ALEXANDRIA, Va. — NCUA has added to its guidance for federal credit unions regarding their use of automated valuation methods to determine the value of real property for “junior” mortgages. The move was prompted by “several inquiries” regarding a prior legal opinion letter commenting on AVM.

AVM may be used to meet the valuation requirement in conjunction with review by a loan officer or an individual with knowledge, training, and experience in the real estate market where the loan is being made, the NCUA's new letter informs.

“NCUA's appraisal rule exempts certain transactions from the requirement of a formal appraisal but requires a 'written estimate of market value' for transactions with a value of $250,000 or less and transactions involving an existing extension of credit. The appraisal rule requires the written estimate of market value be 'performed by an individual' with no interest 'in the property' and who is 'qualified and experienced to perform such estimates of value for the type and amount of credit being considered,'” wrote Sheila Albin, associate general counsel for NCUA.

In 2005, NCUA and other federal financial regulators issued joint guidance for managing credit risks associated with home equity lending that also contained guidance on collateral valuation. One of the topics discussed included the due diligence an institution should undertake in evaluating AVM products.