Appraisals: A Tale of Two CFPB Proposals
August 21, 2012
August 21, 2012
The Consumer Financial Protection Bureau (CFPB) has issued two rulemaking proposals regarding appraisals. The first is a requirement to perform appraisals with regards to Higher-Risk Mortgage Loans (HRML). The second is an amendment to Regulation B with regards to providing appraisal reports. Of course, both of the rules come straight out of the Dodd-Frank Act.
The first proposed rule was a joint proposal issued by six federal financial regulatory agencies, including the National Credit Union Administration (NCUA). The rule establishes the requirements for performing appraisals for HRMLs.
An HRML is very similar by definition to a Higher-Priced Mortgage Loan (HPML), in that it:
- Exceeds the average prime offer for a comparable transaction by 1.5 or more percentage points for a first lien transaction that does not exceed the maximum principal obligation eligible for purchase by Freddie Mac;
- Exceeds the average prime offer for a comparable transaction by 2.5 or more percentage points for a first lien transaction that does exceed the maximum principal obligation eligible for purchase by Freddie Mac; or
- Exceeds the average prime offer for a comparable transaction by 3.5 or more percentage points for a subordinate lien transaction.
But there are some exemptions to HRMLs that HPMLs do not enjoy:
- A qualified mortgage;
- Reverse mortgages;
- A loan secured solely by a residential structure. This means loans on recreational vehicles, boats or manufactured homes that do not extend a lien to the real property are not subject to the HRML appraisal requirements.
The HRML proposal requires credit unions to have licensed or certified appraisers complete written appraisals that include the physical inspection of the interior before extending credit on a HRML loan.
In addition, for a home flip (if the seller acquired the property for a lower price during the past six months), credit unions must have a second appraisal performed. The second appraisal would be at no cost to the borrower.
And finally, credit unions must provide the borrower with a written disclosure statement about the member’s right to receive one free copy of any written appraisal performed in connection with an HRML.
The second proposed rule will make changes to the Equal Credit Opportunity Act (ECOA) appraisal requirements set forth in Regulation B.
In general, the proposed revisions to Regulation B would require creditors to provide free copies of all written appraisals and valuations developed in connection with an application for a loan to be secured by a first lien on a dwelling. The proposal would also require creditors to notify applicants in writing of the right to receive a copy of each written appraisal or valuation at no additional cost.
One of the bigger changes proposed by the CFPB is the removal of the current exemption federal credit unions have regarding providing appraisal reports set forth by Regulation B. Federal credit unions currently follow the requirements set forth by the NCUA regarding providing members with copies of appraisals.
Questions? Contact the Compliance Hotline: 1.800.546.4465, firstname.lastname@example.org.