Appraisal Rules for Higher-Price Mortgages Released by Regulators

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

The new rule applies only to appraisals forrn”higher-priced mortgage loans.” rnUnder the Dodd-Frank Act a higher-priced loan is one secured by anrnowner-occupied residence and with an interest rate above the followingrnthresholds:  “If the APRrnexceeds the APOR by 1.5 percent for first-lien conventional or conformingrnloans, 2.5 percent for first-lien jumbo loans, and 3.5rnpercent for subordinate-lien loans.” rnThere are several additional exceptions to the rule which will bernoutlined below.</p

According to arnsummary of the 333 page rule from the Boardrnof Governorsrnof the Federal Reserve,rnthe Consumer Financial Protection Bureau, Federal DepositrnInsurance Corporation, Federal HousingrnFinance Agency,rnNational Credit Union Administrationrnand the Comptroller of the Currency these are its principal features.</p<ul class="unIndentedList"<liCreditorsrnmust use a licensed or certified appraiser who prepares a written appraisalrnreport based on an interior inspection of the property. The credit must disclose information aboutrnthe purpose of the appraisal to the mortgage applicant and provide them with arnfree copy of any appraisal report. Thernconsumer must be provided this report at least three days prior to closing onrnthe loan.
</li<liArnsecond requirement applies where a sale is occurring within six months of itsrnacquisition by the seller and at a higher price. There are two triggering benchmarks for thernrequirement: If the resale is within 90rndays of the seller acquiring the property and the resale price exceeds the acquisitionrnprice by more than 10 percent; or if the resale is within 91 to 180 days ofrnacquisition and the resale price exceeds the seller’s acquisition price by morernthan 20 percent.</li</ul

Under either of these circumstances, creditorsrnwill have to obtain a second appraisal at no cost to the applicant.  This requirement is intended to ensure thatrnproperty values have legitimately increased and that there is no fraudulentrnproperty flipping.</p

The newrnrule exempts severalrntypes of loans, such as qualifiedrnmortgages, temporary bridge loans andrnconstruction loans, loans for newrnmanufactured homes,rnand loans for mobile homes,rntrailers and boatsrnthat are dwellings. The rule alsornhas exemptionsrnfrom the second appraisalrnrequirement to facilitate loansrnin rural areas and otherrntr</p

The six agenciesrnwill also publish a supplemental proposal to request additional comment on possible exemptionsrnfor “streamlined” refinance programs and small dollar loans, as wellrnas to seek clarification onrnwhether the rule should apply tornloans secured by existing manufactured homes andrncertainrnother property types. rnThis is being done in response to earlier public comments.rn</p

Like two other rules released this week which definedrnQualified Mortgages, laid out requirements for determining borrowers’ abilityrnto repay, and established standards for mortgage servicers, the appraisal rulernwill go into effect in January 2014.  

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