Six federal financial regulatory agencies have issued the final rule that establishes new appraisal requirements for "higher-priced mortgage loans." The rule implements amendments to the Truth in Lending Act made by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Under the Dodd-Frank Act, mortgage loans are higher-priced if they are secured by a consumer's home and have interest rates above certain thresholds.
For higher-priced mortgage loans, the rule requires creditors to use a licensed or certified appraiser who prepares a written appraisal report based on a physical visit of the interior of the property. The rule also requires creditors to disclose to applicants information about the purpose of the appraisal and provide consumers with a free copy of any appraisal report.
If the seller acquired the property for a lower price during the prior six months and the price difference exceeds certain thresholds, creditors will have to obtain a second appraisal at no cost to the consumer. This requirement for higher-priced home-purchase mortgage loans is intended to address fraudulent property flipping by seeking to ensure that the value of the property legitimately increased.
“A fair and accurate appraisal is a critical tool for lenders and borrowers alike. The appraisal rules announced today, under both ECOA and TILA, appear to be reasonable, commonsense solutions," said Debra W. Still, CMB, Chairman of the Mortgage Bankers Association (MBA). "These standards will increase transparency for borrowers and give lenders a uniform set of guidelines under which to operate, hopefully without unnecessarily increasing costs or reducing access for borrowers."
The rule exempts several types of loans, such as qualified mortgages, temporary bridge loans and construction loans, loans for new manufactured homes, and loans for mobile homes, trailers and boats that are dwellings. The rule also has exemptions from the second appraisal requirement to facilitate loans in rural areas and other transactions.
The rule is being issued by the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency. The Federal Register notice is attached. The rule will become effective on January 18, 2014.
In response to public comments, the agencies intend to publish a supplemental proposal to request additional comment on possible exemptions for "streamlined" refinance programs and small dollar loans, as well as to seek clarification on whether the rule should apply to loans secured by existing manufactured homes and certain other property types.
“As we go through the fine print of these rules, we may find some questions and concerns," said Still. "We look forward to working with regulators to gain additional clarity and guidance and to ensure the implementation of these standards is consistent with other rules and regulations."