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ALEXANDRIA, Va. – The NCUA has issued a Letter to Credit Unions it developed together with the other Federal Financial Examination Council (FFIEC) member agencies that provides credit unions with frequently asked questions on Residential Tract Development Lending. In addition to NCUA, the member agencies include the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and the Office of Thrift Supervision. The FAQs, the NCUA’s Letter No.: 05-CU-12 states, “assists credit unions in complying with NCUA’s real estate lending requirements for financing residential construction in a tract development.” The letter defines residential tract development as “a project of five or more units that are constructed as a single development.” Key topics addressed in the FAQ are: appraisal requirements; common underwriting characteristics; and calculations and limits for long-to-value ratios. “Institutions employ a variety of credit structures for financing a residential tract development. When the agencies adopted their appraisal and real estate lending regulations in the early 1990s, it was common practice for institutions to provide a developer with a credit facility to fund an entire tract development project or subdivision,” the letter reads. It continues to state that: “Recognizing changes in lending practices, the attached FAQs provide clarification on the agencies’ appraisal and real estate lending requirements for financing residential construction in a tract development. The FAQs address how institutions determine collateral value and calculate the loan-to-value ratio for these credits. Institutions should review these FAQs in conjunction with the agencies’ real estate appraisal and lending regulations and guidelines, including the Interagency Guidelines for Real Estate Lending Policies and the Interagency Appraisal and Evaluation Guidelines,” the NCUA’s Letter to Credit Unions reads. The FAQs include 13 questions: 1. What is a residential tract development? 2. What are the appraisal requirements when an institution finances residential tract developments? 3. What are the appraisal requirements when an institution finances raw land, lot development or lot acquisition as part of a residential tract development? 4. What are the supervisory LTV limits for residential tract developments? 5. When should institutions calculate the LTV ratio for residential tract development loans? 6. What is the loan amount to be used to calculate the LTV ratio for residential tract development loans? 7. How should institutions determine the loan amount to calculate the LTV ratio for a loan to finance a phase of a multi-phase tract development? 8. What collateral value is used to calculate an LTV ratio for a residential tract development loan? 9. How can an appraisal of a model(s) home be used to establish a market value for calculating the LTV ratio? 10. What are some common underwriting characteristics of revolving lines of credit in which a borrowing base sets the availability of funds? 11. Are there instances when an appraisal that reflects deductions and discounts is not necessary for financing construction of single-family homes in a residential tract development? 12. What are the appraisal requirements when an institution finances construction of a condominium building(s)? 13. For revolving lines of credit in which a borrowing base sets the availability of funds, what loan amount and collateral value should be used to determine the LTV ratio? The Letter to Credit Unions, No. 05-CU-12 can be read in its entirety on the NCUA’s Web site, www.ncua.gov under Letters to Credit Unions. -

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