CFPB and Agencies Issue Final Rule on Appraisals for HPMLs
by: Anna DeSimone
Six federal financial regulatory agencies issued a final rule that establishes new appraisal requirements for “higher-priced mortgage loans.” 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 rule will become effective on January 18, 2014. The rule implements the Dodd-Frank amendments to the Truth in Lending Act which establishes mortgage loans as 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 inspection 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.
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 only applies to closed-end credit transactions.
SUMMARY OF THE RULE
Consistent with the Dodd-Frank Act, the rule allows a creditor to extend an HPML only if the following conditions are met unless an exemption applies:
- The creditor obtains a written appraisal;
- The appraisal is performed by a certified or licensed appraiser; and
- The appraiser conducts a physical property visit of the interior of the property.
The rule also requires the creditors take the following steps during the application process for an HPML that is covered by the rule:
- At application, the applicant must be provided with the notice included in the rule regarding the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, that the creditor may charge the applicant for the appraisal, and that the applicant may choose to have a separate appraisal conducted at the expense of the applicant; and
- The creditor must provide the consumer with a free copy of any written appraisals obtained for the transaction at least three business days before consummation.
In addition, as required by the Dodd-Frank Act, the rule requires a HPML mortgage loan creditor to obtain a second written appraisal based on an interior inspection of the property, at no cost to the borrower, in connection with certain “flipped” properties. Subject to certain exemptions, the second appraisal would be required where:
- The seller acquired the home within 180 days prior to the date of the consumer’s purchase agreement; and
- The consumer is acquiring the home for a price that exceeds the seller’s acquisition price by 10% (if the seller acquired the property within the past 90 days) or 20% (if the seller acquired the property between 91 and 180 days earlier).
The Dodd-Frank Act specifically exempts qualified mortgages and certain reverse mortgages from these rules. In addition to exempting these loans, the rule also exempts:
- All reverse mortgages;
- Loans for initial construction of a dwelling;
- Temporary bridge loans (for 12 months or less);
- Loans secured by a new manufactured homes; and
- Transactions secured by a mobile home, boat, or trailer.
About the Author:
Anna is President and Founder of Bankers Advisory, Inc. She can be reached at anna@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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