CHICAGO– The nation’s largest professional association of real estate appraisers condemned ‘s action by the National Credit Union Administration, calling the NCUA’s decision to effectively reduce the number of appraisals required for commercial real estate loans irresponsible, radical and dangerous.
“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. “The NCUA’s ill-conceived, damaging decision shows overwhelmingly the need for immediate, rigorous congressional oversight.”
The NCUA Board of Directors quadrupled – from $250,000 to $1 million – the appraisal threshold for nonresidential real estate loans. The appraisal threshold is the loan amount below which appraisals are not required. Increasing the threshold would drastically increase the number of nonresidential real estate loans that would not require an appraisal.
“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.”
The federal banking regulatory agencies – the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Federal Reserve Board – last year approved increasing the commercial appraisal threshold from $250,000 to $500,000. The NCUA’s decision could create a regulatory arms race between the agencies and the NCUA.
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 bank regulatory agencies – despite already determining otherwise – will face pressure to establish a corresponding threshold level to the NCUA’s level.
Additionally, federal legislation signed into law last December 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.”
The NCUA’s action would significantly increase the number of credit union loans not requiring an appraisal – with the proportion exempted rising from 27% to 66%. Last year credit unions made $67 billion in commercial loans in this country.
“It’s clear that the solution is not only increased congressional oversight, but also improvements to the appraisal regulatory structure,” Wagner said. “The Appraisal Institute is working with members of Congress and their staffs to bring about meaningful change that will help prevent this type of outrageously heedless public policy making in the future.”