Alert August 21, 2012

CFPB and Federal Banking Agencies Propose Rule on Appraisals

The federal banking agencies announced the release of a proposed rule that would amend Regulation Z to establish appraisal requirements for higher-risk mortgage loans. As proposed, the rule requires a creditor that makes a higher-risk mortgage loan to obtain a written appraisal report, prepared by a licensed or certified appraiser, based on a physical inspection of the interior of the property. The proposal would also require a creditor to obtain an additional appraisal, at no charge to the consumer, when the seller seeks to resells the property, within 180 days after purchasing or acquiring the property,  at a price lower than the original purchase price.  The proposal requires a creditor to provide copies of appraisal reports to an applicant at least three business days prior to consummation and to make a mandatory disclosure to an applicant within three business days of receipt of an application.

The proposal provides two alternatives for determining when a loan is a “higher-risk mortgage loan.” Both alternatives define a higher-risk mortgage loan as a closed-end consumer credit transaction with a rate exceeding the prime offer rate for comparable transactions by a specified percentage, which varies depending on whether the loan is a conforming loan, a jumbo loan, or secured by a subordinate lien. Qualified mortgages, transactions secured solely by a residential structure, such as certain manufactured housing transactions, and reverse mortgage transactions would be excluded from the appraisal requirements. The comment period for the proposal ends October 15, 2012.

The CFPB also released a proposal to amend Regulation B to implement the changes made to the Equal Credit Opportunity Act by the Dodd-Frank Act. Specifically, the proposal would amend the requirement to provide copies of written appraisal reports to applicants upon request by requiring creditors to promptly provide applicants with copies of all written appraisal reports and valuations developed in connection with loans secured by first liens on dwellings, including manufactured homes and other residential structures not attached to real property. The proposal would require that a copy be provided at least three business days prior to consummation. While the three business day delivery requirement could be waived by the applicant, the applicant must receive a copy at or before consummation. In addition, the proposal would prohibit a creditor from charging applicants for a copy of the appraisal or valuation; however, creditors could still charge a reasonable fee for the expense of the appraisal or valuation. Finally, the proposal would require creditors to notify applicants of their right to receive a copy of all written appraisals and valuations within three business days of receipt of an application.

The comment period for this proposal ends October 15, 2012. The CFPB released a summary of this proposal. The federal banking agencies also released a summary.