ALEXANDRIA, Va. — NCUA has added to its guidance for federalcredit unions regarding their use of automated valuation methods todetermine the value of real property for “junior” mortgages. Themove was prompted by “several inquiries” regarding a prior legalopinion letter commenting on AVM.

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

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

In 2005, NCUA and other federal financial regulators issuedjoint guidance for managing credit risks associated with homeequity lending that also contained guidance on collateralvaluation. One of the topics discussed included the due diligencean institution should undertake in evaluating AVM products.