certain residential and commercial real estate transactions, excluding transactions for acquisition, development, and construction of real estate.

This final rule adopts the interim final rule approved by the Board in April without change.

“The current public health crisis and subsequent social distancing directives have created difficulties for lenders to obtain required appraisals on a timely basis,” NCUA Chairman Rodney E. Hood said. “As a result, borrowers may be prevented from refinancing loans and gaining access to much-needed equity. Access to credit is the lifeline for many communities and families, and this access will be necessary for them to recover from any economic damage done by the COVID-19 pandemic. By deferring appraisals and evaluations up to 120 days, this rule will help bring relief and liquidity to homeowners and businesses.”

Credit unions should make best efforts to obtain a credible estimate of the value of real property collateral before closing the loan, and otherwise underwrite loans consistent with safety and soundness principles. The final rule allows credit unions to extend liquidity to creditworthy households and businesses in light of recent strains on the U.S. economy due to the COVID-19 pandemic.

The rule is similar to a recent final rule issued by the OCC, the Federal Reserve, and the FDIC.

The final real estate appraisal rule is effective upon publication in the Federal Register. Loans made after Dec. 31 are not eligible for the deferment.

Share Insurance Fund Reports $17.7 Billion in Assets in the Second Quarter

The National Credit Union Share Insurance Fund reported a net income of $20.5 million and $17.7 billion in assets for the second quarter of 2020. The fund also reported $72.1 million in total income for the second quarter of 2020.

The equity ratio of the Share Insurance Fund, as of June 30, is 1.22 percent, which is below the Board-approved normal operating level of 1.38 percent. The primary driver for this change was the rapid growth in insured shares, which increased nearly 13 percent from December 2019.

“As the result of extraordinary growth in insured shares during the first and second quarters of 2020, we see from today’s presentation that the equity ratio has seen a significant drop from where it was as of Dec. 31, 2019,” Chairman Hood said. “While we remain above the minimum equity ratio for the Share Insurance Fund, vigilance is needed to manage and monitor this situation.”

As provided by the Federal Credit Union Act, each insured credit union pays to, and maintains with, the Share Insurance Fund a capitalization deposit amount equal to 1 percent of its insured shares. The amounts are based on insured member share deposits outstanding as of Dec. 31 of the preceding year and June 30 of the current year, respectively.

The Share Insurance Fund will receive additional capitalization deposits of approximately $1.5 billion from insured credit unions in October after the NCUA invoices for its semi-annual contributed capital adjustment this month for credit unions with $50 million or more in assets.

Additionally, for the second quarter of 2020:

  • The number of CAMEL codes 4 and 5 credit unions decreased 5.1 percent from the end of the first quarter, to 166 from 175. Assets for these credit unions decreased 1.0 percent from the first quarter, to $10.3 billion from $10.4 billion.
  • The number of CAMEL code 3 credit unions decreased 3.3 percent from the end of the first quarter, to 785 from 812. Assets for these credit unions increased 4.7 percent from the first quarter, to $44.6 billion from $42.6 billion.

In the second quarter of 2020, there was one federally insured credit union failure that caused a loss to the Share Insurance Fund. Total year-to-date losses associated with this failure is $1.6 million.

The second-quarter figures are preliminary and unaudited. Additional information on the performance of the Share Insurance Fund is available online.

Board Approves Exemption from Customer Identification Program

The NCUA Board approved an interagency order granting an exemption from the requirements found in Section 326(a) of the USA PATRIOT Act for loans extended to facilitate the financing of property and casualty insurance policies.

“The customer identification program requirements under the Bank Secrecy Act’s regulations are an important tool to deter or prevent money laundering or terrorist financing,” Hood said. “However, I am pleased that we are able to consider this targeted relief in the form of an exemption order for this class of transaction.”

Premium financing arrangements are typically originated through insurance brokers who arrange short-term financing of property and casualty policies for all customers. Banks, credit unions and other finance companies may provide the financing with the insurance broker as an intermediary.

These types of transactions are typically same-day finance arrangements, and customer identification program requirements can prove a competitive impediment to financial institutions and a burden to offering such financing. In addition, FinCEN has already exempted this type of financing arrangement from customer due diligence and beneficial owner requirements because they concluded that it represents a very low risk of money laundering or terrorist financing.

Credit unions engaging in premium finance lending must continue to comply with all other regulatory requirements, including BSA/AML regulations that require the filing of suspicious activity reports.

The exemption is effective once all of the federal banking agencies approve it. Additional information on this exemption can be found on the NCUA’s website.

The New MERIT Examination System on Schedule for Rollout in 2021

The NCUA Board was briefed on the status of the Enterprise Solution Modernization Program’s first project, known as the Modern Examination and Risk Identification Tool or MERIT. This system will replace the agency’s legacy examination platform that has reached the end of its service life.

“Although this project has been one of the agency’s largest expenditures, the NCUA’s staff, state supervisory authorities, and the credit union industry will certainly benefit from the modernization of our examination software and the establishment of our secured infrastructure that will support future modernization initiatives,” Hood said.

MERIT and its associated systems will provide users the ability to securely transfer documents to an examiner, securely access and download examination reports, and provide status updates on findings. Users can also request due date changes. These capabilities will greatly improve the examination process.

The second release of MERIT was deployed to pilot users in July. However, due to the COVID-19 pandemic, the NCUA postponed the wider rollout. Instead, the agency began an expanded pilot this month with over 100 additional NCUA and state supervisory agency users and 17 credit unions to gain additional feedback.

Despite the delay, the project remains on schedule for a phased roll out starting in 2021. For additional information on MERIT and the NCUA’s Enterprise Solution Modernization program, visit

The NCUA tweets all open Board meetings live. Follow @TheNCUA on Twitter, and access Board Action Memorandums and NCUA rule changes at The NCUA also live streams, archives and posts videos of open Board meetings online.

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