[author: Richard J. Andreano, Jr.,]

The CFPB has issued two new proposals dealing with mortgage appraisals that implement provisions of the Dodd-Frank Act. One of the proposals would amend Regulation B (Equal Credit Opportunity Act) to require lenders to provide to a first lien mortgage applicant a copy of all written appraisals and valuations developed in connection the application. The lender would have to notify an applicant within three business days of receiving an application that the applicant has a right to receive the copy and provide the copy promptly after receiving the appraisal or valuation, which in no event can be later than three days before mortgage consummation. Lenders could charge for costs of the appraisal or valuation itself but not for photocopying, postage or other costs associated with providing one written copy to an applicant.

The other proposal, which the CFPB issued jointly with the OCC, the Fed, the FDIC and the NCUA, would amend Regulation Z (Truth in Lending) to require appraisals for “higher-risk mortgages.” “Higher-risk mortgages” is a new category of mortgage loans that the Dodd-Frank Act added to TILA  and which is similar to the already-existing “higher-priced mortgages” category in Regulation Z.  

“Higher-risk mortgages” are defined as residential mortgage loans secured by a principal dwelling with an APR that exceed certain thresholds tied to whether the loan is secured by a first or subordinate lien and, if secured by a first lien, the loan’s principal amount. Under the proposal, an appraisal for a higher-risk mortgage would have to satisfy various conditions, including that it be performed by a certified or licensed appraiser and that a physical visit of the property’s interior be conducted by the appraiser. It would also require a second written appraisal under certain circumstances. 

As a practical matter, the joint proposal is likely to have a limited impact given that both TILA and the proposal exclude “qualified mortgages” from the definition of “higher-risk mortgages.” “Qualified mortgages” receive special status under the Dodd-Frank Act’s ability to repay provisions. How the CFPB should define “qualified mortgages” in its proposal to implement those provisions has been the subject of considerable debate since, as even CFPB Director Cordray has acknowledged, most residential mortgage lending will likely be limited to qualified mortgages for at least several years after the CFPB’s rule is adopted.  

Comments on both proposals are due by October 15.