A couple months ago, the Consumer Financial Protection Bureau (CFPB) released a second update of its exam procedures in connection with the new mortgage rules that were issued in January of 2013 to help financial institutions and mortgage companies plan for the impending regulatory examinations that are set to begin once the new rules officially become
effective in January of 2014.
Within this update, the CFPB included a compliance guide on the new High-Priced Mortgage Loans Appraisal Rule so those affected by its eventual implementation could learn more about it in a plain language and FAQ type format. This new regulation is scheduled to take effect on January 18, 2014, and those that haven’t yet reviewed its compliance guide are strongly encouraged to do so.
High-Priced Loan Appraisal Requirement Overview:
This new regulation requires creditors to use a licensed or certified appraiser to prepare a written appraisal report based on the physical inspection of the interior of the property, in which the appraiser must physically visit the interior of the property. A creditor may obtain a safe harbor for compliance by:
- Ensuring that the appraisal is being completed in conformity with USPAP
- Verifying that the appraiser is licensed or certified through the National Registry
- Confirming that the written appraisal contains the elements listed in Appendix N of Regulation Z.
Creditors are also required to obtain a second written appraisal before extending a higher-priced mortgage loan when the following situations occur:
- The dwelling that is securing the higher-priced mortgage loan was acquired by the seller 90 or fewer days prior to the agreement to purchase the property, and the price of the property has increased by more than 10 percent.
- The dwelling was acquired by the seller between 91 and 180 days prior to the purchase agreement, and the price of the property has increased by more than 20 percent.
When a second written appraisal is required, a creditor is not allowed to use the same appraiser that conducted the first written appraisal, and can only charge for one of the two appraisals. The second written appraisal must contain the following:
- An analysis of the difference between the price at which the seller obtained the property and the price at which the consumer agreed to pay to acquire the property.
- An analysis of changes in market conditions between the date the seller obtained the property and the date the consumer agreed to buy the property.
- A review of the improvements that were made to the property between the date the seller obtained the property and the date the consumer agreed to buy the property.
Additionally, creditors must inform consumers within three business days after receiving their applications that they are entitled to a free copy of any appraisal report that’s ordered, and must deliver said appraisal reports within three business days before consummation.
For more information about this new rule and to see its exemptions, please view the CFPB’s High-Priced Mortgage Loans Appraisal Rule Guidance.