Alert January 22, 2013

CFPB Finalizes TILA and ECOA Appraisal Rules

The CFPB announced that it and five other prudential regulators, the OCC, FHA, FRB, FDIC, and NCUA, finalized amendments to Regulation Z, the Truth in Lending Act’s implementing regulation, with regard to appraisals requirements for higher-priced mortgages (see August 21, 2012 Alert). The final rule narrows the definition of a higher-priced mortgage loan to only focus on the annual percentage rate, in contrast to the proposal which provided two alternative definitions focused on APR and the transaction cost.  Under the final rule, a higher-priced mortgage loan is defined as a closed-end consumer credit transaction secured by a principal dwelling with an APR that exceeds the average prime rate for a comparable transaction as of the date the interest is set by certain percentage points depending on the type of mortgage loan. Also, different than the proposed rule, the CFPB has presented more guidance to the requirement for an additional appraisal. Under the proposed rule, an additional appraisal was required if the seller sought to resell the property within 180 days of purchase or acquisition. The final rule provides that an additional appraisal is required where either (1) the seller acquires the property within 90 or less days and the price in the consumer agreement exceeds the seller’s acquisition price by 11% or more; or (2) the seller acquires the property within 91 to 180 days and the consumer’s purchase price exceeds the seller’s price by 21% or more. This requirement for an additional appraisal is intended to “effectuate the statute’s policy of requiring creditors to apply greater scrutiny to potentially flipped properties.” The CFPB also released a detailed summary and summary for consumers on the rule on appraisals for higher-priced mortgages. The rule is effective January 18, 2014.