The Consumer Financial Protection Bureau (CFPB) officially issued both the new ECOA Appraisal Rule and the new Appraisals for High-Risk Mortgages Rule late last week, and is giving the industry a year to prepare and familiarize itself with the new regulations.
ECOA Appraisal Rule:
This new rule will require lenders to inform a consumer of their right to receive a free copy of the subject property’s appraisal report within three business days after they receive a consumer’s mortgage application. Lenders must then provide the free copy of the appraisal report to the loan applicant no later than three days before their loan is set to be closed. The new rule will allow for the three day deadline to be waived—with consent given by the applicant—as long as the applicant receives a free copy of the appraisal report before the loan is closed.
The ECOA Appraisal Rule will help implement requirements under the Dodd-Frank Act, which stipulate that mortgage lenders must give consumers a copy of the subject property’s appraisal report free of charge. However, a lender may generally still charge the consumer a reasonable fee for the cost of conducting the appraisal, and this new rule will only apply to first-lien mortgage applications.
Under the current law, consumers must request a copy of the appraisal report from lenders when they want to see how the estimate was determined, and lenders can charge consumers a fee for obtaining the report.
The ECOA Appraisal Rule will officially take effect on January 18, 2014.
Appraisals for High-Risk Mortgages:
For higher-risk mortgage loans, creditors will be required to use a licensed or certified appraiser who prepares a written report based on a physical inspection of the interior of the property. The recently issued rule will also require creditors to disclose information to applicants regarding the purpose of the appraisal, and they must provide consumers with a free copy of the appraisal report.
The proposed rule also cites that creditors will have to obtain an additional appraisal—at no cost to the consumer—for a home-purchase higher-risk mortgage loan if the seller acquired the property for a lower price than their asking price during the previous six months. This is simply an extra measure to ensure that consumers aren’t being taken advantage of, and that the value of the property has been legitimately increased.
Several types of loans will be exempt from this new rule, and they are as follows: qualified mortgages; temporary bridge loans and construction loans; loans for newly manufactured homes; and loans for mobile homes, trailers, and houseboats.
The Appraisals for High-Risk Mortgages Rule will implement amendments to the Truth and Lending Act, which was enacted by the Dodd-Frank Act back in 2010. As stipulated by Dodd-Frank, mortgage loans are considered higher-risk if they are secured by a consumer’s home and have interest rates above a certain threshold. Under the recently issued rule, those thresholds include first-lien loans with an APR 1.5 percentage points higher than the average prime offer rate, first-lien jumbo loans with an APR 2.5 percentage points higher than APOR, and subordinate-lien loans with APRs that are 3.5 percentage points higher than APOR.
The Appraisals for High-Risk Mortgages Rule will officially take effect on January 18, 2014.