Appraisal Rules for Higher-Price Mortgages Released by Regulators


Eighteen months after the Dodd-Frank Wall Street Reform
and Consumer Protection Act was passed, the rules shaping its implementation
have begun to rain down from the designated regulators. For the third time this
a week a new rule affecting the mortgage industry has been released, this time
one promulgated by six federal agencies to govern certain appraisals. 

The new rule applies only to appraisals for
“higher-priced mortgage loans.”
Under the Dodd-Frank Act a higher-priced loan is one secured by an
owner-occupied residence and with an interest rate above the following
thresholds:  “If the APR
exceeds the APOR by 1.5 percent for first-lien conventional or conforming
loans, 2.5 percent for first-lien jumbo loans, and 3.5
percent for subordinate-lien loans.” 
There are several additional exceptions to the rule which will be
outlined below.

According to a
summary of the 333 page rule from the Board
of Governors
of the Federal Reserve,
the Consumer Financial Protection Bureau, Federal Deposit
Insurance Corporation, Federal Housing
Finance Agency,
National Credit Union Administration
and the Comptroller of the Currency these are its principal features.

  • Creditors
    must use a licensed or certified appraiser who prepares a written appraisal
    report based on an interior inspection of the property. The credit must disclose information about
    the purpose of the appraisal to the mortgage applicant and provide them with a
    free copy of any appraisal report. The
    consumer must be provided this report at least three days prior to closing on
    the loan.
  • A
    second requirement applies where a sale is occurring within six months of its
    acquisition by the seller and at a higher price. There are two triggering benchmarks for the
    requirement: If the resale is within 90
    days of the seller acquiring the property and the resale price exceeds the acquisition
    price by more than 10 percent; or if the resale is within 91 to 180 days of
    acquisition and the resale price exceeds the seller’s acquisition price by more
    than 20 percent.

Under either of these circumstances, creditors
will have to obtain a second appraisal at no cost to the applicant.  This requirement is intended to ensure that
property values have legitimately increased and that there is no fraudulent
property flipping.

The new
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

The six agencies
will also 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
other property types. 
This is being done in response to earlier public comments.

Like two other rules released this week which defined
Qualified Mortgages, laid out requirements for determining borrowers’ ability
to repay, and established standards for mortgage servicers, the appraisal rule
will go into effect in January 2014.  

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