CHICAGO–The Appraisal Institute has “vigorously condemned” the NCUA board’s vote to increase the threshold at which a real estate appraisal is needed, while the American Bankers Association also criticized the move.
The trade group for appraisers, whose members will potentially see less business as a result of the vote, called the agency’s decision “irresponsible, radical and dangerous” in a statement.
"This is an outlandish scenario for anyone who cares about the safety and soundness of the nation's commercial real estate lending system, and it could recreate conditions that led to the financial crisis of the late 2000s," said Appraisal Institute President Stephen S. Wagner in the statement. “The NCUA's ill-conceived, damaging decision shows overwhelmingly the need for immediate, rigorous congressional oversight."
As CUToday.info reported here, NCUA voted to raise to $1 million from $250,000 the appraisal threshold for nonresidential real estate loans.
"This decision – based entirely on providing regulatory relief – completely ignores the fact that the United States suffered through a financial crisis less than a decade ago," Wagner said. "If anything, current market conditions beg for heightened due diligence by regulated institutions — not a loosening of a fundamental risk management activity."
‘A Regulatory Arms Race’
The Appraisal Institute noted other regulators, including the FDIC, the Federal Reserve and the Comptroller of the Currency, last year approved increasing the commercial appraisal threshold from $250,000 to $500,000. According to the Institute, the NCUA's decision “could create a regulatory arms race between the agencies and the NCUA,” a point that was also touched upon by NCUA Board Member Todd Harper, who voted against the increase.
“The NCUA – the agency with the least direct experience in overseeing business and commercial real estate lending – effectively could be driving the appraisal policies for the entire financial regulatory system,” the Appraisal Institute stated. “The bank regulatory agencies – despite already determining otherwise – will face pressure to establish a corresponding threshold level to the NCUA's level.”
‘Chilling’
The Appraisal Institute also pointed to federal legislation signed into law in December 2018 that links commercial appraisal threshold levels for two of the Small Business Administration's most popular loan programs to those established by the federal banking regulatory agencies.
"The potential domino effect is chilling," Wagner said. "Everyone involved in this country's commercial real estate industry should be incensed at the NCUA's reckless decision, which potentially places the nation's economy at significant risk."
NCUA staff said during the board meeting the new threshold will increase the number of credit union loans not requiring an appraisal to 66% from 27%.
Meanwhile, the American Bankers Association also issued a statement critical of the NCUA decision.
“As today’s debate from the divided NCUA board showed, the NCUA continues to push the envelope for the credit union industry without any reasonable justification,” said ABA Chief Counsel Ken Clayton in a statement. “This rule is just one more reason why lawmakers need to take a hard look at NCUA for failing to exercise its congressionally mandated oversight of the credit union industry.”