Alert July 23, 2013

CFPB and Federal Agencies Propose Rule on Appraisals for Higher-Priced Mortgage Loans

The CFPB announced that it and five other federal regulators—the FRB, FDIC, FHFA, NCUA, and OCC issued a proposal to amend Regulation Z, the implementing regulation for the Truth in Lending Act, with regard to appraisal requirements for a subset of higher-priced mortgage loans. The proposal seeks to create exemptions from certain appraisal requirements for higher-priced mortgage loans. Under the rule, a creditor that makes a higher-priced mortgage loan must obtain a written appraisal report, prepared by a licensed or certified appraiser, based on a physical inspection of the interior of the property. The rule also requires creditors to provide applicants with a copy of the appraisal at least 3 days prior to the closing date at no charge to the applicant and to provide the applicant with a statement that any appraisal prepared for the mortgage is for the sole use of the creditor and that the applicant may choose to have a separate appraisal conducted at the applicant’s expense. The proposal seeks to exempt three types of higher-priced mortgage loans from these appraisal requirements, which include: (1) loans of $25,000 or less, (2) certain "streamlined" refinancings and (3) certain loans secured by manufactured housing. The agencies seek comment on several areas within the proposal. For example, the agencies seek comment on the valuation practices of private creditors for refinanced loans where the private owner or guarantor remains the same and the loans are not sold to a GSE or insured or guaranteed by a federal government agency, including how often no valuation is obtained. Comments must be received by September 9, 2013.