On August 15, the Federal Reserve Board, the OCC, the FDIC, the NCUA, the FHFA, and the CFPB proposed new appraisal requirements for certain “higher-risk loans.” The new requirements apply to loans for which the APR exceeds the average market rate by 1.5 percent for first-lien loans, 2.5 percent for first-lien jumbo loans, and 3.5 percent for subordinate-lien loans. The proposal exempts loans that are considered “qualified mortgages” as defined under a separate CFPB rulemaking to implement TILA section 129C, as well as reverse mortgages and loans secured by manufactured homes. The rule would implement amendments to TILA under the Dodd-Frank Act that require creditors to meet certain appraisal conditions before making a higher-risk loan. A creditor would have to obtain a written appraisal from a certified or licensed appraiser that is based on a physical property visit of the interior of the property. At application, the creditor would have to issue a disclosure stating the purpose of the appraisal, that the creditor will provide the applicant a copy of any written appraisal, and that the applicant may choose to have a separate appraisal conducted at his or her own expense. The creditor also would have to provide the borrower with a free copy of any written appraisals at least three business days before closing. Additional appraisal requirements would apply under certain circumstances.
Concurrently, the CFPB proposed a rule to implement a Dodd-Frank Act provision that adds similar appraisal requirements to ECOA. According to the proposal, for any loan to be secured by a first lien on a dwelling, a creditor would have to (i) notify applicants within three business days of receiving an application of their right to receive a free copy of written appraisals and valuations and (ii) provide applicants a free copy of all written appraisals and valuations promptly after receiving them, but in no case later than three business days prior to closing on the mortgage. The proposed rule prohibits creditors from charging additional fees for providing a copy of written appraisals and valuations. Applicants would be permitted to waive the three day requirement, provided a copy of all written appraisals and valuations is provided at or prior to closing. Together, the revisions to TILA and ECOA, as implemented by the proposed rules, would require creditors to provide two appraisal disclosures to consumers applying for a higher-risk loan secured by a first lien on a borrower’s principal dwelling. Comments on both rules are due by October 15, 2012.