Mortgage lenders originating loans that are considered to be higher-priced mortgages will be subject to a final rule on appraisals.
In August 2012, federal regulators proposed new appraisal requirements for higher-priced mortgages. The changes are required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Owner-occupied, closed-end first liens that don’t exceed Freddie Mac’s loan limit are considered higher-risk if the interest rate is 150 basis points higher than the average prime offer rate. On loans that do exceed the loan limit, the threshold is 250 BPS over the average rate.
The threshold is 3.5 percent on subordinate liens.
During the comment period, more than 200 comment letters were received from all types of entities involved in the mortgage process including lenders and appraisers.
On Tuesday, a final rule was jointly issued by the Consumer Financial Protection Agency, Federal Housing Finance Agency, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Board of Governors of the Federal Reserve System and National Credit Union Administration.
The final rule becomes effective on Jan. 18, 2014.
The rule amends Regulation Z, which implements the Truth in Lending Act.
It requires lenders to obtain a written appraisal performed by a certified or licensed appraiser. An on-site visit by the appraiser is necessary.
If the property is being purchased for more than it has been sold for during the prior 180 days, then a second appraisal is required. An analysis of why the price is higher must be included in the new report.
Prospective borrowers need to be advised that the appraisal is for the sole us of the creditor and that they can choose to pay for their own appraisal report. Still, loan applicants need to receive a copy of each appraisal conducted at least three days prior to closing.
Qualified mortgages are exempted from the new rule. Also exempt are mobile and manufactured homes, construction financing, bridge loans with maturities of 12 months or less, and reverse mortgages.
“Based on public comments, the agencies intend to publish a supplemental proposal to request comment on possible exemptions for ‘streamlined’ refinance programs and small dollar loans, as well as to seek comment on whether application of the HPML appraisal rule to loans secured by certain other property types, such as existing manufactured homes, is appropriate,” the notice stated.
